Question

The financial statements for the Nitai’s Nail Supplies for the past two years are presented below.

	Nitai’s nail SUPPLIES Comparative Income Statements for the year ended 30 June
				2019			2020
	Sales Cost of sales				$400 000 350 000			$ 500 000    458 000
	Gross profit Interest income Loss on sale of fixtures				50 000 1 000			42 000      2 000      800
					51 000			43 200
	Office supplies used Other expenses				10 000    29 000			11 000     29 000
					39 000			42 000
	Profit				$  12 000			$     3 200

	Nitai’s nail SUPPLIES Comparative Statements of Financial Position as at 30 June
				2019				2020
	ASSETS Cash at bank Accounts receivable Inventory Office supplies Freehold property Fixtures Accumulated depreciation – fixtures Investments				$   4 400 42 000 80 000 2 000 60 000 40 000 (16 000)    6 000				— $60 000 40 000 5 000 80 000 46 000 (20 200)    16 000
					$218 400				$226 800
	LIABILITIES AND EQUITY Bank overdraft Accounts payable Nitai, Capital				— $  26 000 192 400				$   4 000 40 000 182 800
					$218 400				$226 800

Additional information

(a) All purchases and sales of inventories are on credit. All purchases of office supplies are for cash.

(b) The bank overdraft is considered to be part of the entity’s cash management function.

(c) During the year ended 30 June 2020, the owner, Nitai, withdrew $12 800 in cash for personal use.

(d) The entity sold some fixtures for $1200 cash during the current year. These fixtures initially cost $4200 and had been written down to a carrying amount at the date of sale of $2000.

(e) Depreciation of fixtures has been included in ‘other expenses’ for the year ended 30 June 2020. All remaining other expenses were paid in cash.

Required

1. Prepare the statement of cash flows for Nitai’s Nail Supplies for the year ended 30 June 2020, using the direct method. Show relevant ledger accounts (Account receivable, inventory, account payable, office supplies, accumulated depreciation fixtures, fixtures).                 
2. Comment on the cash flow position of the entity as shown in the statement of cash flows.

                                                                                                           

Answer 1