Question

Example 2 Gatis has the following Statement of Profit or Loss for the year ended 31 December 2007: Revenue Cost of sales Gross profit Distribution and administrative expenses Net profit before tax The following are extracts from Gatis's Statements of Financial Position: 1,200,000 (840,000) 360,000 (120,000) 240,000 2007 2006 Current assets Inventory Trade receivables Current liabilities Trade payables You are given the following further information (1) expenses include depreciation of $36,000, irrecoverable debts written-off of $14,000 and 160,000 140,000 259,000 235,000 168,000 138,000 employment costs of $42,000 $18,000, the profit on which had been netted off expenses how the cash generated from operations would be presented on the Statement of Cash (2) during the year Gatis disposed of a non-current asset for $24,000 which had a book value of You are required to show: (a) Flows using the indirect method. how the cash generated from operations would be presented on the Statement of Cash Flows under the direct method. (b)

Answer 1

Direct method
Opening AR	235,000
Add revenue	1,200,000
Less Closing AR	(259,000)
Cash Revenue	1,176,000
Expense incurred	840,000
Add administrative expense	120,000
Less Dep	(36,000)
Less Debt write off	(14,000)
Add Gain on FA Sale which was netted with expense	6,000
Add opening inventory	(140,000)
Add closing inventory	160,000
Net cash expense	936,000
Add opening liabilites	138,000
Less closing liabilities	(168,000)
Cash expense	906,000
Cash flow from operations
Cash revenue	1,176,000
Cash expense	(906,000)
Cash flow from operations	270,000
Indirect method
Description	Amount
Net Income before tax	240,000
Gain on sale of investments	(6,000)
Add non cash expense
Depreciation	36,000
Debt write off	14,000
Adjustment for change in working capital
Change in AR	(24,000)
Change in inventory	(20,000)
Change in AP	30,000
Cash flow from operating activity	270,000