Question

QUESTION FIVE                                                                                                                   [10]

The following information was extracted from the accounting records of Humid Limited for the year ended 31 May 2020:

Humid Ltd

Summary of the statement of profit and loss and other comprehensive income

for the year ended 31 May 2020                                                                          .

		31 May 2020 R
Sales Cost of sales		1 840 000        (980 000)
Gross profit Other income		860 000         185 000
Commission income        Profit on sale of non-current asset		123 000           62 000
Distribution administration and other expenses		(625 000)
Audit fees Depreciation Salaries and wages Other expenses		58 000           80 000         402 000           85 000
Finance cost		(40 000)
Interest on borrowings		40 000
Profit before taxation		380 000
Income tax expense		(80 000)
Profit / total comprehensive income for the year		300 000

Humid Ltd

Extract from the statement of financial position as at 31 May 2020.                                                                        

	31 May 2020 R	31 May 2019 R
Inventories – merchandise Stationery Trade debtors Bank Trade creditors Prepaid expenses Accrued expenses	90 000           5 000       330 000       147 000       170 000           4 200         16 800	122 000          5 800      298 000        53 000      178 000          1 800          17 600

Required:

Prepare the following section of the statement of cash flows of Humid Limited for the year ended 31 May 2020:

• “Cash generated by operations” section only.  

                                                                                                                                         

Note that the entire “cash flows from operating activities” section is not required.

Humid Limited uses the indirect method to prepare its statement of cash flows.

Answer 1

Answer)

Calculation of Cash Generated from Operations

Cash Flow Statement (Indirect Method)
Cash Flow from Operating Activities	Amount (In $)	Amount (In $)
Net Profit	300,000
Profit on sale of non-current asset	(62,000)
Depreciation Expense	80,000
Income Tax Expense	80,000
Changes in Current Assets and Current Liabilities:
Decrease in inventory	32,000
Decrease in Stationery	800
Increase in trade debtors	(32,000)
Decrease in Trade creditors	(8,000)
Increase in prepaid expenses	(2,400)
Decrease in prepaid expenses	(800)
Cash generated from operations		387,600.00

Therefore cash generated from operations is $ 387,600.

Note: In order to calculate net cash flow generated from operating activities, income tax expense for the year (i.e. $ 80,000) will be reduced from cash generated from operations (i.e. $ 387,600).