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Can you also help me with question 20.8. I do not understand this, having looked at the answer too.
It is testing on Statements of Cash Flows.
We know what the change in the bank balance is ($750,000) and this must be due to cash generated from operating activities, cash generated from investing activities ( (200,000) ), and cash generated from financing activities ( $1,000,000 – $750,000).
So the missing figure is cash generated from operating activities. We know the change in the working capital and the depreciation, and so we can then work backwards to calculate the profit.
The profit is adjusted by the change in working capital to get the cash generated.
Since we can calculate the cash generated we can work backwards and adjust for the change in working capital to arrive at the profit.
We adjust the profit for depreciation and for changes in receivables, payables, and inventory. Changes in working capital is the total of receivables, payables, and inventory.
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