Financial Statements: Revision Questions and Attempted Solutions
In business and accounting financial statements are important as they provide an overview of the organisation’s health and provide insight into the organisation’s cash flows, operations, and performance. The financial statements especially provide information on the organisation’s revenues, expenses, profits/losses, and debt. Based on this information, the business, through its managers or directors, can make financial, operational and other important decisions. The information may also help other parties including lenders, consumers, suppliers, and government agencies make decisions regarding whether and how to engage with the business. There are four main types of financial statements that are commonly used in accounting and business: cashflow statement, income statement, statement of financial position (balance sheet), and statement of retained earnings. Each of these financial statements has its purposes and complements the other statements in providing a more complete snapshot of the health of the business.
Here are some revision questions relating to financial statements:
- An organisation owes £300000 tax at 1.7.X4 and £450,000 at 30.6.X5. Its income statement for the year to 30.6.X5 includes a tax charge of £400,000. How much tax was actually paid in the year to 30.6.X5?
- A company purchases a tangible non-current asset for £200,000. It has an estimated scrap value of £20,000 and an expected useful economic life of 10 years. What depreciation will be shown in the income statement for year 3? How would the non-current asset be shown in the statement of financial position at the end of year 3?
- In case the asset is sold for £120,000 during the 4th year, how will this affect: The income statement for year 4? The statement of financial position at the end of year 4?
- What is the effect of sale of the tangible non-current asset on the company’s statement of cash flows?
- Is it true that cash the lifeblood of the business?
- What is the purpose of the statement of cash flows and how it supplements a statement of financial position and an income statement?
- What are the controversies surrounding published statements of cash flows?
Find the attempted solutions here.