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Grove Co started trading on 1 January 2017 with a 6% medium-term loan of €25,000 and a share issue which raised €40,000
Grove Co started trading on 1 January 2017 with a 6% medium-term loan of €25,000 and a share issue which raised €40,000. The company purchased non-current assets for €30,000 paying €20,000 immediately in cash and signing a note payable for €10,000. During the year to 31 December 2017 the company entered into the following transactions:
- Purchases from suppliers were €20,500, of which €2,500 was still unpaid at the year-end.
- Wages and salaries amounted to €10,500, of which €800 was unpaid at the year-end.
- Interest of €1,500 on the loan was fully paid in the year and also a repayment of the principal was made in the amount of €5,000.
- Sales revenue was €35,000, including €2,500 trade receivables at the year-end.
- Interest on cash deposits at the bank amounted to €80.
Use the following pro-forma to complete Grove Co’s statement of cash flows by writing the appropriate amounts in the answer boxes. (Write the numbers only, do not write the euro symbol) NB! Show cash payments, i.e. outflows in brackets, e.g. like (3,500):
Grove Co
Statement of Cash Flows for the Year to 31 December 2017
|
Cash flows from operating activities |
|
| Cash received from customers | |
| Cash paid to suppliers | |
| Cash paid to employees | |
| Interest paid | |
| Interest received | |
| Net cash flows from operating activities | |
|
Investing activities |
|
| Acquisition of non-current assets | |
|
Financing activities |
|
| Proceeds from a share issue | |
| Proceeds from a loan | |
| Repayment of a loan | |
| Net cash flows from financing activities | |
| Net increase in cash | |
| Cash at 1 January 2017 | --------- |
| Cash at 31 December 2017 |
Expert Solution
Solution
Before making the solution, we have to go through the problem point-wise as follows,
1. The business was started on January 01 by taking 6% Medium-term Loan of €25000 and issuing shares worth €40000. Therefore, there was no cash in hand on January 01. Therefore, Cash at 01 January 2017 will be NIL.
2. For the funds received as mentioned in point 1 above, the entry will be,
| Cash A/c .......... Dr. | 65,000 |
| To, 6% Medium-term Loan A/c | 25,000 |
| To, Equity Share Capital A/c | 40,000 |
3. Non-current assets were purchased worth €30000 by settling the dues of €20000 in cash and €10000 in Notes Payable. The entry will be,
| Non-Current Asset A/c .......... Dr. | 30,000 |
| To, Cash A/c | 20,000 |
| To, Notes Payable A/c | 10,000 |
4. Purchases from suppliers were €20,500, of which €2,500 was still unpaid at the year-end. The entry will be,
| Purchases A/c .......... Dr. | 20,500 |
| To, Cash A/c | 18,000 |
| To, Accounts Payable A/c | 2,500 |
5. Wages and salaries amounted to €10,500, of which €800 was unpaid at the year-end. The entry will be,
| Wages and Salaries A/c .......... Dr. | 10,500 |
| To, Cash A/c | 9,700 |
| To, Outstanding Wages A/c | 800 |
6. Interest of €1,500 on the loan was fully paid in the year and also a repayment of the principal was made in the amount of €5,000. Entry will be,
| Interest on Loan A/c .......... Dr. | 1,500 |
| 6% Medium-term Loan A/c ......... Dr. | 5,000 |
| To, Cash A/c | 6,500 |
7. Sales revenue was €35,000, including €2,500 trade receivables at the year-end. Entry will be,
| Cash A/c .......... Dr. | 32,500 |
| Accounts Receivable A/c ......... Dr. | 2,500 |
| To, Sales A/c | 35,000 |
8. Interest on cash deposits at the bank amounted to €80. Entry will be,
| Cash A/c .......... Dr. | 80 |
| To, Interest on Cash Deposits A/c | 80 |
Now, using the entries above, we can frame a Cash Account as follows,
| CASH ACCOUNT | |||
| To Opening Balance | 0 | By Non-Current Assets (Acquired Non-Current Assets) |
20,000 |
| To 6% Medium-term Loan A/c (Proceeds from loan) |
25,000 | By Purchases (Payment to Suppliers) |
18,000 |
| To Equity Share Capital A/c (Proceeds from share issue) |
40,000 | By Wages and Salaries (Payment to Employees) |
9,700 |
| To Sales (Received from Customers) |
32,500 | By Interest on Loan (Interest Paid) |
1,500 |
| To Interest on Cash Deposits A/c (Interest received) |
80 | By 6% Medium-term Loan A/c (Repayment of Loan) |
5,000 |
| By Closing Balance | 43,380 | ||
| TOTAL | 97,580 | TOTAL | 97,580 |
Now, as the Cash Account has been finalized, Statement of Cash Flows can be framed as follows,
|
Grove Co |
||
| Cash flows from operating activities | ||
| Cash received from customers | 32500 | |
| Cash paid to suppliers | -18000 | |
| Cash paid to employees | -9700 | |
| Interest paid | -1500 | |
| Interest received | 80 | |
| Net cash flows from operating activities | 3380 | |
| Cash flows from Investing activities | ||
| Acquisition of non-current assets | -20000 | |
| Net cash flows from investing activities | -20000 | |
| Cash flows from Financing activities | ||
| Proceeds from a share issue | 40000 | |
| Proceeds from a loan | 25000 | |
| Repayment of a loan | -5000 | |
| Net cash flows from financing activities | 60000 | |
| Net increase in cash | 43380 | |
| Cash at 1 January 2017 | 0 | |
| Cash at 31 December 2017 | 43380 |
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