Financial Accounting Homework: Statements & Assumptions

This financial accounting assignment presents a comprehensive solution, including an income statement for the year 2021, a statement of financial position, and a cash flow statement for the year ended March 31, 2020. The assignment identifies and explains six key assumptions underlying the preparation of financial statements. The solution details the calculations for net profit, assets, liabilities, and shareholder's equity, as well as an analysis of cash flow from operating, investing, and financing activities. The findings highlight the company's liquidity position and its reliance on investing activities for cash generation. The document references relevant academic sources to support the analysis and findings.

FINANCIAL ACCOUNTING

TABLE OF CONTENTS
QUESTION 1...................................................................................................................................1
a) Income Statement for the year 2021........................................................................................1
b) Statement of Financial Position ..............................................................................................1
3. Identifying six assumptions, underlying preparation of the financial statements and explain
their meeting ...............................................................................................................................2
QUESTION 2...................................................................................................................................2
1) Cash flow statement for the year ended 31st March 2020......................................................2
2) Findings...................................................................................................................................3
REFERENCES................................................................................................................................5

QUESTION 1
a) Income Statement for the year 2021
Income Statement
Sales 214000
Expenses
COGS 143000
Wages & Salaries 15000
Rent & Rates 7500
Audit and Accountancy 500
Advertising 900
Electricity 2800
Provision for electricity 200
Office expenses 5700
Insurance 1400
Directors remuneration 5500
Bank Interest 400
Depreciation
Fixtures & Fittings 8000
Motor vehicle 365
Net Profit 22735
b) Statement of Financial Position
Statement of Financial Position
ASSETS
Current Assets
Debtors 41350
Prepaid Insurance 300
Inventory 15000
Bank 1500
58150
Non Current Assets
Motor vehicle 3285
Fixtures and Fittings 16000
19285
TOTAL 77435
EQUITY AND LIABILITIES
Current Liabilities
PPE 26400
Payables 8900
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Provision for electricity 200
35500
Non Current Liabilities
long term loan 7400
Total Liabilities 42900
Shareholder's Equity
Ordinary Share capital 25000
Retained Earnings
Opening -13200
Add : Profits 22735
Closing balance 9535 9535
Shareholder's Equity 34535
TOTAL 77435
3. Identifying six assumptions, underlying preparation of the financial statements and explain
their meeting
The assumptions made for the preparation of financial statements made
 The firm is going concern and will continue its operations in the future
 Company is following accrual basis of accounting(Braun and et.al., 2018).
 All the transactions related to income are provided by the management
 Time period assumption that the accounting records are related with the current period
 The consistency assumptions that accounting policies and procedures are being followed
consistently over the years.
 Data used for preparing the financial reports are supported with invoices and documents
for reliability and objectivity (Fengzhou, Shu and You, 2019).
QUESTION 2
1) Cash flow statement for the year ended 31st March 2020
CASH FLOW STATEMENT
PARTICULARS
2

OPERATING CASH FLOW
Earnings 3000
Add Depreciation 2000
Net earnings 5000
Working capital changes
Less Inventory -7000
Less Trade Receivables -11000
Add Trade Payables 4000
Add Bank Overdraft 5000
Net working capital changes -9000
Cash Flow from Operating avtivities -4000
INVESTING CASH FLOW
Sale of Investments 10000
Cash Flow from Investing activities 10000
FINANCING CASH FLOW
Loans paid -7000
Cash Flow from Financing activities -7000
Opening Balance of Cash 1000
Net cash flow -1000
Closing Balance of cash 0
2) Findings
The cash flow statement of Spark Limited for the year ended 31st March 2020 depicts the inflows
and outflows of cash during the year in various operating, investing and financing activities
(Miao, Teoh and Zhu, 2016). It summarizes the liquidity position of the company and shows its
capabilities to meet the future obligations. It can be ascertained at the end of the year that
company is facing shortage of liquidity as the closing balance of cash is nil and therefore they
need to arrange for finance to continue the operations in the coming year. Apart from that it can
be evaluated that is generating cash only from the investing activity that is by the sale of
investments. In the other two types of activities that are the operating and the financing, the
outflows of cash are more than the inflows of cash (NGUYEN and NGUYEN, 2020).
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REFERENCES
Books and Journals
Braun, J., and et.al., 2018. Full 15N tracer accounting to revisit major assumptions of 15N
isotope pool dilution approaches for gross nitrogen mineralization. Soil Biology and
Biochemistry, 117, pp.16-26.
Fengzhou, W., Shu, H. and You, H., 2019. Discussion on the Basic Assumptions of Management
Accounting.
Miao, B., Teoh, S. H. and Zhu, Z., 2016. Limited attention, statement of cash flow disclosure,
and the valuation of accruals. Review of Accounting Studies. 21(2). pp.473-515.
NGUYEN, D. D. and NGUYEN, A. H., 2020. The impact of cash flow statement on lending
decision of commercial banks: Evidence from Vietnam. The Journal of Asian Finance,
Economics, and Business. 7(6). pp.85-93.
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