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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 statementsCash 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 activitiesIs that okay?
Then my question test 2I 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)=257My 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 youKind regards,
Parisa Littledyke
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 71,000Profit 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 5,000Operating 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
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 paidCash 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. 42The 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)
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