QUESTION 2

(40 marks)

The following information was obtained from the accounting records of NEO LTD on
31 December 2008, the end of the financial year.
EXTRACT FROM THE STATEMENT OF FINANCIAL POSITION OF NEO LTD
ON 31 DECEMBER 2008.
2007
2008
Retained Earnings
45 000
94 000
12% Debentures
90 000
98 000
Inventory
35 000
22 000
Creditors
92 000
59 000
Revaluation of fixed assets
180 000
195 000
Cash at Bank
100 000
Bank overdraft
89 900
Fixed Assets (Note1)
166 000
203 000
Debtors
315 000
127 000
Redeemable Preference Share Capital
340 000
260 000
Ordinary Share Capital
100 000
160 000
SARS
6 000
7 200
Shareholders for dividends
8 000
8 900
Investments
85 000
55 000
Prepaid expenses
8 000
9 200
Accrued expenses
16 000
10 000
Income Receive in advance
8 000
19 000
2.1 NOTES TO THE STATEMENT OF FINANCIAL POSITION
COST PRICE
Land & Buildings
Equipments
Vehicle

2.1.1
2.1.2

2007
100 000
130 000
-

2008
115 000
150 000
20 000

Accumulated
Depreciation
2007
2008
64 000 79 000
3 000

Net Carrying Value

2007
100 000
66 000
166 000

Land & building were revaluated during the year by R 15 000.

Equipment with a Cost Price of R 45 000 was sold during the year.

2008
115 000
71 000
17 000
203 000

EXTRACT FROM THE STATEMENT OF COMPREHENSIVE INCOME OF

NEO LTD FOR THE YEAR ENDED 31 DECEMBER 2008.
Gross income for the year
Dividends declared: Preference
Ordinary
Bad debt Recovered
Expenses
Retained Earnings (1 January)
Sales

140 000
2 000
8 000
5 500
70 000
45 000
205 000

2.2 NOTES TO THE STATEMENT OF COMPREHENSIVE INCOME.

2.2.1

Gross income for the year excludes bad debt recovered and expenses.

2.2.2

Expenses included the following:

Finance Costs
Auditors Remuneration
Directors Remuneration
Depreciation: Fixed assets
Loss on sale of fixed assets

C. Interest Received included in gross income

6 500
16 000
27 000
18 000
2 500
70 000

REQUIRED TO:
1. Prepare the CASH FLOW STATEMENT of Neo Ltd for the year ended 31 December
2008, according to IAS 7.
(15)
2. Show the following note:
The reconciliation of cash generated by operations with Net Profit before Tax. (6)
3. Show all your calculations.

2009

(19)

QUESTION 2
(25 MARKS)
The following are taken out of the financial statements of ERO LTD
for the year ended 30 September 2004
2004
2003
R
R
135,00
Land and buildings
145,000 0
Machinery
88,000
60,000
Investment at cost
5 000
5,000
Inventory
13,000
11,000
Debtors
5,000
9,000
Cash on hand
10,000
6,000
Issued share capital
100,00
- Ordinary shares
115,000 0
- Preference shares
47,000
50,000
Capital redemption reserve fund
13,000
10,000
Revaluation reserve fund
5,000
0
Accumulated depreciation
43,000
43,000
Long term loan
50,000
60,000
South African Revenue Services
4,000
1,000
Shareholders for dividends
3,000
4,000
Trade payables
12,000
10,000
Bank overdraft
0
2,000
Retained earnings
132,000 99,000
The following appeared in the income statement
Bad debts recovered
300
100
Dividends received
500
300
Dividends declared
12,000
10,000
Taxation
60,000
45,000
Interest paid
6,000
5,000
Profit on disposal of machinery
4,000
0
Net Profit before Tax and dividends declared
108,000 50,000
870,00
Revenue
920,000 0
435
Cost of sales
460 000 000
Additional information
1
) Machinery that cost R38 000 was sold at year end for R24 000 cash.
Accumulated depreciation on this machine was R18 000. It was replaced with a new
machine that cost R45 000. Any other purchases of machinery was for expansion
2
) The company maintains a mark-up on selling price of 50%

REQUIRED
Prepare the cash flow statement of ERO Ltd, using the direct method, for the year ended 30
September 2004 in accordance with GAAP
2008