Question

The income statement and additional data of Bayleaf Travel Products Pty Ltd are as follows:

Income statement for the year ended 31 December 2016

Revenue:

Service revenue                            R225 000

Dividend revenue                          R6 300

Total Revenues                                                        R231 300

Cost of goods sold                          R100 000

Salary expense                                R52 000

Depreciation expense                     R23 000

Advertising expense                       R2 300

Interest expense                             R2 400

Income tax expense                        R5 000

Total Expenses                                                      (R184 700)

Net Profit                                                               R46 600

Additional data

a) Acquisition of PPE was R170 000. Of this amount, R140 000 was paid in cash and R30 000 by signing a note payable.

b) Proceeds from sale of land totalled R48 000.

c) Proceeds from issuance of shares totalled R31 000.

d) Payment of long-term note payable was R16 000.

e) Payment of dividends was R10 000.

From the balance sheet:

Balance sheet as at 31 December

2016		2015
Current assets
Cash	R32 000		R13 300
Accounts receivable	R41 000		R57 000
Inventory	R48 000		R87 000
Prepaid expenses	R9 100		R8 200
Current liabilities
Accounts payable	R32 000		R17 000
Accrued liabilities	R14 000		R43 000

Requirements

a) Prepare Bayleaf’s statement of cash flow for the year ended 31 December 2016, using the indirect method.

b) Evaluate Bayleaf’s cash flows for the year ended 31 December 2016, including its free cash flow and cash realisation ratio. In your evaluation, review all three categories of cash flows and give the reason for your evaluation

c) When analysing the cash flow patterns of a company, what other three important indicators of the health of a company’s cash flows do you look at?

Answer 1