Photo AI
Cash Flow Statement The following information has been extracted from the books of Carter Ltd: Profit and loss (extract) for year ended 31/12/2015 € Operating profit 140,000 Interest paid (12,000) Taxation (28,000) Dividends paid (42,000) Retained profit 43,000 Profit and loss balance 01/01/2015 31,000 Profit and loss balance 31/12/2015 101,000 Balance sheets as at 31/12/2015 31/12/2014 € € Fixed assets Land and buildings 850,000 700,000 Less depreciation provision (100,000) (750,000) (612,000) Current assets Stock 70,000 60,000 Debtors 38,000 46,000 Cash 114,000 41,000 Less creditors: amounts falling due within 1 year Creditors 45,000 40,000 Taxation 28,000 38,000 Net current assets 73,000 41,000 Total net assets 791,000 653,000 Financed by: 6% Debentures: amounts falling due after 1 year 150,000 Capital and reserves Ordinary share capital issued 500,000 460,000 Share premium 10,000 8,000 Profit and loss account 191,000 43,000 Required: (a) Reconcile the operating profit to net cash inflow/outflow from operating activities - Leaving Cert Accounting - Question 6 - 2016
Question 6
Cash Flow Statement The following information has been extracted from the books of Carter Ltd: Profit and loss (extract) for year ended 31/12/2015 € Operating profi... show full transcript
Worked Solution & Example Answer:Cash Flow Statement The following information has been extracted from the books of Carter Ltd: Profit and loss (extract) for year ended 31/12/2015 € Operating profit 140,000 Interest paid (12,000) Taxation (28,000) Dividends paid (42,000) Retained profit 43,000 Profit and loss balance 01/01/2015 31,000 Profit and loss balance 31/12/2015 101,000 Balance sheets as at 31/12/2015 31/12/2014 € € Fixed assets Land and buildings 850,000 700,000 Less depreciation provision (100,000) (750,000) (612,000) Current assets Stock 70,000 60,000 Debtors 38,000 46,000 Cash 114,000 41,000 Less creditors: amounts falling due within 1 year Creditors 45,000 40,000 Taxation 28,000 38,000 Net current assets 73,000 41,000 Total net assets 791,000 653,000 Financed by: 6% Debentures: amounts falling due after 1 year 150,000 Capital and reserves Ordinary share capital issued 500,000 460,000 Share premium 10,000 8,000 Profit and loss account 191,000 43,000 Required: (a) Reconcile the operating profit to net cash inflow/outflow from operating activities - Leaving Cert Accounting - Question 6 - 2016
Step 1
Reconcile the operating profit to net cash inflow/outflow from operating activities.
Answer
To reconcile the operating profit to net cash inflow from operating activities, we will adjust the operating profit by accounting for non-cash expenses and changes in working capital.
- Operating Profit: Start with the operating profit of €140,000.
- Add Depreciation: Add back non-cash expenses such as depreciation, which is €12,000.
- Adjust for Changes in Working Capital:
- Increase in Stock: Deduct the increase in stock of €8,000.
- Decrease in Debtors: Add the decrease in debtors of €6,000.
- Increase in Creditors: Add the increase in creditors of €5,000.
Putting these adjustments together:
egin{align*} ext{Net Cash Inflow from Operating Activities} = & ext{Operating Profit} \ & + ext{Depreciation} \ & - ext{Increase in Stock} \ & + ext{Decrease in Debtors} \ & + ext{Increase in Creditors} \ = & 140,000 + 12,000 - 8,000 + 6,000 + 5,000 \ = & 155,000 ext{Net cash inflow from operating activities: } €161,000 \end{align*}
Step 2
Prepare the cash flow statement of Carter Ltd for the year ended 31/12/2015 using the following headings: Operating activities.
Answer
Cash Flow Statement for Carter Ltd for the Year Ended 31/12/2015
Operating Activities
- Net cash inflow from operating activities: €161,000
Returns on Investment and Servicing of Finance
- Interest paid: (€12,000)
Taxation
- Tax paid: (€38,000)
Capital Expenditure and Financial Investment
- Purchase of land/buildings: (€150,000)
Equity Dividends Paid
- Dividends paid: (€42,000)
- Net cash inflow before liquid resources and financing: €18,000
Financing
- Issue of ordinary share capital: €40,000
- Share premium: €10,000
- Debentures: €30,000
- Decrease in cash: (€8,000)
Summary
- Net cash flow for the year: €10,000
Step 3
Reconcile the net cash flow to movement in net debt.
Answer
To reconcile the net cash flow to movement in net debt, we will calculate the changes in cash balance and net debt:
-
Decrease in Cash in the Period: The cash decreased by €8,000.
-
Net Debt Calculation:
- Cash at 01/01/2015: €41,000
- Cash at 31/12/2015: €33,000
Change in net debt = Cash at 31/12/2015 - Cash at 01/01/2015 = €(8,000)
-
Final Movement in Net Debt: Calculating based on the figures provided:
- Net debt at 01/01/2015: €(41,000)
- Change: €(8,000)
- Net debt at 31/12/2015: €(49,000)
Thus, the movement in net debt reflects the decrease reconciled with cash flow.