Question

Below are extracts from the statement of profit & loss and statement of financial position of a company. Operating profit BWP 70,000 Income from investments 2,000 Finance costs (9,000) Profit before tax 63,000 Tax Charge (22,000) Profit after tax 41,000 Other comprehensive income Revaluation gain 30,000 Total comprehensive income 71,000 Closing Balance (BWP) Opening Balance (BWP) Current assets Inventory 27,000 23,000 Receivables 18,000 25,000 Current liabilities TAdditional Information: i. Depreciation charge for the year was P40,000. ii. P700,000 were the receipts from customers and also for cash sales. P353,000 was paid to suppliers, other operating cash payments were P110,000 and cash paid on behalf and to employees was P120,000. iii. Interest paid and taxation paid were P11 000 and P14,000 respectively Additional Information: i. Depreciation charge for the year was P40,000. ii. ii. P700,000 were the receipts from customers and also for cash sales. P353,000 was paid to suppliers, other operating cash payments were P110,000 and cash paid on behalf and to employees was P120,000. iii. iii. Interest paid and taxation paid were P11 000 and P14,000 respectively

Required: a. Prepare the operating activities section of the statement of cash flows using:

i. The direct method. (9 marks) ii.

The indirect method. (9 marks) b. If the finance cost shown above was for a loan which was taken on 01 October 2019 at an interest rate of 7.5%, calculate the capital amount. c. From the above statement of Financial Position explain the likely cause of the following: i. The increase in inventory. (3 marks) ii. The decrease in receivables. (2 marks) iii. The increase in payables. (2 marks)

Answer 1

a.

Cash Flow Statement using Direct Method cash flow from operating activities inflows cash received from business sales/.reciept cash received from net non business income total cash inflows fro operating activities Cash Flow Statement using Indirect Method cash flow from operating activities Net Income Adjustment to Reconcile net income to Depreciation on Fixed Assets 71000 700000 40000 700000 -4000 7000 outflows Cash paid to Suppliers cash paid for operating expenses Cash paid on behalf of employees cash paid for loan interest Tax paid 353000 110000 120000 11000 14000 (Increase)Decrease in Current Assets: Inventory Accounts Receivable Increase(Decrease) in Current Liabilties: Accounts Payable Net cash flow from Operating Activties - 22000 92000 608000 total cash outflows from operating activities Net cash flows from operating activities 92000

b. If the finance cost shown above was for a loan which was taken on 01 October 2019 at an interest rate of 7.5%, calculate the capital amount.

finance cost $9000

loan date 1st october 2019

book closing 31st December 2019

finance cost $ 9000 for 3 month

Finance cost for whole year $ 9000/3x12= $36000

rate of interest 7.5%

capital amount = 36000/7.5x100

= 4,80,000

c. From the above statement of Financial Position explain the likely cause of the following:

i. The increase in inventory. : inventory increases when new purchases made

ii. The decrease in receivables.: collection received from receivables

iii. The increase in payables. : fresh purchases made