Question

The Director of a WV manufacturing company has reviewed the annual financial statements for the current year and is unable to determine from reading the balance sheet the reasons for the changes in cash during the year. He asks you for assistance and presents the following balance sheets of the firm. Particulars March 2017 (MK) March 2018 (MK) ASSETS Goodwill 100,000 - Buildings 280,000 405,000 Land 75,000 70,000 Machinery 100,000 165,000 Tools 35,000 20,000 Trade Investments 7,500 9,000 Inventories 109,000 105,000 Sundry Debtors 46,000 90,000 Bills receivable 13,500 10,500 Cash in hand 4,500 1000 Unexpired insurance 700 600 Unamortized discount on debentures 1,250 1,050 Total Assets 772,450 877,150 LIABILITIES Equity Share Capital 200,000 350,000 Debentures 50,000 75,000 Sundry creditors 26,000 29,000 Bank Overdraft - 4000 Bills payable 5000 4500 Bank loans 3400 750 Accrued taxes 1500 2500 Accrued interest 3000 5000 Allowance for doubtful accounts 1150 2250 Accumulated depreciation 90,500 135,600 Retained earnings 391,900 268,550 Total Liabilities 772,450 877,150 Additional Information: There were no purchases or sales of tools Equity shares were issued at a discount of 10 percent Old machinery that cost MK2,250 was scrapped and written off the books. Accumulated depreciation on such equipment was MK1,650 The Income Statement for the year 2018 was Particulars Amount (MK) Net Sales 625,000 Less: Expenses Operating charges: Materials & supplies 125,000 Direct labor 105,000 Manufacturing overhead 90,750 Depreciation 61,750 Selling expenses 122,500 General expenses 115,000 Interest expenses 3750 Unusual items Writing off of goodwill 100,000 Writing off of land 5000 Loss on Machinery 600 Discount on issue of equity shares 15,000 Total Expenses (744,350) Net Loss (119,350) You are required to prepare Cashflow statement using Indirect Method

Answer 1

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Workings- Indirect Method	Amount MK
Discount amortized on debentures
Closing Balance	1,050.00
Less: Opening Balance	1,250.00
Discount amortized on debentures	(200.00)
Increase in Debtors
Closing Balance (net of allowance)	87,750.00
Less: Opening Balance (net of allowance)	44,850.00
Increase in Debtors	42,900.00
Decrease in Inventory
Closing Balance	105,000.00
Less: Opening Balance	109,000.00
Decrease in Inventory	(4,000.00)
Increase in Trade Investments
Closing Balance	9,000.00
Less: Opening Balance	7,500.00
Increase in Trade Investments	1,500.00
Decrease in Bills Receivable
Closing Balance	10,500.00
Less: Opening Balance	13,500.00
Decrease in Bills Receivable	(3,000.00)
Decrease in Unexpired insurance
Closing Balance	600.00
Less: Opening Balance	700.00
Decrease in Unexpired insurance	(100.00)
Increase in Sundry creditors
Closing Balance	29,000.00
Less: Opening Balance	26,000.00
Increase in Sundry creditors	3,000.00
Decrease in Bills Payable
Closing Balance	4,500.00
Less: Opening Balance	5,000.00
Decrease in Bills Payable	(500.00)
Increase in accrued taxes
Closing Balance	2,500.00
Less: Opening Balance	1,500.00
Increase in accrued taxes	1,000.00
Increase in accrued interest
Closing Balance	5,000.00
Less: Opening Balance	3,000.00
Increase in accrued interest	2,000.00
Increase in Bank Overdraft
Closing Balance	4,000.00
Less: Opening Balance	-
Increase in Bank Overdraft	4,000.00
Building purchased
Closing Balance	405,000.00
Less: Opening Balance	280,000.00
Building purchased	125,000.00
Machinery purchased
Closing Balance	165,000.00
Add: Cost of machinery scrapped	2,250.00
Less: Opening Balance	100,000.00
Machinery purchased	67,250.00
Bank loans paid
Closing Balance	750.00
Less: Opening Balance	3,400.00
Bank loans paid	(2,650.00)
Debentures issued
Closing Balance	75,000.00
Less: Opening Balance	50,000.00
Debentures issued	25,000.00
Cash received from issue of share capital
Closing Balance	350,000.00
Less: Opening Balance	200,000.00
Less: Discount on issue of equity shares	15,000.00
Cash received from issue of share capital	135,000.00
Dividends paid
Opening Balance	391,900.00
Less: Net loss	119,350.00
Less: Closing Balance	268,550.00
Dividends paid	4,000.00

WV manufacturing company
Cashflow statement	Amount MK	Amount MK
Particulars
Net Loss		(119,350.00)
Adjustment to reconcile Net Income to Net Cash
Add:
Writing off of goodwill		100,000.00
Writing off of land		5,000.00
Loss on machinery		600.00
Discount on issue of equity shares		15,000.00
Discount amortized on debentures		200.00
Depreciation		61,750.00
Cash flow from Operations		63,200.00
Changes in Current Assets/Current Liabilities
Increase in Debtors	(42,900.00)
Decrease in Inventory	4,000.00
Increase in Trade Investments	(1,500.00)
Decrease in Bills Receivable	3,000.00
Decrease in Prepaid expenses	100.00
Increase in Sundry creditors	3,000.00
Decrease in Bills Payable	(500.00)
Increase in accrued taxes	1,000.00
Increase in Bank Overdraft	4,000.00
Increase in accrued interest	2,000.00	(27,800.00)
Net cash provided by operating activities		35,400.00
Cash flow from investing activities
Building purchased	(125,000.00)
Machinery purchased	(67,250.00)
Net cash used for investing activities		(192,250.00)
Cash flow from financing activities
Bank loans paid	(2,650.00)
Debentures issued	25,000.00
Cash received from issue of share capital	135,000.00
Dividends paid	(4,000.00)
Net cash used for financing activities		153,350.00
Net Increase/(Decrease) in cash		(3,500.00)
Cash Balance, beginning		4,500.00
Cash Balance, ending		1,000.00