problem 1) Part A

ABC Ltd finds that its opening bank balance of Rs.180, 000 as on April 1 has been converted into an overdraft of Rs.75, 000 by the end of the year. The following information is given below:

Particulars                                           Year beginning        Year end
Fixed assets                                             750,000            1,120,000
Stock in trade                                           190,000              330,000
Sundry Debtors                                        380,000               335,000
Trade Creditors                                         270,000               350,000
Share Capital                                            250,000               300,000
Share premium                                           -                         25,000
Bills receivable                                         87,500                   95,000

Additional information:

i) The profit before depreciation and Income tax was Rs 240,000.

ii) During the Year, Income Tax to the extent of Rs 137,500 was paid.

iii) Dividend paid were final on the Capital as on April 1 at 10 % and interim at 5% on the year end Capital.

Required:

1. Prepare a Cash Flow Statement to show how the opening bank balance of Rs 180,000 has been converted into an Overdraft of Rs.75, 000 at the end of the year.

2. Why is a Cash flow Statement considered an essential component of the primary financial statements and what information is it intended to convey?

Part B

Depreciation has been described as the measure of the wearing out, consumption or other reduction in the useful economic life of a fixed asset.

(a) Give three causes of depreciation, and for each give the type of fixed asset for which that cause is suitable.

(b) What factors must be taken into account when determining amount of depreciation and its allocation between various accounting periods?