Reference no: EM13827524

Problem:

For this question, you are provided with basic financial information about a fictional company and are asked to prepare three financial statements for the company. You are then required to discuss the financial health and position of the organization.

Below, you will find two important documents: the opening statement of financial position and a provisional trial balance for the fictional company. 

Remember that the trial balance has been prepared at the end of the year, but note that the retained earnings and inventories balances included are still those figures relating to the start of that year.

Additional information:

An inventory count established that the value of closing inventories on 31 December 2009 was £6,000.

All of the dividends declared during 2009 (and charged as an expense) were paid in that same year, as was the interest expensed for 2009.

Statement of financial position as at 31 December 2008
	£	£
Non-current assets
Land		10,000
Buildings	15,000
Less: Accumulated depreciation	(8,000)
		7,000
Investments		12,000
		29,000
Current assets
Inventories	4,000
Accounts receivables	5,000
Cash and cash equivalents	68,000
	77,000
Current liabilities
Accounts payable	25,000
Tax payable	5,000
	30,000
Net current assets		47,000
Total assets less current liabilities		76,000
Equity
Common stock		50,000
Retained earnings		26,000
		76,000

Trial Balance: 31 December 2009	£	£
Accounts	Debit	Credit
Cash and cash equivalents	57,000
Sales revenues		95,000
Purchases	22,000
Long-term investment	15,000
Accounts payable		19,000
Opening inventory (01.01.09)	4,000
Land	10,000
Buildings	18,000
Accumulated depreciation		9,000
Accounts receivable	10,000
Depreciation expense	1,000
Utilities expense	20,000
Tax expense	3,000
Interest expense	1,000
Tax payable		2,000
Wages expense	40,000
Common stock		50,000
Retained earnings at start of year (01.01.09)		26,000
Totals	201,000	201,000

Required:

1. Using the above information, prepare an income statement for the company for the year to 31 December 2009.

2. Prepare a statement of financial position for the company as at 31 December 2009.

3. Prepare a cash flow statement for the company for the year to 31 December 2009, using the indirect method and in accordance with IAS 7.

4. Discuss what inferences can be drawn from the above three statements in relation to the company's financial position.

Summary of problem:

This question belongs to Finance as well as it discusses about the preparation of required financial statements such as income statement, balance sheet and cash flow statement and the inferences that can be drawn from the statements.