Cigalles Ltd. has caried on business for a number of years as a retailer of a wi

Question

Cigalles Ltd. has caried on business for a number of years as a retailer of a widev consumer products. The entity operates from a number of stores around the country. In recent years the entity has found it necessary to provide credit facilities to its customers in order to maintain growth in revenue. As a result of this decision the liability to its bankers has increased substantially. The statutory financial statements for the year ended 30 June 2016 (a) Depreciation charged for the three years in question was: Year ended 30 June 2014 2015 2016 have recently been published and extracts are provided below, together with comparative figures for the previous two years. m em m 55 6070 (b) The other interest bearing borrowings include €50m of 6% convertible loan stock. Thi stock is convertible into a total of 15 million ordinary shares in 2018 The repayment of the non-convertible interest bearing borrowings other than the convertible loan stock is due on 30 June 2020 STATEMENTS OF PROFIT OR LOSs FOR THE YEARS ENDED 30 JUNE 2014 2015 em 2010 (c) Dividends of 30m were paid in 2014 and 2015. A dirvidend of 20m has been proposed Issued capital consisted of 90 million ordinary shares at the nominal value of l at 1 July 2013. No shares have been issued or reacquired after that Sales revenue Cost of sales Gross profit Other operating costs Operating profit Interest revenue from credit sales Profit before interest and tar Interest Profit before taxation Taxation Profit for the year 1.850 (1.250) 2.200 2,500 (1.500)(1.750) 700 750 (700) (550) 45 95 (25) (d) The bank loans are unsecured. The maximum lending facility the bank will provide is 630m 90 (e) Over the past three years the level of credit sales has been Year ended 30 June 2014 2015 2016 expense m Emm 300 400 600 (23) (10) (f) The income tax rate is 33%. STATEMENTS OF FINANCIAL POSITION AT 30 JUNE The entity offers extended credit terms for certain products to maintain market share in a highly competitive environment 2014 Erm 2015 Em 2010 Given the steady increase in the level of bank loans which has taken place in recent years, the entity has recently written to its bankers to request an increase in the lending facility. The request was received by the bank on 15 October 2016, two wecks after the financial statements were published. The bank is concerned at the steep escalation in the level of the loans and has asked for a report on the financial performance of Cigalles Ltd. for the last three 322 620 290 Property, plant and equipment278 Inventories Trade receivables 400 492 550 12 1,392 Total assets ,182 ,590 Share capital Reserves Total equity 90 282 372 90 292 90 282 372 REQUIRED Prepare the operating activities section of the statements of cash flows using the indirect method for the ycars ended 30 June 2015 and 30 June 2016 610 320 Bank loans Other interest bearing borrowings200 Trade payables Tax payable Total iabilities and equity 270 20 1,182 520 200 270 20 1,392 1,590

Explanation / Answer

Cigalles Ltd Cash flow from Operating Activities 2016 2015 Profit before Taxation 30 60 Add : Depreciation 70 60 Add : Interest Expense 110 60 operating profit before working capital changes 210 180 Increase in Trade receivables -83 -58 Increase in Inventories -80 -140 Increase in Trade Payables 10 0 Cash generated from Operations 57 -18 Less : Income taxes paid -22 -20 Cash flow from Operating Activities 35 -38 Working Notes Income taxes paid 2015 2016 Opening balance of Income tax payable 20 20 Add : Tax expense for the year 20 10 Less : Closing balance of Income tax payable 20 8 Income taxes paid during the year 20 22

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