Introduction to Financial Accounting

This document provides an introduction to financial accounting, covering topics such as the statement of profit and loss, statement of changes in equity, statement of financial position, and statement of cash flows. It also includes information on control accounts and depreciation calculations. Suitable for students studying financial accounting.

Introduction to Financial Accounting

Contents
Introduction to Financial Accounting..............................................................................................1
Section A..........................................................................................................................................3
Question 1........................................................................................................................................3
Section B..........................................................................................................................................6
Question 3........................................................................................................................................6
Question 4........................................................................................................................................7
Question 5........................................................................................................................................8

Section A
Pax’s statement of profit or loss and other comprehensive income for the year ending 31 December
2019
Particulars Amount
Revenue From operations 180500
Other Income
Total Income
Expenses
Cost of Sales (104200+62000-48000) 118200
Distribution Costs (12000-3800) 8200
Administrative Expenses 21500
Depreciation on Plant and Equipment 7500
Depreciation on Buildings 1250
Amortisation of Licence 2000
Provision for Income Tax 7000
Interest Loan 750
Allowance for impairment of receivables 2080
Total Expenses 168480
Net Income before tax 12020
Income Tax 7000
Net Income available for income tax 5020
Dividend 2000
Net Income 3020
Question 1

Prepare Pax's statement of changes in equity for the year ending 31 December 2019
As on 1 Jan
2019
Issued
During the
year
Redeemed
during the
year
As on 31 Dec
2019
Ordinary shares 56000 56000
Right issue 46666.67 46666.67
102666.7
Pax’s statement of financial position as at 31 December 2019
Equity and Liabilities Amount
Shareholder's Fund
Share Capital 74667
Reserve and Surplus 69000
Non-Current Liabilities
6% Loan 25000
Current Liabilities
Trade Payables 35200
Allowance for impairment of receivables 8080
Outstanding Admin Expenses 2400
Total 214346.6667
Assets
Non-Current Assets

Fixed Assets
Tangible Assets
Property, plant and Equipment 83500
Less: Accumulated Depreciation 33500
50000
Less: Depreciation 7500 42500
Land and Buildings at cost 50000
Less: Accumulated depreciation 8000
42000
Less: Depreciation 1250 40750
Intangible Assets
Licences 20000
Less: Accumulated depreciation 12000
8000
Less: Depreciation 2000 6000
Current Assets
Inventory 4800
Trade Receivables 23920
Prepaid distribution costs 3800
Bank 92576.67
Total 214346.67

Section B
Question 3
Lawn’s statement of cash flows for the year ending 31
December 2019.
Cash Flows from operating activities
Net Profit 6652
Add: Depreciation 1800
Add: Amortization 2200
Less: Loss on sale of PPE -1300
Add: Decrease in Inventory 100
Less: Increase in trade receivables -1600
Add: Increase in trade payable 5840
Add: Increase in bank overdraft 1500
Less: Interest Paid -80
Less: Tax -940 14172
Cash flows from investing activities
Sale of Property, plant and
equipment 6200
Development Expenditure -1500 4700
Cash flows from financing activities
Issue of Share Capital 2000
Loan paid -4500
Dividend -16372 -18872
Cash and Cash Equivalent 0

Question 4
a.
Payable Ledger Control Account
Balance b/d 34560
Bank 360 Trade payable (Omitted Invoice) 720
Purchase Return 940 Interest -
Contra 770 VAT 340
Bank (Kane) 220
Balance c/d 33330
35620 35620
b.
Reconciliation
Balance on its trade payables control account 34560
Add:
Trade payable (Omitted Invoice) 720
VAT 340
Less:
Bank 360
Purchase Return 940
Contra 770
Bank (Kane) 220
Balances for individual suppliers’ accounts obtained from the
payable ledger
33330
c. The focus of control account within business is to permit transaction information from
different suppliers to be kept in a specific subsidiary ledger whereas at the same time

maintaining summary postings to minimal in general ledger. Whilst having control account
in general ledger, business' trial balance could be derived without regard to all of the other
ledgers. Part of end-of-period financial accounting is to effectively reconcile the
balances of control account payables in general ledger with the combined balances from each
of supplier's accounts throughout subsidiary ledger. When balances do not match, this means that
there can be errors in one or more of ledgers.
Question 5
a.
21-Aug-17 600000
Life 12
Years
Residual Value 24000
Depreciation [(600000 -24000) / 12
year]
48000
Cost 600000
Depreciation For Period
2017 8000
2018 48000
Value as on 01/01/2019 544000
Depreciation (1/01/2019 to 1/05/2019)
48000 / 12 * 4 16000
b.
Cost 600000
Depreciation For Period
2017 8000
2018 48000
Value as on 01/01/2019 544000

Depreciation (1/01/2019 to 1/05/2019)
48000 / 12 * 4 16000
Cost as on 01/05/2019 528000
Sold at 459000
Loss on sale of Machine 69000
c.
Non-current assets include assets whose cost will not be recognized over a span within one year
since they're not readily transformed into money. The assets are reported on balance sheet, as
well as they involve properties, plants and equipment, property rights, intangibles, as well as
other longer-term assets.