Question
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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