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Question 3 John Wick, managing director of Wick Limited, has been in business for two years. He is puzzled by the company's financial statements
Question 3 John Wick, managing director of Wick Limited, has been in business for two years. He is puzzled by the company's financial statements because, although they show a profit for each year, the bank balance has fallen and is now an overdraft. He asks for your assistance to explain what has happened. The statements of financial position of Wick Limited are as follows: Statement of Financial Position as at 31 December 2018 2019 Cost Dep'n Carrying Cost Dep'n Carrying amount amount Non-current Assets Property, plant and 3,000 600 2,400 5,000 1,600 3,400 equipment Current Assets Inventory 5,500 Trade receivables 1,750 9,000 2,300 Bank (cash and cash 850 equivalents) 8,100 Total Assets 10,500 11,300 14,700 Current Liabilities Trade payables 2,500 2,750 Bank overdraft 1,200 Tax liability 1,000 1,750 3,500 5,700 Equity Share capital 5,000 5,000 Retained earnings 2,000 4,000 Total Equity 7,000 9,000 Total Liabilities and 105,000 14,700 Equity Additional information Additional property, plant and equipment (PPE) was purchased. There were no other revaluations, purchases or disposals of non-current assets. Taxation paid totaled 1,000 Dividends paid totaled 9,000 The income statement for the year ended 31 December 2019 include: Depreciation charges, 1,000 Finance costs, 250 Taxation of 1,750 You are required to prepare a statement of cash flows for the year ended 31 December 2019
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