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Cs

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Fegason Fegy
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16 views

Cs

Science

Uploaded by

Fegason Fegy
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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(a) Preparing a Statement of Cash Flows

Steps for preparing a statement of cash flows under IAS 7:

Cash Flows from Operating Activities

Start with the profit before tax, then adjust for non-cash items and changes in working capital.

Non-cash adjustments include depreciation, profit or loss on sale of assets, and revaluation.

Adjust for changes in working capital: changes in inventory, trade receivables, and trade
payables.

Subtract tax paid during the year.

Cash Flows from Investing Activities

Include cash received from the sale of non-current assets (buildings and vehicles).

Deduct cash used for the purchase of new buildings and machinery.

Cash Flows from Financing Activities

Include cash flows related to share issues, dividends, and redemption of loan stock.

Based on the financial information provided, let’s outline the necessary adjustments:

Operating profit: $156,000

Adjustments:

Add depreciation expenses (given for vehicles and machinery).

Subtract profit from sale of buildings ($101,000).

Adjust for revaluation of land ($300,000 increase in value).


Adjust for working capital changes:

Inventory change: $470,000 - $400,000

Trade receivables change: $280,000 - $200,000

Trade payables change: $135,000 - $130,000

Tax paid: $128,000

Investing Activities:

Sale of buildings: $320,000

Sale of vehicles: $12,000

Purchase of buildings and machinery (exact amount not directly provided, need calculation).

Financing Activities:

Redemption of loan stock: $200,000

Bonus issue and rights issue details are provided; include cash from share issues.

Dividend paid: $32,000

(b) Benefits of Preparing a Statement of Cash Flows

Provides Insight into Cash Liquidity: Shows how well a company generates cash to fund its
operations, pay off debts, and provide returns to shareholders.

Assesses Financial Flexibility: Helps users understand the company's ability to adapt to
changing financial circumstances and opportunities.

Evaluates Cash Management Efficiency: Indicates the effectiveness of management in handling


operating, investing, and financing cash flows.

Predicts Future Cash Flows: Assists investors and analysts in predicting future cash flows by
analyzing historical cash inflows and outflows
Statement of Cash Flows in Accordance with IAS 7 for the Year Ended 31 December 2018

1. Cash Flows from Operating Activities

Profit before tax:

= 156,000 - 28,000 = 128,000=156,000−28,000=128,000

Adjustments for non-cash items:

Depreciation:

Buildings: 245,000 - 243,000 = 2,000245,000−243,000=2,000

Vehicles: 390,000 - 240,000 = 150,000390,000−240,000=150,000

Machinery: 450,000 - 340,000 = 110,000450,000−340,000=110,000

Total Depreciation = 2,000 + 150,000 + 110,000 = 262,0002,000+150,000+110,000=262,000

Loss on Sale of Vehicle: 75,000 - 12,000 - 58,000 = 5,00075,000−12,000−58,000=5,000 (included


as cash inflow under investing activities)

Profit on Sale of Building: -101,000−101,000

Revaluation Gain on Land: -300,000−300,000

Working Capital Adjustments:

Inventory Increase: 470,000 - 400,000 = 70,000470,000−400,000=70,000

Trade Receivables Increase: 280,000 - 200,000 = 80,000280,000−200,000=80,000

Trade Payables Increase: 135,000 - 130,000 = 5,000135,000−130,000=5,000

Cash Generated from Operations:

= 128,000 + 262,000 - 101,000 - 300,000 - 70,000 - 80,000 + 5,000 = -156,000

=128,000+262,000−101,000−300,000−70,000−80,000+5,000=−156,000

Tax Paid: -128,000−128,000


Net Cash Flow from Operating Activities:

= -156,000 - 128,000 = -284,000

=−156,000−128,000=−284,000

2. Cash Flows from Investing Activities

Proceeds from Sale of Buildings: 320,000320,000

Proceeds from Sale of Vehicles: 12,00012,000

Purchase of Buildings and Machinery (balancing figure): -400,000−400,000

Net Cash Flow from Investing Activities:

= 320,000 + 12,000 - 400,000 = -68,000

=320,000+12,000−400,000=−68,000

3. Cash Flows from Financing Activities

Redemption of Loan Stock: -200,000−200,000

Dividend Paid: -32,000−32,000

Rights Issue: \text{Shares issued at premium (calculate as per


information)}Shares issued at premium (calculate as per information)

Net Cash Flow from Financing Activities:


= (calculated total based on share premium)

=(calculatedtotalbasedonsharepremium)

Final Cash Balance:

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