XNM Bhd prepared its profit & loss statement and financial position statement as at December 31, 2020 as follows; XNM Bhd Statement of Financial Position As at 31 December 2020 2020 2019 ASSETS RM RM Property, plant and equipment (PPE) 154,000 130,000 Accumulated depreciation – (PPE) (35,000) (25,000) Cash 6,000 9,000 Accounts receivable 62,000 49,000 Short-term investments (Available for sale) 35,000 18,000 Inventories 40,000 60,000 Prepaid rent 5,000 4,000 Copy right 46,000 50,000 Total assets 313,000 295,000 EQUITY AND LIABILITIES Ordinary shares 130,000 130,000 Retained earnings 57,000 36,000 Note payable 8,000 10,000 Long-term loans 60,000 67,000 Interest payable 46,000 42,000 Salaries payable 8,000 4,000 Income tax payable 4,000 6,000 Total liabilities and equity 313,000 295,000 XNM Bhd Statement of Profit or Loss and Other Comprehensive Income For the year ended 31 December 2020 RM RM Sales 338,150 Cost of goods sold 175,000 Gross Profit 163150 Operating expenses 120,000 Operating income 43150 Interest expense 11,400 Gain on sale of equipment 2,000 9,400 Income before tax 33,750 Income tax expense 6,750 Net income 27,000 Additional information: An amount of RM 6,000 as dividends were declared and paid during 2020. Operating expenses include the depreciation expense and amortization expense. During the year 2020, there is no unrealized gains or losses have occurred on the investments. During 2020, an equipment that had a cost of RM 30,000 and depreciated 70%, was sold. REQUIRD: Prepare a statement of cash flows using the direct method. b. Prepare a statement of cash flows using the indirect method.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
XNM Bhd prepared its profit & loss statement and financial position statement as at December 31, 2020 as follows;
|
XNM Bhd As at 31 December 2020 |
||
|
|
2020 |
2019 |
|
ASSETS |
RM |
RM |
|
Property, plant and equipment (PPE) |
154,000 |
130,000 |
|
|
(35,000) |
(25,000) |
|
Cash |
6,000 |
9,000 |
|
Accounts receivable |
62,000 |
49,000 |
|
Short-term investments (Available for sale) |
35,000 |
18,000 |
|
Inventories |
40,000 |
60,000 |
|
Prepaid rent |
5,000 |
4,000 |
|
Copy right |
46,000 |
50,000 |
|
Total assets |
313,000 |
295,000 |
|
EQUITY AND LIABILITIES |
|
|
|
Ordinary shares |
130,000 |
130,000 |
|
|
57,000 |
36,000 |
|
Note payable |
8,000 |
10,000 |
|
Long-term loans |
60,000 |
67,000 |
|
Interest payable |
46,000 |
42,000 |
|
Salaries payable |
8,000 |
4,000 |
|
Income tax payable |
4,000 |
6,000 |
|
Total liabilities and equity |
313,000 |
295,000 |
XNM Bhd
Statement of Profit or Loss and Other Comprehensive Income For the year ended 31 December 2020
|
|
RM |
RM |
|
Sales |
|
338,150 |
|
Cost of goods sold |
175,000 |
|
|
Gross Profit |
|
163150 |
|
Operating expenses |
120,000 |
|
|
Operating income |
|
43150 |
|
Interest expense |
11,400 |
|
|
Gain on sale of equipment |
2,000 |
9,400 |
|
Income before tax |
|
33,750 |
|
Income tax expense |
6,750 |
|
Net income |
27,000 |
Additional information:
- An amount of RM 6,000 as dividends were declared and paid during 2020.
- Operating expenses include the depreciation expense and amortization expense.
- During the year 2020, there is no unrealized gains or losses have occurred on the investments.
- During 2020, an equipment that had a cost of RM 30,000 and
depreciated 70%, was sold.
REQUIRD:
- Prepare a statement of
cash flows using the direct method.
b. Prepare a statement of cash flows using the indirect method.
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