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I’m reading the suggested answer and i dont know how do they get the $10.6m net decrease in cash or operating loss of $4.33m. How do you calculate operating profit without the disposal?
From my understanding, depreciation under operating activity will be affected and also the purchase of PPE under investing activities. Profit on disposal will be nil right supposing disposal is not accounted?
Details:
PBIT 270
interest expense (260)
interest receivable 40
———————–
PBT 50
Income tax credit 50
PBT 100Link to refere to question: https://www.scribd.com/document/34454134/Cashflwo-TABBA-F7
Thanks
The link that you have given me is not liked by my computer
However, I do have the question Tabba in front of me – it’s in an old Kaplan exam kit!
But there we have a problem because Kaplan show within the answer an increase in cash and cash equivalents for the year of $1,400 and an operating loss of $(4,390)
In addition, Kaplan gives full information in the question about the disposal of the factory (proceeds of sale $12,000 and carrying value at date of sale $7,400) and we’re told that the profit on the sale ($4,600) has been included in operating profit
Maybe Kaplan has added some to the original question or possibly BPP has omitted some from the original question
The detail that you have posted re the PBIT 270 down to Profit AFTER tax (not PBT as you have typed!) 100 is the same detail as shown in the Kaplan question that I have in front of me
Check the BPP question again and see if, within note (ii) to the question, there is the detail concerning the disposal
OK?
Hi sir,
Thanks for your reply. Yes i made a typo mistake with the PBT.
Can you just briefly explain to me how do they derive the figure in the discussion section of part (b) particularly in paragraph 2 “…losses of $4.33”. Is it as if disposal never happened at all?
“However, the major reconciling difference is the profit on the sales of Tabba’s factory of $4.6 m. This amount has been credited to the income statement and has dramatically distorted the operating profit. If the sale and lease back of the factory has not taken place,Tabba’s operating profit would be in a sorry state showing losses of $4.33 m (ignoring any possible tax effects). When Tabba publishes its financial statements this profits will almost certainly require separate disclosure which should make the effects of the transaction more transparent to the user of the financial statements. A further indication of poor operating profits is that they have been boosted by the $300,000 due to an increase in the insurance claim provision ( again this is not a cash flow) and $250,000 amortization of government grants.”
(referring to the answer from the link i’ve attached)
Also i’d like to know how can one give a well rounded answer for analysis?
Is there like a structure, planed outline or tips or points of notes.From what i can examine, from BPP answer, comments should highlight:
1. Net increase/decrease in cash – overall status
2. operating revenue – trading: core cashflow generation
3. Highlight problems (outflow)
– Profits inflated? – reasons
– Reasons for (1)
– Link profitability and cash flow
– Tax
– Working capital changes4. Highlight good situation (inflow)
– Savings5. Conclusion
– slump in profits TBC at AGM.May I know your opinion on how to best to approach this orderly.
I want to ask in the comments/analysis, do we provide solutions or remedial actions?
Also can we write in point and bullet form instead of essay?
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