Problem:
For this question, you are provided with basic financial information about a fictional company and are asked to prepare three financial statements for the company. You are then required to discuss the financial health and position of the organization.
Below, you will find two important documents: the opening statement of financial position and a provisional trial balance for the fictional company.
Remember that the trial balance has been prepared at the end of the year, but note that the retained earnings and inventories balances included are still those figures relating to the start of that year.
Additional information:
An inventory count established that the value of closing inventories on 31 December 2009 was £6,000.
All of the dividends declared during 2009 (and charged as an expense) were paid in that same year, as was the interest expensed for 2009.
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Statement of financial position as at 31 December 2008
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£
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£
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Non-current assets
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Land
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10,000
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Buildings
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15,000
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Less: Accumulated depreciation
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(8,000)
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7,000
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Investments
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12,000
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29,000
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Current assets
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Inventories
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4,000
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Accounts receivables
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5,000
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Cash and cash equivalents
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68,000
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77,000
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Current liabilities
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Accounts payable
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25,000
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Tax payable
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5,000
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30,000
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Net current assets
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47,000
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Total assets less current liabilities
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76,000
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Equity
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Common stock
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50,000
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Retained earnings
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26,000
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76,000
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Trial Balance: 31 December 2009
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£
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£
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Accounts
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Debit
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Credit
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Cash and cash equivalents
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57,000
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Sales revenues
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95,000
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Purchases
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22,000
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Long-term investment
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15,000
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Accounts payable
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19,000
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Opening inventory (01.01.09)
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4,000
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Land
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10,000
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Buildings
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18,000
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Accumulated depreciation
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9,000
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Accounts receivable
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10,000
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Depreciation expense
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1,000
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Utilities expense
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20,000
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Tax expense
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3,000
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Interest expense
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1,000
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Tax payable
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2,000
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Wages expense
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40,000
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Common stock
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50,000
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Retained earnings at start of year (01.01.09)
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26,000
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Totals
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201,000
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201,000
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Required:
1. Using the above information, prepare an income statement for the company for the year to 31 December 2009.
2. Prepare a statement of financial position for the company as at 31 December 2009.
3. Prepare a cash flow statement for the company for the year to 31 December 2009, using the indirect method and in accordance with IAS 7.
4. Discuss what inferences can be drawn from the above three statements in relation to the company's financial position.
Summary of problem:
This question belongs to Finance as well as it discusses about the preparation of required financial statements such as income statement, balance sheet and cash flow statement and the inferences that can be drawn from the statements.