Question

Question 1                                                                                   (Total: 25 marks)                                                

Sijanggut runs a news agency and general store, selling goods mainly for cash, although she has a few account customers for newspapers and magazines who pay monthly.

His income statement for the year ending 31 August 2019 is as follows:

SIJANGGUT

INCOME STATEMENT FOR THE YEAR ENDED 31 AUGUST 2019

	RM	RM
Revenue		87,355
Cost of sales
Opening inventory	3,567
Purchases	71,714
	75,281
(-) Closing inventory	(3,886)
		(71,395)
Gross profit		15,960
Expenses		(20,466)
Net loss for the year		(4,506)

Expenses include RM2,605 of depreciation. There have been no acquisitions or disposals of non-current assets during the year.

In March 2019 Sijanggut found that his business was running short of cash. He asked his brother Simisai for a loan. He has lent the business RM5,000 which will be interest free until trade picks up and returns to profitability.

Sijanggut’s statements of financial position at 31 August 2019 and 2018 were as follows:

SIJANGGUT

STATEMENT OF FINANCIAL POSITION AS AT 31 AUGUST

	2019		2018
	RM	RM	RM	RM
NON CURRENT ASSETS:
Net of depreciation		18,006		20,611
CURRENT ASSESTS:
Inventories	3,886		3,567
Receivables and prepayments	1,269		1,203
Cash at Bank	86		3,810
		5,241		8,580
TOTAL ASSETS		23,247		29,191
OWNER’S EQUITY:
Capital	23,273		32,844
(-) Net loss	(4,506)		(2,571)
(-) Drawings	(7,200)		(7,000)
		11,567		23,273
NON-CURRENT LIABILITY
Long-term loan		5,000		-
CURRENT LIABILITIES
Trade payables		6,680		5,918
		23,247		29,191

a) You are required to prepare Sijanggut’s Statement of Cash Flows for the year ending 31 August 2019.                                                                              

b) Explain why the purchase of a non-current asset is recorded differently in the statement of cash flow to the income statement.

Answer 1

a)
Sijanggut's Statement of Cash Flow
Statement of Cashflow ( For the year ended August 31, 2019)
	RM
Operating Activities
Loss for the year	-4,506
Depreciation	2,605
Difference in Depreciation and accumulated depreciation ((859-700)-170)
Difference in profit transferred to retained earning ((1558-1028)-533)
Interest expenses (as finance cost)
Working Capital changed (Note 1)	377
Income tax paid
Total of Operating Activities (A)	-1,524
Investing Activities
Total of Investing Activities (B)	-
Financing Activities
Capital drawing (repaid)	-7,200
Borrowing	5,000
Total of Financing Activities (C)	-2,200
Total Operating, Investing and Financing Activities (A+B+C)	-3,724
Cash & Cash Equivalents at beginning	3,810
Cash & Cash Equivalents at Ending	86	-
Notes
1) Change in working capital
	2,019	2,018	Changed
Inventory	3,886	3,567	-319
Trade Receivable	1,269	1,203	-66
			-385
Trade Payable	6,680	5,918	-762
			-762
Working Capital changed - Increased			377
b) Purchase of non current asets recorded in statement of cash flow as negative item of cashflow under
investing activities and purchase of non current item does not recorded in income statement because
this is a capital expenditure. It is recorded as an assets under balance sheet but depreciation on this non
current assets to be charged to income statement over it's economic useful life.