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The following are the Balance Sheets of Quig plc as at 31/12/2013 and 31/12/2014 - Leaving Cert Accounting - Question 6 - 2015
Question 6
The following are the Balance Sheets of Quig plc as at 31/12/2013 and 31/12/2014. Balance Sheets as at 31/12/2013 and 31/12/2014 Fixed Assets Cost €640,000 €470,0... show full transcript
Worked Solution & Example Answer:The following are the Balance Sheets of Quig plc as at 31/12/2013 and 31/12/2014 - Leaving Cert Accounting - Question 6 - 2015
Step 1
Prepare an Abridged Profit & Loss account to ascertain the operating profit for the year ending 31/12/2014
Answer
Abridged Profit & Loss Account for the year ending 31/12/2014
| Particulars | € |
|---|---|
| Operating Profit | 143,000 |
| Less: Interest | (18,000) |
| Profit Before Tax | 125,000 |
| Less: Taxation | (16,000) |
| Profit After Tax | 109,000 |
| Add: Dividends | (55,000) |
| Retained Profit Balance as at 1/1/2014 | 31,500 |
| Total Retained Profit Balance | 361,500 |
Step 2
Prepare the Cash Flow Statement of Quig plc for the year ending 31/12/2014
Answer
Cash Flow Statement of Quig plc for the year ending 31/12/2014
| Particulars | € |
|---|---|
| Operating Activities | |
| Net cash inflow from operating activities | 138,000 |
| Return on Investment and Servicing of Finance | |
| Interest paid | (18,000) |
| Tax paid | (7,000) |
| Net cash from operating activities | 113,000 |
| Financing Activities | |
| Issue of Debentures | 60,000 |
| Issue of Ordinary Shares | 125,000 |
| Decrease in Cash | (13,000) |
| Net Cash Movement | 275,000 |
| Closing Cash Balance | 31,500 |
Step 3
Outline the purposes of cash flow statements
Answer
Purposes of Cash Flow Statements
- To show that profits do not always equal cash.
- To show the cash inflows and outflows during the past year.
- To help predict future cash flows.
- To help financial planning.
- To provide information to assess liquidity/solvency.
- To comply with legal requirements.
- To aid in application for loans.
Step 4
Explain why having a profit during 2014, the company’s cash balance declined
Answer
Explanation for Decline in Cash Balance
- Purchase of fixed assets reduced cash by €220,000 but did not reduce profit.
- Purchase of Government Securities reduced cash by €56,000 but did not reduce profit.
- Payment of dividends of €55,000 and tax of €57,000 reduced cash by €112,000 but did not reduce profit.
- Increase in stock, debtors, and decrease in creditors reduced cash by €148,000 but didn’t reduce profit.