Profit or Loss (Income Statem

Sales Revenue
Cost of Sales
Gross Profit

Salaries & wages

Rent
Heat & Light
Telephone & Postage
Insurance
Motor Vehicle Expenses
Depreciation (Fixtures & Fittings)
Depreciation (Motor Vehicles)
Operating Profit

Interest Received from Investments

Interest on Borrowings
Profit for the Period
ome Statement)
£
232,000
154,000
78,000

24,500
14,200
7,500
1,200
1,000
3,400
1,000
600
24,600

estments 2,000
1,100
25,500
P&B Retailers for the year ended 30th September 2017.
£
Motor Vehicle Running Expenses 1,200
Closing Inventories 3,000
Rent Payable 5,000
Motor Vans (Cost less Depreciation) 6,300
Annual Depreciation (Motor Vans) 1,500
Heat & Light 900
Telephone & Postage 450
Sales Revenue 97,400
Goods Purchased 68,350
Insurance 750
Loan Interest Payable 620
Cash at Bank 4,780
Salaries & Wages 10,400
Opening Inventories 4,000
Profit or Loss for the Year Ended 30th September 2017.

Sales Revenue 97,400

Opening Inventories 4,000
Goods Purchased 68,350
Less Closing Inventories 3,000
Cost of Sales 69,350
Gross Profit 28,050

Salaries & Wages 10,400

Rent Payable 5,000
Heat & Light 900
Telephone & Postage 450
Insurance 750
Motor Vehicle running expenses 1,200
Annual Depreciation (Motor Vans) 1,500
Total Expenses 20,200
Operating Profit 7,850

Loan Interest Payable 620

Profit for the Period 7,230
Images Ltd
Images Ltd, an advertising agency, normally pays rent for its premises quarterly in advance (on 1
On the last day of the last reporting period (31 December), it paid the next quarter’s rent (£4000
Show the entries in the 3 Financial Statements for Images Ltd on 31 December.

Cash Flow Statement: -£ 20,000 Cash Paid

Income Statement: -£ 16,000 4 Quarters Rent - Expense

Statement of Financial Position: -£ 20,000 Less cash - Current Assets

-£ 16,000 Less Profit - Equity
£ 4,000 Pre-Payment - Current Assets

Images Ltd bought a van for £12,000 and a car for £18,000 both are expected to have a residual
(resale) value of 25% of the purchase price when they are sold. The Van is expected to be sold in
years and the car in 4 years. Show the entries in the 3 Financial Statements for Images Ltd at the

Cash Flow Statement: -£ 30,000 Less Cash - Payment for Van / Car

Income Statement (Profit / Loss): -£ 3,000 Expense - Van Depreciation

-£ 3,375 Expense - Car Depreciation

Statement of Financial Position: -£ 30,000 Less Cash - Payment for Van / Car - Curre
£ 9,000 Van Book Value - Non-Current Assets
£ 14,625 Car Book Value - Non-Current Assets
a) Equity change because of Profits / Losses - Revaluation of Bu
b) Costs that relate to THIS year, pay next year
c) Need CASH to replace an asset - Depreciation is NOT cash it r
d) Revalue the factory building.
 2011
Income statement: £ 2,000 Depreciation

SoFP (Balance Sheet) £ 8,000 Non-Current Asset

2012
Income statement: £ 2,000 Depreciation
£ 2,500 Depreciation

SoFP (Balance Sheet) £ 6,000 Non-Current Asset

£ 12,500 Non-Current Asset

2013
Income statement: £ 2,000 Depreciation
£ 2,500 Depreciation
SoFP (Balance Sheet) £ - Non-Current Asset
£ 10,000 Non-Current Asset
-£ 1,000 Less Equity - Loss on disposa
arterly in advance (on 1 January, 1 April, 1 July and 1 October).
xt quarter’s rent (£4000) to the following 31 March, so a total of five quarters rent was paid during the yea

rrent Assets

cted to have a residual

s expected to be sold in 3
ts for Images Ltd at the end of the first year.

ent for Van / Car

preciation
preciation

ent for Van / Car - Current Assets

Non-Current Assets
Non-Current Assets
evaluation of Buildings

n is NOT cash it represents use of an existing assets

t Asset -£ 10,000 Less Cash - Current Asset

t Asset -£ 15,000 Less Cash - Current Asset

t Asset
t Asset £ 3,000 More Cash - Current Asset
t Asset
Loss on disposal of 1st Machine (Book Value £4000 - Sale Value £3000)
nt was paid during the year.
e Value £3000)
Dido Plc
Extracts from Financial Statements £'m
Profit before Tax (After Interest) 122
Depreciation Charged in Profit 34
Interest Expense 6

Opening Balances (Start of the Year)

Inventory 15
Trade Receivables 24
Trade Payables 18

Closing Balances (End of the Year)

Inventory 17
Trade Receivables 21
Trade Payables 19

Payments made During the Year

Tax Paid 32
Interest Paid 5
Dividend Paid 9
Cash Flow from Operating Activities
Profit before Tax (After Interest) 122
Depreciation Charged in Profit 34
Interest Expense 6
Increase In Inventories -2
Decrease in Trade Receivables 3
Increase in Trade Payables 1
Cash Generated from Operations 164
Interest Paid -5
Tax Paid -32
Dividends Paid -9
Net Cash from Operating Activities 118
Cash Flow from Operating Activities
Profit before Tax (After Interest) 122
Depreciation Charged in Profit 34
Interest Expense 6
Increase In Inventories -2 Asset +
Decrease in Trade Receivables 3 Asset +
Increase in Trade Payables 1 Liability -
Cash Generated from Operations 164
Interest Paid -5
Tax Paid -32
Dividends Paid -9
Net Cash from Operating Activities 118
Asset +
Asset +
Liability -
Pluto Plc
Extracts from Financial Statements £'m
Profit before Tax (After Interest) 165
Depreciation Charged in Profit 41
Interest Expense 21

Opening Balances (Start of the Year)

Inventory 22
Trade Receivables 18
Trade Payables 15

Closing Balances (End of the Year)

Inventory 23
Trade Receivables 21
Trade Payables 17
Payments made During the Year
Tax Paid 49
Interest Paid 25
Dividend Paid 28
Cash Flow from Operating Activities
Profit before Tax (After Interest) 165
Depreciation Charged in Profit 41
Interest Expense 21
Increase In Inventories -1
Increase in Trade Receivables -3
Increase in Trade Payables 2
Cash Generated from Operations 225
Interest Paid -25
Tax Paid -49
Dividends Paid -28
Net Cash from Operating Activities 123
Cash Flow from Operating Activities
Profit before Tax (After Interest) 165
Depreciation Charged in Profit 41
Interest Expense 21
Increase In Inventories -1
Increase in Trade Receivables -3
Increase in Trade Payables 2
Cash Generated from Operations 225
Interest Paid -25
Tax Paid -49
Dividends Paid -28
Net Cash from Operating Activities 123
 Cash flow statement for year e
Income statement for the year ended 31 Dec 2017
£m
Revenue 576 Cash flow from operating activiti
Cost of sales -307 Profit before tax
Gross profit 269 Depreciation
Distribution costs -65 Interest receivable
Administrative expenses -26 Interest payable
Other Operating Income 21 Change in receivables
Operating profit 199 Change in payables
Interest receivable 17 Change in inventories
Interest payable -23 Cash generated from operations
Profit before tax 193 Interest paid
Tax -46 Tax paid
Profit after tax 147 Dividends paid
Dividends -50 Net cash from operations
Retained profit 97
Investing activities
Payments to acquire non-curren
Balance sheet at 31 December 2016 2017 Interest received
£m £m £m £m
Non current assets Financing activities
Land and buildings 241 241 Change in bank loan
Machinery and equipment 309 325 Change in share capital
550 566
Current assets
Inventories 44 41 Net change in cash and cash
Receivables 121 139
Analysis of cash flow
165 180 Balance at start of year
Current liabilities Net cash flow for year
Trade payables -55 -54 Balance at end of year
Bank overdraft -68 -56
Tax -16 -23
Non current liabilities -139 -133
Long term loan -400 -250
176 363
Equity
£1 ordinary shares 150 200
Share premium 40
Reserves 26 123
176 363
The company invested £95m in additional machinery and equipment during the year. There were no other
non-current asset acquisitions or disposals. The interest receivable revenue and interest payable
for the year were equal to their respective cash flows.
Solution
Cash flow statement for year ended 31 December 2016

£m
Cash flow from operating activities
Profit before tax 193
Depreciation 79
Interest receivable -17
Interest payable 23
Change in receivables -18
Change in payables -1
Change in inventories 3
Cash generated from operations 262
Interest paid -23
Tax paid -39
Dividends paid -50
Net cash from operations 150

Investing activities
Payments to acquire non-current assets -95
Interest received 17
-78
Financing activities
Change in bank loan -150
Change in share capital 90
-60

Net change in cash and cash equivalents 12

Analysis of cash flow

Balance at start of year -68
Net cash flow for year 12
Balance at end of year -56
Check -56
Cash flow statement for year ended 31 December 2016

£m
Cash flow from operating activities
Profit before tax
Depreciation
Interest receivable
Interest payable
Change in receivables
Change in payables
Change in inventories
Cash generated from operations
Interest paid

Dividends paid
Net cash from operations 0

Investing activities
Payments to acquire non-current assets
Interest received
0
Financing activities
Change in bank loan
Change in share capital
0

Net change in cash and cash equivalents 0

Analysis of cash flow

Balance at start of year
Net cash flow for year 0
Balance at end of year 0
 year. There were no other
d interest payable