Question 1: Cash Flow statement (42 marks)

Easy Fit LTD
Statements of Financial Position
as at 30 June
2016 2017
Cash at bank 20,000 257,495
Accounts Receivable 75,000 115,596
Inventory 72,000 147,803
Furniture and fittings 100,000 61,385
Acc. depn – furniture and fittings -30,000 70,000 -20,000 41,385
Buildings 330,000 430,000
Acc. depn – buildings -80,000 250,000 -110,000 320,000
Total assets 487,000 882,279
Accounts Payable 40,000 110,111
Current tax liability 7,500 17,000
Loan due 2017 255,008
Share capital 400,000 420,000
Retained earnings 39,500 80,160
Total liabilities and equity 487,000 882,279


Easy Fit LTD
Statement of Profit or Loss
for the year ended 30 June 2017
Sales revenue $480,000
Rent revenue 14,000
Discount received 1,630 $495,630
Cost of sales 340,000
Discount allowed 1,500
Bad debts 4,500
Salaries and wages 39,000
Loss on sale of equipment 6,119
– buildings 30,000
– furniture 10,000 431,119
Profit before income tax 64,511
Income tax expense -19,353
Profit 45,158


Additional information
(a) New buildings were purchased for cash.
(b) During the year, a dividend was paid to shareholders.

(c) A loan was raised during the year to provide cash for working capital needs.
(d) Furniture that had cost $38,615 and been depreciated by $20,000, was sold for cash of $12,496.
(e) Bad debts written off was $4,500
1. Prepare the statement of cash flows based on the direct method of presentation. (30 marks)
(Show a negative amount preceded by a minus sign or in brackets.)
2. Prepare the T-account for the following accounts:
(a) Furniture and Fittings (6 marks)
(b)Accumulated depreciation – Furniture and Fittings (6 marks)

Question 2: Shares (28 marks)
On 1 April 2017, South Ltd was incorporated and a prospectus was issued inviting applications for
80,000 ordinary shares, at an issue price of $10, payable $5 on application, $2.50 on allotment and $1.25
on each of two calls to be made at intervals of 4 months after the date of allotment.
By 30 April, applications were received for 85,000 shares. On 3 May, the directors allotted 80,000
ordinary shares to the applicants in proportion to the number of shares for which applications had been
made. The surplus application money was offset against the amount payable on allotment. The balance
of the allotment money was received by 10 May.
The first call (Call 1) was made on 3 September; however, 5,000 shares did not pay this call. The
balance of money for call 1 was received on 5 September. The second call (Call 2) was made on 3
January, however, 8,000 shares did not pay this call. The balance of money for call 2 was received on 15
On 10 March 2018, as provided by the company’s constitution, the directors forfeited the 13,000
shares on which calls were unpaid.
On 25 March 2017, the forfeited shares were reissued as fully paid for a consideration of $7 per share.
Costs of forfeiture and reissue amounted to $510. The constitution does not provide for refund of any
balance in the forfeited shares account after reissue to former shareholders.
Required: Prepare general journal entries to record the above transactions. Include narrations for each
Journal example:

Date Details Debit Credit


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