30,650
(26,000)
4,650
(450)
(950)
(400)
500
3,350
(120)
3,230
Sales revenue
Cost of sales
Gross profit
Depreciation
Administrative and selling expenses
Interest expense
Investment income
Profit before tax
Income tax expense
Profit for the year
Statement of Financial Position as at 31st December 20X2
20X2
ASSETS
Property, plant and equipment at cost
Accumulated depreciation
Long-term investments
Inventory
Accounts receivable
Cash and cash equivalents (see note below)
Total assets
3,730
(1,450)
2,280
2,500
1,000
1,900
410
8,090
20X1
1,910
(1,060)
850
2,500
1,950
1,200
160
6,660
1,500
3,410
4,910
1,250
1,380
2,630
Liabilities
Trade payables
Interest payable
Income taxes payable
Long-term debt (including finance leases)
Total liabilities
250
230
400
2,300
3,180
1,890
100
1,000
1,040
4,030
8,090
6,660
Cash
Short-term investments
31st December
20X2
20X1
40
25
370
135
410
160
Interest expense was 400 of which 170 was paid during the period. 100 relating to
interest expense of the prior period was also paid during the period. 200 of interest was
received during the period.
2.
3.
The liability for tax at the beginning and end of the period was 1,000 and 400
respectively.
4.
During the period, a further 20 tax was provided for. Withholding tax on dividends
received amounted to 100, thus leading to the total tax expense of 20 + 100 = 120.
5.
During the period, the group acquired property, plant and equipment with an aggregate
cost of 1,900 of which 900 was acquired by means of finance leases. Cash payments of
1,000 were made to purchase property, plant and equipment.
6.
7.
Plant with an original cost of 80 and accumulated depreciation of 60 was sold for 20.
8.
9.
250 was raised from the issue of share capital and a further 450 was raised form longterm borrowings.
Requirement
(a) Prepare a statement of cash flows for the year ended 31 st December 20X2 using the
indirect method in accordance with IAS 7 Statement of Cash Flows (i.e. starting the
statement of cash flows with the profit before tax); and
(b) Show the calculation of operating cash flow using the direct method.
(c) Discuss the decision usefulness of the required classifications of cash flows under IAS 7
Statement of Cash Flows.
Suggested Answer:
(a)
Statement of Cash Flows for the Year Ended 31st December 20X2
Workings
3,350
3
4
450
(500)
400
3,700
(600)
950
(1,640)
2,410
(270)
(720)
1,420
5
7
2
2
(1,000)
20
200
200
(580)
250
450
(90)
(1,200)
(590)
250
160
410
20X1
25
135
160
Workings:
Opening balances
Movement (bal fig)
SCI
1,800
_____
1,800
100
200
200
500
100
400
500
1,000
120
1,120
Opening balance
1,910 Transfer disposal
Leases
900 Closing balance
Cash additions (bal fig)
1,000
3,810
80
3,730
_____
3,810
Transfer disposal
60 Opening balance
Closings balance
1,450 SCI
1,510
1,060
450
1,510
Cost
80 Depreciation
__ Cash
80
60
20
80
(b)
1,040
900
450
2,390
Dividend paid
1,200 Opening balance
Closing balance
3,410 SCI
4,610
1,380
3,230
4,610
Workings
1
2
30,050
(27,640)
2,410
(270)
(720)
1,420
Workings:
(W1) Cash receipts from customers
Opening trade receivables
Sales
Less: closing trade receivables (1,900 100)
(W2) Cash paid to suppliers and employees
Opening trade payables
Purchases (26,000 1,950 + 1,000)
Less: closing trade payables
Administrative and selling expenses
1,200
30,650
31,850
1,800
30,050
1,890
25,050
26,940
250
26,690
950
27,640
receipts from customers, payments to suppliers and employees and income taxes. Operating
cash flows may also include interest and dividends received (though these items may be
classified as investing) and interest paid (though this item may be classified as financing).
Investing cash flows are the acquisition and disposal of long-term assets (such as property,
plant and equipment, subsidiaries, businesses and intangibles) and other investments not
included in cash equivalents (such as shares in other entities).
Financing activities are activities that result in changes in the size and composition of the
equity capital and borrowing of an entity (such as the issue of new shares, buyback of shares,
new borrowings, repayment of borrowings and the payment of dividends, though payment of
dividends are sometimes classified as an operating activity).
Revenue
Cost of sales
Gross profit
Operating expenses
Operating profit
Finance charges
Profit before tax
Income tax
Profit after tax
2007
000
484,800
(362,000)
122,800
(86,440)
36,360
(7,600)
28,760
(15,160)
13,600
ASSETS
Non Current Assets
Property, plant and equipment
Current Assets
Inventory
Trade receivables
Investments
Bank and cash
2008
000
2007
000
277,900
206,600
119,000
98,000
18,000
32,000
267,000
114,000
108,000
14,000
24,500
260,500
544,900
467,100
100,000
115,300
215,300
100,000
109,600
209,600
130,100
57,600
11,200
179,700
5,200
3,400
199,500
8,100
185,600
4,100
2,100
199,900
8
544,900
467,100
Additional Information:
1.
2.
Plant and equipment, with an original cost of 400,000 and a net book value of 320,000,
was sold for 275,000 during 2008. The profit / loss on disposal is included in operating
expenses. There were no other disposals during 2008. All additions to property, plant and
equipment during 2008 were paid for in cash.
3.
4.
The current asset investments fall within the definition of cash equivalents under IAS 7
Statement of Cash Flows.
5.
Dividends amounting to 10,000,000 were proposed, approved and paid in each of the
years 2007 and 2008.
Requirement
(a) Prepare a statement of cash flows in accordance with IAS 7 Statement of Cash Flows for
LEPRECHAUN in respect of the year ended 31st December 2008 using the indirect
method of presenting operating cash flows.
20 Marks
(b) Notwithstanding the fact that statements of cash flows are a valuable source of
information for users of financial statements, important non-cash transactions may occur
which are not reported in a statement of cash flows.
Outline examples of such transactions.
5 Marks
Total 25 Marks