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Below are the position statements of Kams business, who operates as a sole trader. The statements relate to year ending 31st of May 2019 and

Below are the position statements of Kams business, who operates as a sole trader. The

statements relate to year ending 31st of May 2019 and 31st of May 2020:

2019

2020

Non-Current Assets

Fixtures and Fittings (note 1)

21,600

30,600

Current Assets

Inventory (stock)

49,500

81,00

Receivables (debtors)

6,750

13,950

Bank

7,650

Total Assets

85,500

125,550

Current Liabilities

Payables (creditors)

22,500

24,750

Bank Overdraft

19,800

Non-Current Liabilities

Long term Loans

Equity

Capital

45,000

63,000

Profit

78,750

99,000

Less Drawings

60,750

81,000

63,000

81,000

Total Liabilities and Equity

85,500

125,550

Note 1

2019

2,020

Fixtures and Fittings

Cost

27,000

45,000

Less Accumulated Depreciation

5,400

14,400

Net Book Value

21,600

30,600

Additional Notes:

Interest charged and paid during the year ending 31st May 2020 was 2,050.

There were additions of assets within the year ended 31st May 2020 paid in cash.

There were no disposals of assets during the year ended 31st May 2020.

(a) Prepare a bank reconciliation statement for 2020: Show the cash balance at the start of the year, cash

movement in the year and resulting cash balance at the end of the year.

(b) Given that there was a decrease in cash, prepare a statement of cash flows (in line with IAS 7) for

year ending 31st May 2020 proving the decrease. Use the indirect approach when deriving net cash flow

from operating activities.

(c) Briefly discuss why the business started the year with money in the bank account but ended it with an

overdraft.

(d) Explain the difference between profit and cash flows using examples from the statement of cash flows

you have prepared above.

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