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Qn 4b) Daveed is a car retailer who leases vehicles to customers under operating leases and often sells the cars to third parties when the lease ends.
Net cash generated from operating activities for the year ended 31 August 20X8 for the Daveed Group is as follows:
Year ended 31 August 20X8 $m
Cash generated from operating activities 345
Income taxes paid (21 )
Pension deficit payments (33 )
Interest paid (25 )
Associate share of profits 12
–––– Net cash generated from operating activities 278 ––––
Net cash flows generated from investing activities included interest received of $10 million and net capital expenditure of $46 million excluding the business acquisition at (iii) below.
There were also some errors in the presentation of the statement of cash flows which could have an impact on the calculation of net cash generated from operating activities.
NOTE 4: During the year to 31 August 20X8, Daveed made exceptional contributions to the pension plan assets of $33 million but the statement of cash flows had not recorded the cash tax benefit of $6 million.
(ii) a reconciliation from net cash generated by operating activities to operating free cash flow (as described in note (vi) above);
For part (ii) in the suggested answers, why did they add the pension deficit payments of $27m to the free cashflow reconciliation instead of deducting it ? Isn’t it supposed to be an outflow ?
Are they adding it back because it isn’t to be included in FCF because FCF excludes exceptional items such as this pension cost?
Okay. So the $6m cash tax benefit is actually part of the pension payment ? I initially thought it was a seperate component.
The FCF only recorded $27m of payment that’s why they are removing that by adding right ?
My understanding is that the FCF as defined should exclude all matters relating to the pension cost