Question

QUESTION 2 Jamie Bard is the owner Café Corner, a popular restaurant located at a busy traffic intersection in the city of Clutchmore. For the financial year ended 30 June 2020: • Café Corner earned a profit after income tax of $16,000. This was after taking into account sales of $821,000 and cost of sales of $623,000. Other operating expenses incurred to operate the business totalled $179,000. This figure included: (0) depreciation expenses, and (ii) interest expenses of $11,000 which were fully paid. There were some additional plant and equipment purchased for cash. However, there were no disposals of property, plant and equipment. The company paid $7,000 to the Tax Office in full settlement of its income tax obligations. The company received some interest income amounting to $4,000 when it placed some of its excess cash in an investment fund. • The shareholders of Café Corner received dividends of $18,000 from the company. The following are balances extracted from the Statements of Financial Position of Café Corner at the end of its most recent two financial years: Accounts payable Accounts receivable Accrued expenses Accumulated depreciation Cash Inventory Plant and equipment Prepaid expenses Share capital 30 June 2020 $ 12,000 28,000 5,000 84,000 34,000 72,000 293,000 4,000 180,000 30 June 2019 $ 27,000 103,000 11,000 65,000 23,000 46,000 228,000 15,000 160,000 Jamie wants to understand the cash flow of Café Corner better and has asked for your assistance to help him prepare some information regarding the cash flows of the business. Required: a) Calculate the cash receipts from customers, cash payments to suppliers and cash payments for other expenses. Show all workings. (7% marks) b) Using the direct method, prepare the Statement of Cash Flows for Café Corner for the financial year ended 30 June 2020. (6% marks) c) Prepare a reconciliation of Cash Flows from Operating Activities and Profit After Tax for Café Corner. (4 marks)

Answer 1

ANSWER TO QUESTION A :

NOTE 1 CASH RECEIPTS FROM CUSTOMERS PARTICULARS SALES REVENUE ADD: OPENING RECEIVABLES LESS: CLOSING RECEIVABLES $ AMOUNT 821,000.00 $ 103,000.00 $ 28,000.00 $ 896,000.00 NOTE 2 CASH PAID TO SUPPLIERS PARTICULARS PURCHASES (NOTE - A) ADD: OPENING PAYABLES LESS: CLOSING PAYABLES AMOUNT $ 649,000.00 $ 27,000.00 $ 12,000.00 NOTEA PURCHASES PARTICULARS COST OF GOOD SOLD ADD: CLOSING INVENTORY LESS: OPENING INVENTORY AMOUNT $ 623,000.00 $ 72,000.00 $ 46,000.00 $ 664,000.00 $ 649,000.00 NOTE 3 CASH PAID TO EXPENSES PARTICULARS OPERATING EXPENSES DEPRECIATION INTEREST EXPENSES PREPAID EXPENSE INCREASE CHANGE IN ACCRUED PAYABLE AMOUNT $ 179,000.00 $ (19,000.00) $ (11,000.00) $ (11,000.00) $ 6,000.00 144,000.00 $

ANSWER TO QUESTION (B) :

AMOUNT NOTES CAFÉ CORNOR STATEMENT OF CASH FLOWS (DIRECT METHOD) FOR THE YEAR ENDED 30 june 2020 PARTICULARS AMOUNT Cash flow from operating Activities Cash Receipts from customers $ 896,000.00 Cash paid to suppliers $ (664,000.00) Cash paid for expenses $ (144,000.00) Cash generated from operations Less: Tax paid Net cash flow from operating activitities 1 2 3 $ $ $ 88,000.00 (7,000.00) 81,000.00 Cash flow from investing Activities Paid for Purchase of EQUIPMENT interest Received Net Cash flow from investing Activities $ $ (65,000.00) 4,000.00 $ (61,000.00) Cash flow from financing Activities proceeds from issue of shares Interest Expense Dividend paid Net Cash flow from financing Activities $ $ $ 20,000.00 (11,000.00) (18,000.00) (9,000.00) Net Increase/Decrease in cash during the period $ 11,000.00 CASH IN HAND AT THE BEGINNING OF THE PERIOD CASH IN HAND AT THE END OF THE PERIOD $ $ 23,000.00 34,000.00

NOTE 1 CASH RECEIPTS FROM CUSTOMERS PARTICULARS SALES REVENUE ADD: OPENING RECEIVABLES LESS: CLOSING RECEIVABLES AMOUNT $ 821,000.00 $ 103,000.00 $ 28,000.00 $ 896,000.00 NOTE 2 CASH PAID TO SUPPLIERS PARTICULARS PURCHASES (NOTE - A) ADD: OPENING PAYABLES LESS: CLOSING PAYABLES AMOUNT $ 649,000.00 $ 27,000.00 $ 12,000.00 NOTE A PURCHASES PARTICULARS COST OF GOOD SOLD ADD: CLOSING INVENTORY LESS: OPENING INVENTORY AMOUNT $ 623,000.00 $ 72,000.00 46,000.00 $ $ 664,000.00 $ 649,000.00 NOTE 3 CASH PAID TO EXPENSES PARTICULARS OPERATING EXPENSES DEPRECIATION INTEREST EXPENSES PREPAID EXPENSE INCREASE CHANGE IN ACCRUED PAYABLE AMOUNT $ 179,000.00 $ (19,000.00) $ (11,000.00) $ (11,000.00) $ 6,000.00 144,000.00 $

ANSWER TO QUESTION NO (C) :