Prepare the following extracts form the statement of cash flows for Baller co for the year ended 31 December 2018: a Cash flows form investing activities and Cash flows from financing activities.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
The following is an extract from the
|
|
$000 |
$000 |
|
Revenue |
- |
13,000 |
|
Cost of Sales |
2,000 |
- |
|
Administrative expenses |
7,800 |
- |
|
Distribution costs |
5,000 |
- |
|
Income Tax (note 3) |
300 |
- |
|
|
- |
5,000 |
|
Provision at 1 January 2018 (note 2) |
- |
3,000 |
|
|
- |
18,000 |
|
Equity share capital ($1) at 1 January 2018 |
- |
30,000 |
|
Intangible assets (note 6) |
1,400 |
- |
|
Investments property (note 5) |
9,000 |
- |
|
Finance costs |
250 |
- |
|
Investment Income |
- |
300 |
|
Suspense Account |
- |
10,000 |
The following information is relevant:
- Baller co noted there was an error in the inventory count at 31 December 2017, meaning that the closing inventory balance in the 2017 financial statements was overstated by $0.2m. No entries have yet been made to correct this error.
- The provision relates to a court case in existence since December 2017. Baller co settled this case on 31 December 2018 for $5m. The full amount was credited correctly to cash, with a corresponding debit entry being made in the suspense account.
- The income tax figure in the trial balance relates to the under/over provision from the previous year. The current year tax is estimated to be a tax refund of $1m. In addition to this, the deferred tax liability at 31 December 2018 is estimated to be $5.6m.
- On 31 September 2018, Baller co made a 1 for 5 rights issue. The exercise price was $3 per share. The proceeds were correctly accounted for in cash, with a corresponding credit entry being made in the suspense account.
- Baller co acquired an investment property for $10m cash on 1 January 2018 and decided to use the fair value model to account for investment properties. As the property is expected to have a 10 year useful life, depreciation was recorded on this basis. The fair value at 31 December 2018 has been assessed at $11m but no accounting has taken place in relation to this. All depreciation and amortisation is charged on a pro-rata basis to administrative expenses. There were no other acquisitions or disposals of non-current assets.
- Baller co incurred a number of expenses in relation to brands during the year and has capitalised the following costs as intangible assets:
- $0.4m cash was paid on 1 April 2018 to promote one of its major brands which is deemed to have an indefinite life.
- $1m cash was paid on 1 October 2018 to acquire a brand from one of its competitors. Baller co expect the brand to have a useful life of five years. Baller co intends to sell it after five years. At the point of sale, it is estimated that the value of the brand will have increased and so no amortisation has been accounted for in the current year.
- Baller co paid a dividend of $0.02 per share on all existing shares 31 December 2018, recording the dividend paid in administrative expenses.
Required:
- Prepare the following extracts form the statement of
cash flows for Baller co for the year ended 31 December 2018: a Cash flows form investing activities and Cash flows from financing activities.
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