Question

Jamie Bard is the owner Café Corner, a popular restaurant located at a busy traffic intersection in the city of Clutchmore.

For the financial year ended 30 June 2020:

• Café Corner earned a profit after income tax of $16,000. This was after taking into account sales of $821,000 and cost of sales of $623,000.

• Other operating expenses incurred to operate the business totalled $179,000. This figure included:
  1. depreciation expenses, and

2. interest expenses of $11,000 which were fully paid.

• There were some additional plant and equipment purchased for cash. However, there were no disposals of property, plant and equipment.

• The company paid $7,000 to the Tax Office in full settlement of its income tax obligations.

• The company received some interest income amounting to $4,000 when it placed some of its excess cash in an investment fund.

• The shareholders of Café Corner received dividends of $18,000 from the company.

The following are balances extracted from the Statements of Financial Position of Café Corner at the end of its most recent two financial years:

	30 June 2020	30 June 2019
	$	$
Accounts payable	12,000	27,000
Accounts receivable	28,000	103,000
Accrued expenses	5,000	11,000
Accumulated depreciation	84,000	65,000
Cash	34,000	23,000
Inventory	72,000	46,000
Plant and equipment	293,000	228,000
Prepaid expenses	4,000	15,000
Share capital	180,000	160,000

Jamie wants to understand the cash flow of Café Corner better and has asked for your assistance to help him prepare some information regarding the cash flows of the business.

Required:
a)	Calculate the cash receipts from customers, cash payments to suppliers and
	cash payments for other expenses. Show all workings.
b)	Using the direct method, prepare the Statement of Cash Flows for Café
	Corner for the financial year ended 30 June 2020.
c)	Prepare a reconciliation of Cash Flows from Operating Activities and Profit
	After Tax for Café Corner.

Answer 1

1,2.

Cash flow statement ($)

Cash flow from Operating activities:
Receipts from customers (103,000(opening)+821000(sales)-28,000(closing)	896,000
Cash Payment to creditors/suppliers (note)	(664,000)
Cash payment to expenses (11000(opening)+179000(total expended)- 19000 (depreciation: 84000-65000) - 5000(closing)+ 4000 -11000 (prepaid)	(155,000)
Taxes Paid	(7000)
Cash flow from Operating activities:		70,000
Cash flow from Investing activities:
Plant Purchased	(65,000)
Interest Income	4000
Cash flow from Investing activities:		(61,000)
Cash flow from Financing activities:
Shares issued	20,000
Dividend paid	(18,000)
Cash flow from Financing activities:		2000
Total Cash flows during the year		11,000
Add: opening cash balances		23,000
Closing Cash Balances		34,000

Note:

• Inventory Purchases made=> 72,000 (closing) + 623000 - 47,000 (opening) => 649,000
• Payment to creditors => 27000(opening) + 649000(purchases) - 12000 (closing) => 664,000

3.

Reconciliation statement ($)

Net Profit		16,000
Add:
Depreciation		19000
Changes to working cap:
Accounts payable	(15000)
Accounts receivable	75,000
Accrued expenses	(6,000)
Prepaid expenses	11000
Inventory	(26,000)	39,000
Less: Interest Income		(4000)
Cash flow from Operating activities		70,000

Interest expense can also considered under cash flows from financing activities. But generally is included in operating as it is relation to business operations.