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Net cash used in investing activities
Cash flows from financing activities
Proceeds of issue of shares
Repayment of loans
Dividends paid
–––––––
Net cash used in financing activities
Net increase in cash and cash
equivalents
–––––––
Cash and cash equivalents at beginning of
period
–––––––
Cash and cash equivalents at end period
Chapter 19
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Test your understanding 8
You are given below, in summarised form, the accounts of Algernon, an
entity, for 20X6 and 20X7.
31 December 20X6
31 December 20X7
Cost Dep’n CA Cost Dep’n CA
$ $ $ $ $ $
Plant
10,000 4,000 6,000 11,000 5,000 6,000
Buildings
50,000 10,000 40,000 90,000 11,000 79,000
–––––– –––––– –––––– –––––– –––––– ––––––
46,000
85,000
Investments at cost
50,000
80,000
Land
43,000
63,000
Inventory 55,000
65,000
Receivables 40,000
50,000
Bank
3,000
––––––
––––––
237,000
343,000
––––––
––––––
Ordinary shares of
$1 each
40,000
50,000
Share
premium
12,000
14,000
Revaluation surplus
(land)
–
20,000
Retained
earnings
45,000
45,000
10% Loan notes
100,000
150,000
Payables 40,000
60,000
Bank
–
4,000
––––––
––––––
237,000
343,000
––––––
––––––
Statement of cash flows
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KAPLAN PUBLISHING
Statement of profit or loss for the years ended 31 December:
20X6 20X7
$
$
Sales 200,000
200,000
Cost of sales
(100,000)
(120,000)
–––––––
–––––––
100,000
80,000
Expenses (50,000)
(47,000)
–––––––
–––––––
50,000
33,000
Interest (10,000)
(13,000)
–––––––
–––––––
Net profit for year
40,000
20,000
–––––––
–––––––
Notes:
A $20,000 dividend has been paid in the year.
Required:
(a)
Prepare a statement of cash flows for Algernon for the year
ended 31 December 20X7, to explain as far as possible the
movement in the bank balance.
The statement of cash flows should be prepared using the
direct method.
(b)
Using the summarised accounts given, and the statement you
have just prepared, comment on the position, progress and
direction of Algernon.
Chapter 19
KAPLAN PUBLISHING
365
Test your understanding 9
Part of an entity's statement of cash flows is shown below:
$000
Profit before tax
1,255
Loss on disposal
(455)
Increase in receivables
(198)
Increase in payables
340
The following criticisms of the extract have been made:
1
The loss on disposal should have been added, not deducted.
2
Increase in receivables should have been added, not deducted.
3
Increase in payables should have been deducted, not added.
Which of the criticisms is valid?
A
1, 2 and 3
B 1
only
C
2 and 3 only
D
none of them
Test your understanding 10
Which of the following could appear in an entity's statement of cash
flows?
1 Proposed
dividend
2 Dividends
received
3
Bonus issue of shares
4
Surplus on revaluation of non-current assets
A
1 and 2
B 1,2
and
3
C 2
only
D
2 and 3
Statement of cash flows
366
KAPLAN PUBLISHING
Test your understanding 11
The following details were provided by Caddyshack, an entity, which had
a profit before tax of $434,850 for the year ended 31 December 20X6.
1
Depreciation of $37,400 was charged to the statement of profit or
loss; this included an amount of $7,600 which was the loss on
disposal of a non-current asset.
2
Finance costs of $35,000 were charged to the statement of profit or
loss.
3
The following extract of the statement of financial position at
31 December 20X5 and 20X6 was provided:
31 Dec
20X6
31 Dec
20X5
$000
$000
Inventory 145
167
Trade receivables
202
203
Prepayments 27
16
Trade payables
196
212
Interest payable
6
28
What was the cash generated from operations?
A $468,250
B $511,250
C $476,250
D $503,250
Chapter 19
KAPLAN PUBLISHING
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Chapter summary
Statement of cash flows
368
KAPLAN PUBLISHING
Test your understanding answers
Test your understanding 1
Operating activities
$
Cash received from customers (W1)
432,298
Cash payments to suppliers (W2)
(164,555)
Cash paid to and on behalf of employees (W3)
(52,570)
–––––––
Cash inflow from operations
215,173
Interest paid (W4)
(275)
Income tax paid (W5)
(1,340)
–––––––
Net cash inflow from operating activities
213,558
–––––––
Workings
(W1)
Receivables’ ledger control account
$
$
Balance b/f
35,633 Cash receipts (ß)
432,298
Contra with payables
230
Sales revenue
427,915 Balance c/f
(31,250 – 230)
31,020
–––––––
–––––––
463,548
463,548
–––––––
–––––––
(W2)
Payables’ ledger control account
$
$
Cash paid (ß)
164,555 Balance b/f
13,750
Contra with receivables
230 Purchases
165,000
Balance c/f
(14,195 – 230)
13,965
–––––––
–––––––
178,750
178,750
–––––––
–––––––
Chapter 19
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(W3)
Wages control
$
$
Net wages paid (ß)
52,570 Balance b/f
835
Balance c/f
1,015 Profit or loss
52,750
–––––––
–––––––
53,585
53,585
–––––––
–––––––
(W4)
Interest payable
$
$
Interest paid (ß)
275 Balance b/f
300
Balance c/f
350 Profit or loss
325
–––––––
–––––––
625
625
–––––––
–––––––
(W5)
Income tax
$
$
Interest paid (ß)
1,340 Balance b/f
1,075
Balance c/f
1,250 Profit or loss
1,515
–––––––
–––––––
2,590
2,590
–––––––
–––––––
Note:
When the contra is accounted for, it will reduce the balance
outstanding at the year-end of both trade receivables and trade payables.
Statement of cash flows
370
KAPLAN PUBLISHING
Test your understanding 2
$000
Profit before tax (92 + 71) (i.e. as per properly formatted P&L)
163
Add: Finance charge per P&L
22
Less: Investment income per P&L
(72)
Add: Depreciation (W1)
85
Add: Loss on disposal of plant
5
Add: Decrease in inventory (105 – 98)
7
Less: Increase in trade receivables (86 – 102)
(16)
Less: Decrease in trade payables (79 – 77)
(2)
–––––
Cash flow generated from operations
192
–––––
Note that interest paid and income tax paid would need to be deducted to
arrive at 'Net cash flow from operations'.
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