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Cash Flow Statement The following information has been extracted from the books of Shepard Ltd: Profit and Loss (extract) for year ended 31/12/2011 Operating Profit € 92,000 Interest paid € (6,000) Taxation € (17,000) Dividends paid € (28,000) Retained Profit € 41,000 Profit and Loss balance 1/1/2011 € 54,000 Profit and Loss balance 31/12/2011 € 95,000 Balance Sheets as at 31/12/2011 31/12/2010 Fixed Assets Land and Buildings € 60,000 € 470,000 Less depreciation provision € (58,000) € (52,000) Current Assets Stock € 6,000 € 35,000 Debtors € 44,000 € 31,000 Cash € 128,000 € 8,000 Less Creditors: amounts falling due within 1 year Creditors € 19,000 € 13,000 Taxation € 17,000 € 6,000 Net Current Assets € 63,000 € 28,000 Total Net Assets € 594,000 € 503,000 Financed by: Creditors: amounts falling due within 1 year € 100,000 € 120,000 2% Debentures Capital and Reserves Ordinary Share Capital issued € 389,000 € 329,000 Share Premium € 10,000 € 0 Profit and Loss Account € 95,000 € 54,000 You are required to: (a) Reconcile the operating profit to net cash inflow from operating activities - Leaving Cert Accounting - Question 7 - 2012
Question 7
Cash Flow Statement The following information has been extracted from the books of Shepard Ltd: Profit and Loss (extract) for year ended 31/12/2011 Operating Profi... show full transcript
Worked Solution & Example Answer:Cash Flow Statement The following information has been extracted from the books of Shepard Ltd: Profit and Loss (extract) for year ended 31/12/2011 Operating Profit € 92,000 Interest paid € (6,000) Taxation € (17,000) Dividends paid € (28,000) Retained Profit € 41,000 Profit and Loss balance 1/1/2011 € 54,000 Profit and Loss balance 31/12/2011 € 95,000 Balance Sheets as at 31/12/2011 31/12/2010 Fixed Assets Land and Buildings € 60,000 € 470,000 Less depreciation provision € (58,000) € (52,000) Current Assets Stock € 6,000 € 35,000 Debtors € 44,000 € 31,000 Cash € 128,000 € 8,000 Less Creditors: amounts falling due within 1 year Creditors € 19,000 € 13,000 Taxation € 17,000 € 6,000 Net Current Assets € 63,000 € 28,000 Total Net Assets € 594,000 € 503,000 Financed by: Creditors: amounts falling due within 1 year € 100,000 € 120,000 2% Debentures Capital and Reserves Ordinary Share Capital issued € 389,000 € 329,000 Share Premium € 10,000 € 0 Profit and Loss Account € 95,000 € 54,000 You are required to: (a) Reconcile the operating profit to net cash inflow from operating activities - Leaving Cert Accounting - Question 7 - 2012
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, follow these steps:
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Operating Profit: Start with the operating profit, which is €92,000.
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Add: Include the non-cash item of depreciation which is €5,000.
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Adjust for Changes:
- Decrease in Stock: The decrease in stock of €1,000 is added as it indicates cash was freed up.
- Increase in Debtors: Subtract the increase in debtors of €9,000 as this represents cash not received.
- Increase in Creditors: Add the increase in creditors of €6,000 as it indicates cash that was retained.
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Net Cash Inflow: Now calculate the net cash inflow:
Thus, the net cash inflow from operating activities is €95,000.
Step 2
Prepare the Cash Flow Statement of Shepard Ltd for the year ended 31/12/2011.
Answer
Cash Flow Statement for the Year Ended 31/12/2011
Operating Activities:
- Net cash inflow from operating activities: €95,000
Return on Investments and Servicing of Finance:
- Interest paid: €(6,000)
- Taxation: €(16,000)
Capital Expenditure and Financial Investment:
- Purchases of buildings: €(90,000)
Equity/Ordinary Dividends Paid:
- Dividends paid: €(28,000)
- Net cash outflow before liquid resources and financing: €(45,000)
Financing:
- Issue of ordinary share capital: €60,000
- Issue of Share Premium: €10,000
- Repayment of Debentures: €(20,000)
Increase in Cash:
- Increase in cash during the year: €5,000
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:
- Increase in Cash in the Period: There is an increase of €5,000 in cash.
- Cash Used to Repay Debentures: This amounts to €20,000, reflecting a decrease in debt.
Thus, the overall change in net debt can be calculated as follows:
- Change in Net Debt = Cash used to repay debentures - Increase in cash
- Net Debt at 1/1/2011: €101,000
- Net Debt at 31/12/2011: €76,000
Final calculation:
- Net Debt Movement: There was a change of €(25,000) in net debt.