Question 4 (25 Marks) You are the accountant of Bitter Sweet Ltd, a national retailer of dark chocolate. The statement of profit or loss and statement of changes in equity for the year ended 30 September 2021, and the statement of financial position at 30 September 2021 are shown below. The Managing Director is concerned that while the statement of profit or loss reflects a profit, there has been a decline in the working capital, and overdraft facilities have been required. BITTER SWEET LTD STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 30 SEPTEMBER 2021 N$ Sales 1 200 000 Cost of sales (889 800) Gross Profit 310 200 Other income: Profit on sale of equipment 124 800 Operating expenses (145 120) Profit before tax 289 880 Income tax expense (144 980) Profit for the period 144 900 BITTER SWEET LTD STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 SEPTEMBER 2021 SHARE CAPITAL RETAINED EARNINGS TOTAL Balance at 1 October 900 000 177 330 1 077 330 Profit for the period 144 900 144 900 Dividends (50 000) (50 000) Issue of share capital 300 000 300 000 Balance at 30 September 1 200 000 272 230 1 472 230 FACULTY OF COMMERCE, MANAGEMENT AND LAW OLD CURRICULUM MODULES Page 22 of 23 BITTER SWEET LTD STATEMENT OF FINANCIAL POSTION FOR THE YEAR ENDED 30 SEPTEMBER 2021 2021 N$ 2020 N$ ASSETS Non- currents assets 1 882 500 1 301 000 Land and building: carrying amount 1 170 000 1 200 000 Equipment: carrying amount 712 500 101 000 Current assets 188 440 242 120 Inventory 93 200 112 000 Trade and other receivable 95 240 76 020 Bank - 54 100 2 070 940 1 543 120 EQUITY AND LIABILITIES Equity 1 472 230 1 077 330 Ordinary share capital 1 200 000 900 000 Retained earnings 272 230 177 330 Non- current liabilities Interest free long- term loan 280 000 280 000 Current liabilities 318 710 185 790 Trade and other payables 49 640 35 790 Bank overdraft 219 070 - Current tax payable - 150 000 Dividends payable 50 000 - 2 070 940 1 543 120 The following additional information is relevant: 1. On 1 July 2021, 200 000 ordinary shares were issued at a price of N$ 1.50 each 2. The land and building were purchased on 30 September 2020 for total cost ofN$ 200 000. Land is not depreciated. The building is depreciated on the straight-line basis over a period of 30 years to a nil residual value. 3. On 31 March 2021 all the equipment used by Bitter Sweet Ltd was sold forN$ 200 550. It had been originally purchased for N$ 505 000. This equipment was replaced on 1 April 2021 with new equipment which cost N$ 750 000. This equipment is to be depreciated at 10% per annum on the straight-line method toa nil residual value. 4. Included in the trade other receivables balance at 30 September 2021 is an amount of N$ 2 750 relating to insurance expenses prepaid. The amount included in the trade and other receivable balance for 2020 was N$190. FACULTY OF COMMERCE, MANAGEMENT AND LAW OLD CURRICULUM MODULES Page 23 of 23 5. Included in the trade and other payable balance at 30 September 2021 is an amount owing for electricity expenses. The electricity expenses amount to N$ 15 000 per year. However, no amount has been paid for the last three monthsusage. 6. A dividend for 5 cents per share was declared on 25 September 2021. It is to be paid on 30 November 2021. 7. Operating expenses comprises: Electricity Insurance Buildings: depreciation Equipment: depreciationBad debt Other 15 000 6 750 30 000 62 750 30 320 300 145 120 YOU ARE REQUIRED TO: 1. Prepare a statement of cash flows of Bitter Sweet Ltd for the year ended 30 September 2021, using the direct method. (20 marks) 2. Prepare the note for the reconciliation of profit before tax to the cash generated from operations. (5 marks)