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Cash Flow Statement The following information has been extracted from the books of Harding Ltd: Profit and loss (extract) for year ended 31/12/2017 Operating profit € 85,000 Interest paid € 5,000 Taxation € 80,000 Dividends paid € 73,000 Retained profit € 67,000 Profit and loss balance 01/01/2017 € 18,000 Balance Sheets as at 31/12/2017 31/12/2016 Fixed Assets Land and buildings € 350,000 € 250,000 Less depreciation provision (€ 40,000) (€ 30,000) Current Assets Stock € 52,000 € 30,000 Debtors € 104,000 € 90,000 Bank € 7,000 € 18,000 Less Creditors: amounts falling due within 1 year Creditors (€ 11,000) (€ 22,000) Taxation (€ 7,000) (€ 18,000) Net Current Assets € 86,000 € 59,000 Total Net Assets € 396,000 € 281,000 Financed by Creditors: amounts falling due after 1 year € 105,000 € 95,000 7% Debentures € 100,000 € 100,000 Capital and Reserves Ordinary share capital issued € 148,000 € 119,000 Share premium € 15,000 € 6,000 Profit and loss account € 396,000 € 281,000 Required: (a) Reconcile the operating profit to net cash inflow/outflow from operating activities - Leaving Cert Accounting - Question 6 - 2018

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Question 6

Cash-Flow-Statement--The-following-information-has-been-extracted-from-the-books-of-Harding-Ltd:--Profit-and-loss-(extract)-for-year-ended-31/12/2017--Operating-profit---€-85,000-Interest-paid---€-5,000-Taxation---€-80,000--Dividends-paid---€-73,000-Retained-profit---€-67,000-Profit-and-loss-balance-01/01/2017-€-18,000--Balance-Sheets-as-at---31/12/2017---31/12/2016--Fixed-Assets-Land-and-buildings---€-350,000---€-250,000-Less-depreciation-provision--(€-40,000)---(€-30,000)--Current-Assets-Stock----€-52,000---€-30,000-Debtors----€-104,000---€-90,000-Bank----€-7,000---€-18,000--Less-Creditors:-amounts-falling-due-within-1-year-Creditors----(€-11,000)---(€-22,000)-Taxation----(€-7,000)---(€-18,000)--Net-Current-Assets---€-86,000---€-59,000--Total-Net-Assets---€-396,000---€-281,000--Financed-by-Creditors:-amounts-falling-due-after-1-year--€-105,000---€-95,000--7%-Debentures---€-100,000---€-100,000--Capital-and-Reserves-Ordinary-share-capital-issued--€-148,000---€-119,000-Share-premium---€-15,000---€-6,000-Profit-and-loss-account--€-396,000---€-281,000--Required:--(a)-Reconcile-the-operating-profit-to-net-cash-inflow/outflow-from-operating-activities-Leaving Cert Accounting-Question 6-2018.png

Cash Flow Statement The following information has been extracted from the books of Harding Ltd: Profit and loss (extract) for year ended 31/12/2017 Operating prof... show full transcript

Worked Solution & Example Answer:Cash Flow Statement The following information has been extracted from the books of Harding Ltd: Profit and loss (extract) for year ended 31/12/2017 Operating profit € 85,000 Interest paid € 5,000 Taxation € 80,000 Dividends paid € 73,000 Retained profit € 67,000 Profit and loss balance 01/01/2017 € 18,000 Balance Sheets as at 31/12/2017 31/12/2016 Fixed Assets Land and buildings € 350,000 € 250,000 Less depreciation provision (€ 40,000) (€ 30,000) Current Assets Stock € 52,000 € 30,000 Debtors € 104,000 € 90,000 Bank € 7,000 € 18,000 Less Creditors: amounts falling due within 1 year Creditors (€ 11,000) (€ 22,000) Taxation (€ 7,000) (€ 18,000) Net Current Assets € 86,000 € 59,000 Total Net Assets € 396,000 € 281,000 Financed by Creditors: amounts falling due after 1 year € 105,000 € 95,000 7% Debentures € 100,000 € 100,000 Capital and Reserves Ordinary share capital issued € 148,000 € 119,000 Share premium € 15,000 € 6,000 Profit and loss account € 396,000 € 281,000 Required: (a) Reconcile the operating profit to net cash inflow/outflow from operating activities - Leaving Cert Accounting - Question 6 - 2018

Step 1

Reconcile the operating profit to net cash inflow/outflow from operating activities.

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Answer

To reconcile the operating profit to net cash inflow/outflow from operating activities, we begin with the operating profit and adjust it for non-cash items and changes in working capital.

  1. Operating profit: The initial figure is €85,000.
  2. Add depreciation: Since depreciation is a non-cash charge, we add it back to the operating profit. Here, it is €12,000.
  3. Adjustments for changes in working capital:
    • Increase in stock: This is a cash outflow that we subtract from the operating profit. The increase is €5,000.
    • Increase in debtors: This also represents a cash outflow of €4,000, which we subtract.
    • Decrease in creditors: A decrease indicates a cash outflow of €11,000, which is again subtracted.

Putting this all together:
extNetcashinflowfromoperatingactivities=€85,000+€12,000−€5,000−€4,000−€11,000=€77,000ext{Net cash inflow from operating activities} = €85,000 + €12,000 - €5,000 - €4,000 - €11,000 = €77,000

Step 2

Prepare the cash flow statement of Harding Ltd for the year ended 31/12/2017.

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Answer

Cash Flow Statement of Harding Ltd for the year ended 31/12/2017

  1. Operating Activities:
    Net cash inflow from operating activities: €77,000

  2. Return on Investment and Servicing of Finance:

    • Interest paid: €(5,000)

  3. Taxation:

    • Tax paid: €(9,000)

  4. Capital Expenditure and Financial Investment:

    • Purchase of land/buildings: €(100,000)

  5. Equity Dividend Paid:

    • Dividends paid: €(16,000)

  6. Net Cash Outflow before Liquid Resources and Financing:
    €(43,000)

  7. Financing:

    • Issue of ordinary share capital: €29,000
    • Share premium: €9,000
    • Debentures: €10,000

  8. Increase in cash:
    €5,000

Step 3

Reconcile the net cash flow to movement in net debt.

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Answer

To reconcile the net cash flow to movement in net debt, we analyze the changes in cash and other debt components.

  1. Increase in cash in the period: €5,000
  2. Debentures issued: €10,000
  3. Change in net debt: This is calculated as the increase in cash - net debt changes, which is €(5,000).
  4. Net debt on 01/01/2017: €78,000
  5. Net debt as at 31/12/2017: This will be the opening net debt plus the change, which is €73,000.

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