Question 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?