question archive Flamenco Corporation operates under ideal conditions of certainty
Flamenco Corporation operates under ideal conditions of certainty
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Flamenco Corporation operates under ideal conditions of certainty. It acquired its sole asset (a pen making machine) on January 1, 2018. The asset will yield $500 cash for 2 years at the end of year 2019 and 2020. Salvage value or disposal costs are expected to be zero. The interest rate in the economy is 6%. Purchase of the asset was financed by the issuance of common shares. Flamenco Corporation will pay no dividend at the end of each year.
Required
a. Prepare a balance sheet and income statement as at the end of December 31, 2019.
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Answer:
| Valuation of Machines in the Book of Flamenco Corporation | ||||
| Period | Cash Fows | Interest Rate @ 6% | PV Value @ 6% | |
| 2019 | 500 | 0.9434 | 472 | |
| 2020 | 500 | 0.8900 | 445 | |
| 917 | ||||
| Depreciation for Machine = Cost of Acquistion - Salvage Value / Useful Life | ||||
| Assumed to be Useful life of 2 years = 917 - 0 /2 | ||||
| Flamenco Corporation | ||||
| Balance Sheet | ||||
| as on Date 31, Dcember 2019 | ||||
| Equity and Liability | Amount $ | Assets | Amount $ | |
| Equity | Gross Machine Value | 917 | ||
| Equity Share Capital | 917 | Less: Accumulated Depreciation | 917 | |
| Retained Earnings | 83 | Net Machine Value | NIL | |
| Account Receiavble | 1000 | |||
| Total | 1000 | Total | 1000 | |
| Flamenco Corporation | ||||
| Income Statement | ||||
| for the Year Ended 31 Decemebr 2019 | ||||
| Particulars | Amount $ | Particulars | Amount $ | |
| Depreciation | 458.5 | Revenue | 500 | |
| Net Income | 41.5 | |||
| Total | 500 | Total | 500 | |
| Schedule for Retained Earnings | ||||
| Opening Profit ( 2018) | 41.5 | |||
| Net Income During the Year ( 2017) | 41.5 | |||
| Closing Retianed Earning | 83 | |||
