Beruflich Dokumente
Kultur Dokumente
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Exercise 2
Classify the following items as assets, Equity or liabilities
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Exercise 3
Suppose ROCK Company had the following assets, equity and liabilities at 31
Dec 20X0
Trade Payables (or Accounts Payable) 600
Motor Vehicles 300
Long Term Borrowing 500
Land 600
Buildings 900
Trade Receivables (or Accounts Receivable) 1100
Inventories 500
Cash 400
Equipment 800
Share Capital 1000
Share Premium 2000
Retained Earnings 500
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Exercise 4
(a) ROLL Company is a new enterprise which was formed on 1 June 20X2.
The following transactions took place in June. Show how each of the
following transactions impact the basic accounting equation (A=L+E)
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(b) Show the balances on each of the individual assets, equity and liabilities at
how each of the following transactions impact the basic accounting
equation (A=L+E)
(c) Draw up a classified SOFP at 30 June 20X2. Use the information from
(b) to compile the SOFP.
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Exercise 2.4 from MLA book page 75
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The Basic Accounting Equation states that: Assets = Liabilities + Equity.
Exercise 1
Using the sign + to indicate an increase and the sign - to indicate a decrease, fill
in the following chart to show the dual effect of each of a series of transaction on
the financial position (accounting equation) of a business
The effect upon
Assets Equity Liabilitie
s
1 Bought a vehicle paying by cheque +-
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Exercise 2
Classify the following items as assets, Equity or liabilities
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EXAMPLE 2.1: ROCK COMPANY SOLUTION
ROCK COMPANY
Current Assets
Inventory 500
Accounts Receivable 1100
Cash 400
2000
LIABILITIES
Non-Current Liabilities
Long Term Borrowings 500
Current Liabilities
Accounts Payable 600
EQUITY
Share Capital 1000
Share Premium 2000
Contributed Capital 3000
Retained Earnings 500
TOTAL EQUITY 3500
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LIABILITIES + EQUITY 4600
Note: Accounts Receivable is another name for Trade Receivables. Accounts Payable
is another name for Trade Payables.
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Note: Tracking the Movement in Cash
In Cash Flow Statement
Transaction Would Be Classified as:
(i) +1000 Financing
(ii) -30 Investing
(iii) +60 Financing
(iv) -100 Operating
(vi) -200 Investing
(viii) -30 Financing
CLOSING BALANCE: CASH 700
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ROLL COMPANY
ASSETS
Non-Current Assets
Land 200
Buildings 300
Furniture 30
530
Current Assets
Inventory 200
Cash 700
900
LIABILITIES
Non-Current Liabilities
Long Term Loans 330
Current Liabilities
Accounts Payable 100
EQUITY
Share Capital 1000
Share Premium 0
Contributed Capital 1,000
Retained Earnings 0
TOTAL EQUITY 1,000
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Measuring and reporting financial position
Joe Conday
Statement of financial position as at 1 March
ASSETS
Bank 20,000
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Statement of financial position as at 4 March
ASSETS
Bank (19,000 7,000 200) 11,800
Fixtures and fittings 6,000
Inventories 8,000
Motor car 7,000
Total assets 32,800
EQUITY AND LIABILITIES
Equity (20,000 200) 19,800
Trade payables 8,000
Borrowings 5,000
Total equity and liabilities 32,800
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Solution to exercise 2.5
Manufacturing business
Statement of financial position at a point in time
000
ASSETS
Non-current assets
Property, plant and equipment
Property 245
Plant and equipment 127
Delivery vans 54
426
Current assets
Inventories raw materials 18
finished goods 28
Trade receivables 34
80
Total assets 506
EQUITY AND LIABILITIES
Equity (Owners capital which is the missing figure) 361
Non-current liabilities
Long-term borrowings (Manufacturing Finance Co) 100
Current liabilities
Trade payables 23
Short-term borrowings 22
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Total equity and liabilities 506
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Solution to exercise 2.7
BEFORE TRANSACTIONS
ASSETS
Property 145,000
Furniture and fittings 63,000
Inventories 28,000
Trade receivables 33,000
Total assets 269,000
EQUITY AND LIABILITIES
Equity 203,000
Short term borrowing (Bank Overdraft) 43,000
Trade payables 23,000
Total equity and liabilities 269,000
TRANSACTIONS
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(f) Inventory + 14,000 Trade payables +
14,000
(g) Cash 13,000 Trade payables
-13,000
Total 119,000 1,000 118,000
ASSETS
Property 145,000
Furniture and fittings 63,000
Motor van 10,000
Inventories (28,000 8,000 17,000 + 14,000) 17,000
Trade receivables (33,000 + 23,000 18,000) 38,000
Since the bank balance is now positive, we can rewrite this statement of financial position
as:
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Statement of financial position as at the end of the week
ASSETS
Non-current assets
Property 145,000
Furniture and fittings 63,000
Motor van 10,000
218,000
Current assets
Inventories 17,000
Trade receivables 38,000
Cash at bank 73,000
128,000
Total liabilities
322,000
Equity
Total equity 322,000
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