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Cash Flow Statement The following information has been extracted from the books of McCabe Ltd: Profit and loss (extract) for year ended 31/12/2018 € Operating profit 135,000 Interest paid 19,000 Taxation 116,000 Dividends paid 91,000 Retained profit 185,000 Profit and loss balance 01/01/2018 122,000 Profit and loss balance 31/12/2018 Balance Sheets as at 31/12/2018 31/12/2017 € € Fixed Assets Land and buildings 930,000 780,000 Less depreciation provision (78,000) (60,000) Current Assets Stock 78,000 60,000 Debtors 29,000 40,000 Bank 122,000 120,000 Less Creditors: amounts falling due within 1 year Creditors 35,000 42,000 Taxation 29,000 29,000 (60,000) (71,000) Net Current Assets 62,000 49,000 Total Net Assets 922,000 774,000 Financed by Creditors: amounts falling due after 1 year 7% Debentures 250,000 200,000 Capital and Reserves Ordinary share capital issued 470,000 452,000 Share premium 15,000 15,000 Profit and loss account 37,000 122,000 Total 922,000 774,000 Required: (a) Reconcile the operating profit to net cash inflow/outflow from operating activities - Leaving Cert Accounting - Question 6 - 2019

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Question 6

Cash-Flow-Statement--The-following-information-has-been-extracted-from-the-books-of-McCabe-Ltd:-Profit-and-loss-(extract)-for-year-ended-31/12/2018-€-Operating-profit-135,000-Interest-paid-19,000-Taxation-116,000-Dividends-paid-91,000-Retained-profit-185,000-Profit-and-loss-balance-01/01/2018-122,000-Profit-and-loss-balance-31/12/2018---Balance-Sheets-as-at-31/12/2018-31/12/2017-€-€-Fixed-Assets-Land-and-buildings-930,000-780,000-Less-depreciation-provision-(78,000)-(60,000)--Current-Assets-Stock-78,000-60,000-Debtors-29,000-40,000-Bank-122,000-120,000--Less-Creditors:-amounts-falling-due-within-1-year-Creditors-35,000-42,000-Taxation-29,000-29,000--(60,000)-(71,000)--Net-Current-Assets-62,000-49,000-Total-Net-Assets-922,000-774,000--Financed-by-Creditors:-amounts-falling-due-after-1-year-7%-Debentures-250,000-200,000-Capital-and-Reserves-Ordinary-share-capital-issued-470,000-452,000-Share-premium-15,000-15,000-Profit-and-loss-account-37,000-122,000-Total-922,000-774,000--Required:-(a)-Reconcile-the-operating-profit-to-net-cash-inflow/outflow-from-operating-activities-Leaving Cert Accounting-Question 6-2019.png

Cash Flow Statement The following information has been extracted from the books of McCabe Ltd: Profit and loss (extract) for year ended 31/12/2018 € Operating profi... show full transcript

Worked Solution & Example Answer:Cash Flow Statement The following information has been extracted from the books of McCabe Ltd: Profit and loss (extract) for year ended 31/12/2018 € Operating profit 135,000 Interest paid 19,000 Taxation 116,000 Dividends paid 91,000 Retained profit 185,000 Profit and loss balance 01/01/2018 122,000 Profit and loss balance 31/12/2018 Balance Sheets as at 31/12/2018 31/12/2017 € € Fixed Assets Land and buildings 930,000 780,000 Less depreciation provision (78,000) (60,000) Current Assets Stock 78,000 60,000 Debtors 29,000 40,000 Bank 122,000 120,000 Less Creditors: amounts falling due within 1 year Creditors 35,000 42,000 Taxation 29,000 29,000 (60,000) (71,000) Net Current Assets 62,000 49,000 Total Net Assets 922,000 774,000 Financed by Creditors: amounts falling due after 1 year 7% Debentures 250,000 200,000 Capital and Reserves Ordinary share capital issued 470,000 452,000 Share premium 15,000 15,000 Profit and loss account 37,000 122,000 Total 922,000 774,000 Required: (a) Reconcile the operating profit to net cash inflow/outflow from operating activities - Leaving Cert Accounting - Question 6 - 2019

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 the net cash inflow from operating activities, we will start with the operating profit and make the necessary adjustments for non-cash items and changes in working capital:

  1. Operating Profit:

    • Start with the operating profit of €135,000.

  2. Add Depreciation:

    • Add back non-cash depreciation of €16,000 (as it reduces profit but does not involve cash).

  3. Adjust for Working Capital Changes:

    • Increase in Stock: Subtract €8,000, as this indicates cash outflow due to inventory increase.
    • Decrease in Debtors: Add €11,000, representing cash inflow from reduced accounts receivable.
    • Decrease in Creditors: Subtract €3,000, indicating cash outflow as liabilities were settled.

  4. Calculate Net Cash Inflow from Operating Activities:

    • Total adjustments:

      • Operating Profit: €135,000
        • Depreciation: €16,000
        • Increase in Stock: €8,000
        • Decrease in Debtors: €11,000
        • Decrease in Creditors: €3,000

    • Final Calculation:

    extNetCashInflowfromOperatingActivities=135000+16000−8000+11000−3000=€146,000 ext{Net Cash Inflow from Operating Activities} = 135000 + 16000 - 8000 + 11000 - 3000 = €146,000

Thus, the net cash inflow from operating activities is €146,000.

Step 2

Prepare the cash flow statement of McCabe Ltd for the year ended 31/12/2018.

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Answer

Cash Flow Statement of McCabe Ltd for the year ended 31/12/2018

Operating Activities

  • Net cash inflow from operating activities: €146,000

Return on Investment and Servicing of Finance

  • Interest paid: (€19,000)

Taxation

  • Tax paid: (€29,000)

Capital Expenditure and Financial Investment

  • Purchase of land/buildings: (€150,000)

Equity Dividends Paid

  • Dividends paid: (€26,000)

Net Cash Inflow Before Liquid Resources and Financing

  • Total cash flow:

extNetCashInflow=146000−19000−29000−150000−26000=(€78,000) ext{Net Cash Inflow} = 146000 - 19000 - 29000 - 150000 - 26000 = (€78,000)

Financing

  • Issue of ordinary share capital: €18,000
  • Share premium: €15,000
  • New Debentures: €50,000
  • Net increase in cash: €5,000

Final Net Change in Cash:

  • Cash inflow from financing activities is summarized as follows: extIncreaseinCash=18000+15000+50000+5000=€50,000 ext{Increase in Cash} = 18000 + 15000 + 50000 + 5000 = €50,000

Step 3

Reconcile the net cash flow to movement in net debt.

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Answer

To reconcile the net cash flow to the movement in net debt, we need to track cash position changes and debt levels:

  1. Increase in Cash in the Period:

    • Cash at year-end 31/12/2018: €5,000.

  2. Debentures:

    • Total debentures at year-end: (€50,000).

  3. Change in Net Debt:

    • Recognizing that net debt increased or decreased is crucial; hence we calculate:

  4. Net Debt Calculations:

    • Net debt at beginning of the year 01/01/2018: (€199,000).
    • Net debt at end of the year 31/12/2018: (€235,000).

  5. Final Reconciliation:

    • The change in net debt can thus be articulated:

    extChangeinNetDebt=extNetDebtEnd−extNetDebtStart=235000−199000=€36,000 ext {Change in Net Debt} = ext{Net Debt End} - ext{Net Debt Start} = 235000 - 199000 = €36,000

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