EXERCISE 10.3 You are the accountant of Eastern Cape Manufacturers, and have just prepared the following Statement of Financial Position of the business at 28 February 2011: EASTERN CAPE MANUFACTURERS STATEMENT OF FINANCIAL POSITION AT 28 FEBRUARY 2011 Note 2011 2010 R R ASSETS NON-CURRENT ASSETS Land, at cost 60 000 30 000 Machinery, at carrying amount 40 000 40 000 100 000 70 000 CURRENT ASSETS Inventory 20 000 16 000 Accounts receivable 15 000 16 000 Bank 15 000 35 000 47 000 R135 000 R117 000 CAPITAL AND LIABILITIES CAPITAL 1 87 000 79 000 NON-CURRENT LIABILITIES Loan: Twenty-ten bank 20 000 18 000 CURRENT LIABILITIES Bank overdraft Accounts payable 10 000 18 000 28 000 R135 000 20 000 20 000 R117 000 NOTES: 1. Capital Balance at 1 March 2010 Add: Capital introduced (cash) Profit 79 000 5 000 10 000 94 000 7 000 R87 000 70 000 4 000 8 000 82 000 3 000 R79 000 Less: Drawings Balance at 28 February 2011 The following additional information is to be taken into account: 1. The drawings of R7 000 made in 2011 represents finished goods removed from inventory by Mr Sanders for his personal use. 2. There were no disposals of property, plant and equipment during the year ended 28 February 2011. Additional machinery was purchased for cash during the year ended 28 February 2011 at a cost of R15 000. 3. Machinery has been depreciated at the rate of 20% per annum straight line. REQUIRED: (a) Prepare the Statement of Cash Flows of Eastern Cape Manufacturers for the year ended 28 February 2011. (b) Mr Sanders has asked you to explain why his business has ended the 2011 year with a large bank overdraft, in spite of the fact that he has made a profit of R10 000