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Cash Flow Statement The following information has been extracted from the books of Belmont Ltd - Leaving Cert Accounting - Question 7 - 2005
Question 7
Cash Flow Statement The following information has been extracted from the books of Belmont Ltd. Profit and Loss (extract) for year ended 31/12/2004 Operating prof... show full transcript
Worked Solution & Example Answer:Cash Flow Statement The following information has been extracted from the books of Belmont Ltd - Leaving Cert Accounting - Question 7 - 2005
Step 1
Reconcile the operating profit to net cash inflow from operating activities.
Answer
To reconcile the operating profit to net cash inflow from operating activities, we start with the operating profit, adjust for non-cash items, and consider changes in working capital items:
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Operating Profit:
The operating profit provided is €196,000.
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Depreciation:
Add back depreciation as it is a non-cash expense:
- Depreciation = €9,000
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Increase in Stock:
Subtract the increase in stock, as it represents funds tied up:
- Increase in Stock = €(11,000)
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Increase in Debtors:
Subtract the increase in debtors, indicating that cash has not yet been received:
- Increase in Debtors = €(17,000)
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Decrease in Creditors:
Subtract the decrease in creditors, showing that the firm has paid off some payables:
- Decrease in Creditors = €(6,000)
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Net Cash Inflow from Operating Activities:
Summing these amounts gives:
Net Cash Inflow = €196,000 + €9,000 - €11,000 - €17,000 - €6,000 = €171,000.
Step 2
Prepare the Cash Flow Statement of Belmont Ltd. for the year ended 31/12/2004.
Answer
The Cash Flow Statement is structured into different sections representing sources and uses of cash. The components of the cash flow statement for Belmont Ltd. are:
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Operating Activities:
- Net Cash Inflow from Operating Activities = €171,000
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Return on Investments and Servicing of Finance:
- Interest Paid = (€5,000)
- Tax Paid = (€34,000)
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Capital Expenditure and Financial Investment:
- Purchase of Land/Buildings = (€80,000)
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Equity / Ordinary Dividend Paid:
- Dividend Paid = (€28,000)
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Financing:
- Issue of Ordinary Share Capital = €23,000
- Receipts from Debenture Loan = €40,000
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Increase in Cash:
- Total Cash Increase = €87,000
Thus, the resulting cash flow can be summarized:
- Total Cash from Operating Activities = €171,000
- Total Cash outflows = (€5,000) + (€34,000) + (€80,000) + (€28,000) = (€147,000)
- Cash provided by Financing Activities = €63,000 + €40,000 = €63,000
- Total Increase in Cash = €171,000 - €147,000 + €63,000 = €87,000.
Step 3
Reconcile the Net Cash Flow to Movement in Net Debt.
Answer
To reconcile the net cash flow to the movement in net debt, we calculate as follows:
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Net Cash Flow in the Period:
- Net Cash Flow = €87,000
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Cash Receipt from Debentures:
- Cash receipt from Debentures = €40,000
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Cash Paid for Debentures:
- Cash paid for Debentures = (€80,000 - €11,000) = €69,000
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Net Debt at 1/1/2004:
- Net Debt at 1/1/2004 = €80,000
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Net Debt at 31/12/2004:
- Net Debt at 31/12/2004 = Net Debt at 1/1/2004 - Cash Flow + Cash receipt = €80,000 - €87,000 + €40,000 = €33,000.