Question

Preparation of a statement of cash flows A summarised comparative statement of financial position of Fuchsia Ltd is presented below. 30 June 2018 30 June 2019 Cash 20 000 91 000 Trade accounts receivable 65 000 90 000 Inventories 58 000 62 000 Prepayments 10 000 12 000 Land 80 000 90 000 Plant 280 000 320 000 Accumulated depreciation (60 000) (92000) 453 000 573 000 Accounts payable 45 000 48 000 Borrowings 160 000 200 000 Share capital 200 000 230 000 Retained earnings 48 000 95 000 453 000 573 000 Additional information . . There were no disposals of land or plant during the year. A $30 000 borrowing was settled through the issue of ordinary shares. There were no other repayments of borrowings Profit for the year was $120 000, interest expense was 514 000, and income tax expense was $41000. There were no items of other comprehensive income.

Answer 1

Answer :

Fuchsia Ltd

Cash Flow Statement (Indirect Method)

For the Year Ended June 30, 2019

	$	$
CASH FLOW FROM OPERATING ACTIVITIES
Net Profit	120,000
Adjustment for :
Depreciation	32,000
Operating Cash Flow before Working capital Changes	152,000
Adjustment for :
Increase in Trade accounts receivable	(25,000)
Increase in Inventory	(4,000)
Increase in Pre payments	(2,000)
Increase in Accounts payable	3,000
Net Cash Flow from Operating Activities		124,000
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of Land	(10,000)
Purchase of Plant	(40,000)
Net Cas used in Investing Activities		(50,000)
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of Share capital	30,000
Borrowings	40,000
Dividend paid	(73,000)
Net cash used in Financing activities		(3,000)
Net Increase in Cash balance		71,000
Add : Cash balance as on June 30,2018 (Beginning)		20,000
Cash balance as on June 30, 2019 (Ending)		91,000

2. Cash Flow Statement under Direct Method - Operating Activities

	$	$
CASH FLOW FROM OPERATING ACTIVITIES
Cash receipt from customer (WN 1)	275,000
Cash paid to Supplier (WN 2&3)	(94,000)
Interest paid (given)	(14,000)
Income tax paid (given)	(41,000)
Other expense (Pre paid expense)($12,000-$10,000)	(2,0000
Net Cash from Operating activities		124,000

Working Note :

1. Cash received from Customer

Opening balance in Trade accounts receivable Add : Sales during the period Less : Closing balance in Trade accounts receivable	65,000 300,000 (90,000)
Cash received from Customer	275,000

2. Cost of goods purchased

Cost of goods sold (See Note) Add : Closing Inventories Less ; Opening Inventories	93,000 62,000 (58,000)
Cost of goods purchased	97,000

Note : Sales - Cost of goods sold - Other expense - Depreciation = Net profit

Cost of Goods sold = Sales - Interest - Income tax - Depreciation - Net profit

= $300,000 - $14,000 - $41,000 - $ 32,000 -$120,000

= $ 93,000

3. Cash paid to Suppliers

Opening balance in Accounts payable Add : Cost of goods purchased (Working Note 2) Less : Closing balance in Accounts payable	45,000 97,000 (48,000)
Cash paid to Suppliers	94,000