Cash flow example

Question
“Set out below are the financial statements of Shabnum Co. You are the financial controller, faced with the task of implementing IAS 7 Statement of cash flows.

STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 20X2

$’000
Revenue 2,553
Cost of sales (1,814)
Gross profit 739
Distribution costs (125)
Administrative expenses (264)
350
Interest received 25
Interest paid (75)
Profit before taxation 300
Taxation (140)
Profit for the year 160

SHABNUM CO
STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER
20X2 20X1
$’000 $’000
Assets
Non-current assets
Property, plant and equipment 380 305
Intangible assets 250 200
Investments – 25

20X2 20X1
$’000 $’000
Current assets
Inventories 150 102
Receivables 390 315
Short-term investments 50 –
Cash in hand 2 1
Total assets 1,222 948

Equity and liabilities
Equity
Share capital ($1 ordinary shares) 200 150
Share premium account 160 150
Revaluation surplus 100 91
Retained earnings 260 180
Non-current liabilities
Loan 170 50
Current liabilities
Trade payables 127 119
Bank overdraft 85 98
Taxation 120 110
Total equity and liabilities 1,222 948

The following information is available.
(a) The proceeds of the sale of non-current asset investments amounted to $30,000.
(b) Fixtures and fittings, with an original cost of $85,000 and a carrying amount of $45,000, were
sold for $32,000 during the year.
(c) The following information relates to property, plant and equipment.
31.12.20X2 31.12.20X1
$’000 $’000
Cost 720 595
Accumulated depreciation 340 290
Carrying amount 380 305

(d) 50,000 $1 ordinary shares were issued during the year at a premium of 20c per share.
(e) Dividends totalling $80,000 were paid during the year.
(f) The short term investments meet the requirements to be classified as cash equivalents.”

Solution for Net CF from operating:

”
(a) Net cash flows from operating activities
$’000 $’000
Net cash flows from operating activities
Profit before tax 300
Depreciation charge (W1) 90
Interest expense 50
Loss on sale of property, plant and equipment (45 – 32) 13
Profit on sale of non-current asset investments (30 – 25) (5)
(Increase)/decrease in inventories (48)
(Increase)/decrease in receivables (75)
Increase/(decrease) in payables 8
Cash generated from operating activities 333
Interest paid (75)
Tax paid (W3) (130)
Net cash flow from operating activities 12
”

Hello tutor.

My first question is: how can we know that the interest expense is $50k for that year? I can see from the SPL that: Interest received $25.000 and Interest paid $75.000, but how can we go there to the result of interest expense of $50k? I assume usually we can get this number from the line “Finance cost” of SPL. The ACCA textbook only gave the number, but not the working, so it’s a bit confusing for me.

My second question is: for the profit on sale of non-current asset investments, how can we know to deduct it? Normally, I assume in the SPL we can have a clue of other incomes, where the incomes come from other activities, so that we know we should eliminate those amounts to get the cash generated from operating activities.

Thank you Tutor!