F3/Cah Flow statements — OpenTuition Forums

PJParisa Jeanne8y ago

Hi , there is a question in kaplan book which my answer can't be match with book answer. Please could you guide me? Test 2 Statement of financial position of Geronimo at 31 December 20X6 20X5 $000 $000 Non-current assets 1,048 750 Accumulated depreciation (190) ––––– (120) ––––– 858 630 Current assets Inventory 98 105 Trade receivables 102 86 Dividend receivable 57 50 Cash 42 ––––– 18 ––––– 299 ––––– 259 ––––– Total assets 1,157 ––––– 889 ––––– Equity and liabilities: Share capital 200 120 Share premium 106 80 Revaluation surplus 212 12 Retained earnings 283 ––––– 226 ––––– 801 438 Non-current liabilities: Loan 200 300 Current liabilities: Trade payables 77 79 Interest accrual 3 5 Tax payable 76 ––––– 67 ––––– 156 ––––– 151 ––––– Total equity and liabilities 1,157 ––––– 889 ––––– Statement of profit or loss for of Geronimo for the year ended 31 December 20X6 $000 Sales revenue 1,100 Cost of sales (678) ––––– Gross profit 422 Operating expenses (309) ––––– Operating profit 113 Investment income – interest 15 – dividends 57 Finance charge (22) Income tax (71) ––––– Net profit for year 92 ––––– • Operating expenses include a loss on disposal of non-current assets of $5,000. • During the year and item of plant was disposed of. The plant originally cost $80,000 and had accumulated depreciation to the date of disposal of $15,000. Calculate the cash flow generated from operations using the indirect method. My question about this test + my answer F3/ chapter 19/ test 2/page 354 Before my question, I would like to share my understanding from Cash flow statements Cash flow statements Cash flow from operating activities Add:Net profit before tax Adjustment For: Add: Deduction Less: Profit sale of NC Assets Add: Interest EXP Result : op. Profit before working cap. Change Less: increase in account receivables Less: increase in inventories Add: increase in account payables Result: cash generated from operation Less: interest paid Less: dividend paid Less: tax paid Result: Net cash from operating activities Cash flow from investing activities Less:Purchase of NC Assets Add:Sales proceeds of NC Assets Add:Interest received Add: dividend received Result : Net cash from investing acrivities Cash flow from financing activities Add:proceed from issue of shares Less:repayment of debenture loan Result :net cash from financing activities Is that okay? Then my question test 2 I don't know how to calculate tax paid 67+71-76=62 = tax paid? Dividend = only retained earnings or + premium shares 226-283=57 Or (226-283)+(212-12)=257 My working : Cash flow from operating activities Net profit before tax. 163000 Adjustment for Deduction. (85000) Loss on sale of NC Assets 5000 ---------------------- Op profit before working Cap change. 83000 Increase in receivables. (16000) Decrease in INV. 7000 Decrease in payables. (2000) -------------------- Cash flow generated From operation. 72000 Interest paid. ??????? (17000) 15000+5000-3000=17000?? Dividend paid? ???? ( 57000) ???? Tax paid. (62000) ----------------------- Net cash from Operating activities. (64000) ??????? Please could you guide me why my answer is different from the book I can't understand book explanation. Thank you Kind regards, Parisa Littledyke

AAli8y ago#1

Looking at the answer in the study text, i don't think the question is as complex as you've presented it to be. 1) The depreciation (not 'deduction') figure of 85,000 should be ADDED rather than subtracted. 2) The 'investment income' consisting of interest 15,0000 & dividend 57,000 is the income earned rather than cash received. These figures are added in the Net Profit figure, so these should be subtracted. 3) You have not added back 'interest expense'. The question only asks for 'cash generated from operations' while you are calculating 'Net cash flow for the year'. You've dealt with 'interest paid', 'tax paid' & 'dividends paid' unnecessarily. Your answer would definitely differ. Net profit for the year 92,000 A: Income tax expense 71,000 Profit before Taxation 163,000 Add: interest expense 22,000 Less: Investment income (72,000) [57+15] Add: depreciation exp 85,000 Add: loss on disposal 5,000 Operating profit before working capital change 203,000 L: Incr. in Receivables (16,000) A: Decrease in Inventory 7,000 L: Decrease in Payables (2,000) Cash flow from operations 192,000

PJParisa Jeanne8y ago#2

Thank you. How in the book said interest paid is 24000 But my working is showing 17000 Finally I solved it except I can't reach interest paid Cash flow statements Cash flow from operating activities $000 Net profit before tax 163 Deduction 85 loss sale of NC Assets 5 Income investment (72) Finance cost. 22 Result : op. Profit before working cap. Change 203 increase in account receivables (16) Decrease in inventories 7 Decrease in account payables (2) Result: cash generated from operation 192 ? interest paid (17000) tax paid (62) ?Result: Net cash from operating activities 99 Cash flow from investing activities Purchase of NC Assets (178) Sales proceeds of NC Assets 60 Interest received 15 dividend received 50 Result : Net cash from investing acrivities. ( 53) Cash flow from financing activities proceed from issue of shares 106 Repayment of debenture loan (100) Dividend paid (35) Result :net cash from financing activities (29) ?Change in cash and cash equivalent. 17 Cash and cash equivalent b/f 18 Cash and cash equivalent c/f. 42

AAli8y ago#3

The question has not enough information to prepare the full cash flow statement. The data is limited to net cash flow from operating activities only. The interest paid is indeed 24,000. Interest Accrual Account: Cr Balance b/f 5,000 Cr Interest Expense (P/L) 22,000 Dr Cash paid (24,000) Dr Balance c/f (3,000)

PJParisa Jeanne8y ago#4

Thank you.

AAli8y ago#5

You are welcome.

Sign into reply to this topic.