Question 4 (King Plc)

Statement of financial position as at 31 December 2019

	2019	2019	2018	2018
	000	000	000	000
Assets
Property Plant and Equipment (NBV)		13,073.00		12,570.50
Investments		3,550.00		-
Current Assets
Inventory	8,243.50		7.946.00
Receivables	6,173.50		4,052.00
Cash and cash equivalent	431.50	14,848.50	362.00	12,360.00
Total Assets		31,471.50		24,930.50
Equity and Liabilities
Share Capital	6,500.00		5,000.00
Share Premium	6,250.00		2,500.00
Revaluation Reserve	1,325.00		1,325.00
Retained Earnings	12,388.00	26,463.00	11,428.00	20,253.00
Non Current Liabilities		1,625.00		2,125.00
Current Liabilities
Trade Payables and others		3,383.50		2,552.50
Total Equity and liabilities		31,471.50		24,930.50

Statement of Profit or Loss for the year ended 31 December 2019

	000
Turnover	37,340.00
Cost of goods sold	(25,797.50)
Gross Profit	11,542.50
Operating expenses	(8,840.50)
Operating profits	2,702.00
Taxes	(1,317.00)
Net profit attributable to shareholders	1,385.00

Other information

1. Property plant and Equipment for the year 2019 consisted of freehold land worth 10.15 million and the remaining attributable to machinery and equipment and recorded at its net book value. Similarly, the 2018 had 9.89 million attributable to freehold land and the remaining was machinery and equipment recorded at its net book value.

2. During the year 2019 King Plc purchased machinery and equipment worth 682,500 whereas there were no disposals of non current assets.
3. The trade payables and others for the two years consisted of the following

2019 2018

000 000

Trade payables 1,385.50 1,316.00

Accruals 600.00 617.50

Tax payables 1,398.00 619.00

4. There were no other movements to/from retained earnings other than dividend payments and net profits for the year.

Required:

1. Prepare the Statement of Cash Flows in accordance with IAS 7 for the year ended 31 December 2019 using the indirect method for King Plc.

(19 marks)

2. The cash flow statements has three parts namely the operating activities, financing activities and the investing activities. Justify the importance of each of these parts in critically reviewing companies financial statements.

(9 marks)

3. Justify why accrual basis of accounting is perceived to be better than cash basis of accounting?

(7 marks)

(Total 35 marks)