2108AFE Financial Accounting Assessable Workshop Question Topic 9 – Statement of
ID: 2340771 • Letter: 2
Question
2108AFE Financial Accounting Assessable Workshop Question
Topic 9 – Statement of Cash Flows
Question 1
Yellow Submarine Ltd’s Balance Sheets at the end of June 2016 and 2017 were as follows:
Yellow Submarine Ltd. Balance Sheets as at 30 June
2017
2016
ASSETS
Current Assets
Accounts Receivable
200,000
107,500
Allowance for Doubtful Debts
(20,000)
(10,000)
Inventory
305,500
182,500
485,500
280,000
Non-Current Assets
Land
25,000
10,000
Buildings
60,000
60,000
Accumulated Depreciation – buildings
(35,000)
(30,000)
Plant & Equipment
300,000
207,000
Accumulated Depreciation – plant & equipment
(55,500)
(27,000)
294,500
220,000
TOTAL ASSETS
780,000
500,000
LIABILITIES AND OWNERS’ EQUITY
Current Liabilities
Bank Overdraft
167,950
58,800
Accounts Payable
29,300
36,200
Current Tax Payable
15,000
6,000
212,250
101,000
Owners’ Equity
Share Capital
385,000
300,000
Asset Revaluation Reserve
15,000
-
General Reserve
85,000
50,000
Retained Profits
82,750
49,000
Total Equity
567,750
399,000
TOTAL LIABILITIES AND OWNERS’ EQUITY
780,000
500,000
The company’s Income Statements for the year ended 30 June 2017 and general ledger revealed the following information:
$
$
Net Sales
550,000
Cost of Goods sold
277,000
Gross Profit
273,000
Proceeds from sale of plant & equipment
47,500
Gross profit
320,500
Expenses:
Carrying amount of equipment sold
Salaries and wages expense
40,000
60,250
Depreciation expense - buildings
5,000
Depreciation expense - plant & equipment
38,500
Electricity expense
3,000
Bad debts expense
30,000
176,750
Net Profit before tax
143,750
Income tax expense
52,500
Net Profit after tax
91,250
Additional Information:
Plant and equipment which had originally cost $50,000 and had been depreciated by $10,000, was sold during the year for $47,500
The company pays income tax in one payment.
The land was revalued upwards during the year by $15,000.
During the year, a dividend of $22,500 was paid. Yellow Submarine Ltd classifies dividends paid as a financing activity.
All purchases and sales were made on credit.
Required:
Prepare a Cash Flow Statement for the year ended 30 June 2017, in accordance with AASB 107 Cash Flow Statements. Show workings.
FOR HOMEWORK SUBMISSION – ONLY ONE METHOD REQUIRED (T account OR Equation)
OPERATING ACTIVITIES
Receipts from Customers
Account Reconstruction Method
Provision for Doubtful Debts
Accounts Receivables
OR Formula Method
Cash receipts from customers =
Payments to Suppliers and Employees
Payments to Suppliers for Inventory Purchases
Inventories
Accounts Payable
OR
Payments to suppliers for purchases of inventory =
Cash Paid to Suppliers of Services
Cash paid to suppliers of services =
TOTAL payments to Suppliers and Employees
Payments for Income Tax (required as a separate line item)
Current Income Tax (using Current Tax Payable account) =
INVESTING ACTIVITIES
Plant and Equipment
Accumulated Depreciation - Plant and Equipment (NCA)
Plant and Equipment (NCA)
Yellow Submarine Ltd
Statement of Cash Flows
For the year ended 30 June 2017
Cash flows from operating activities
$
Net cash from/used in operating activities
Cash flows from investing activities
Net cash from/used in investing activities
Cash flows from financing activities
Net cash from/used in financing activities
Net increase/decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Question 2 - Theory
An entity may report significant profits over a number of successive years and still experience negative net cash flows from its operating activities. How can this happen?
Yellow Submarine Ltd. Balance Sheets as at 30 June
2017
2016
ASSETS
Current Assets
Accounts Receivable
200,000
107,500
Allowance for Doubtful Debts
(20,000)
(10,000)
Inventory
305,500
182,500
485,500
280,000
Non-Current Assets
Land
25,000
10,000
Buildings
60,000
60,000
Accumulated Depreciation – buildings
(35,000)
(30,000)
Plant & Equipment
300,000
207,000
Accumulated Depreciation – plant & equipment
(55,500)
(27,000)
294,500
220,000
TOTAL ASSETS
780,000
500,000
LIABILITIES AND OWNERS’ EQUITY
Current Liabilities
Bank Overdraft
167,950
58,800
Accounts Payable
29,300
36,200
Current Tax Payable
15,000
6,000
212,250
101,000
Owners’ Equity
Share Capital
385,000
300,000
Asset Revaluation Reserve
15,000
-
General Reserve
85,000
50,000
Retained Profits
82,750
49,000
Total Equity
567,750
399,000
TOTAL LIABILITIES AND OWNERS’ EQUITY
780,000
500,000
Explanation / Answer
Cash flow statement with WORKINGS: OPERATING ACTIVITIES Receipts from Customers Account Reconstruction Method Provision for Doubtful Debts Opening Balance 10000 Add: New provision(Income statement) 30000 Less: Ending balance -20000 Provn.written back 20000 Accounts Receivables Opening Balance 107500 Add: Credit sales(Income statement) 550000 Less: Provn. Written back -20000 Less: Ending balance -200000 Cash from customers-------------------1 437500 Payments to Suppliers and Employees Payments to Suppliers for Inventory Purchases Inventories Cl.balance 305500 Add: COGS 277000 Less: Op.bal -182500 Purchases 400000 Accounts Payable Op.bal. 36200 Add: Purchases 400000 Less: Cl.bal. -29300 Payments to suppliers of Inventory----a 406900 Cash Paid to Suppliers of Services Salaries & electricity(60250+3000)----b 63250 63250 TOTAL payments to Suppliers,services &Employees---(a+b)=-2 470150 Payments for Income Tax (required as a separate line item) Current Income Tax (using Current Tax Payable account) = Op. bal. 6000 Add: Current yr. 52500 Less: Cl. Bal. -15000 Cash paid towards Tax -----------------3 43500 Cash used in operating activities(1-2-3) -76150 INVESTING ACTIVITIES Plant and Equipment Accumulated Depreciation - Plant and Equipment (NCA) Op. bal. 27000 Add: Current yr. depn. 38500 Less: Cl.bal. -55500 Depn.on P&E sold 10000 Plant and Equipment (NCA) Cl.Bal. 300000 Add: P&E sold 50000 Less: op. bal. -207000 P& E purchased 143000 Sale of P&M 47500 Cash used in Investing activities -95500 Financing activities Payment of dividends -22500 Issue of share capital 85000 Cash from financing activities 62500 Net cash generated -109150 Add: Beginning Bank OD -58800 Less: Ending Bank OD -167950 Summary Cash flow statement Cash used in operating activities -76150 Cash used in Investing activities -95500 Cash from financing activities 62500 Net cash generated -109150 Add: Beginning Bank OD -58800 Less: Ending Bank OD -167950 2. It is due to the presence of considerable amounts non-cash incomes as additions deductions to the revenues generated---such as gain on sale assets--- which increases book profits but does not create any cash flow within the company.
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