Question

The following information relates to Parramatta Hardware, a business owned by C. Patel for the last 2 years.

Parramatta Hardware Comparative Statements of Financial Position As at 30 June
	2019	2020
Assets	$	$
Cash at bank	248 000	172 000
Accounts receivables	304 000	338 000
Inventory	496 000	454 000
Land	250 000	100 000
Buildings	550 000	1 060 000
Accumulated depreciation-Buildings	(340 000)	(400 000)
Plant and equipment	160 000	160 000
Accumulated depreciation-Plant and Equipment	(20 000)	(40 000)
	1 648 000	1 844 000
Liabilities and Equity
Accounts payable	242 000	268 000
Interest payable	3 000	1 000
Other expenses payable	35 000	12 000
Mortgage loan payable	180 000	265 000
Capital	1 188 000	1 298 000
	1 648 000	1 844 000

Other information:

1. Sales for the year 2020 was $1 774 000 and cost of goods sold was $1 132 000.
2. Purchases of inventory for the year were $1 090 000.
3. All purchases and sales of inventories were on credit.
4. Other expenses paid for the year 2020 was $415 000 and interest paid was $22 000.
5. Building extensions were paid for during the year, and a block of land, costing $150 000, was sold for $125 000 cash.
6. No plant was purchased or sold during the year.
7. During the year ended 30 June 2020, the owner had withdrawn $15 000 cash from the business.
8. Ignore GST

Required:

Prepare the statement of cash flows for Parramatta Hardware for the year ended 30 June 2020, using the direct method.

Answer 1

Cash flow statement: Direct Method
Cash flows from operating activities:	Working	Amount $
Cash collection from accounts receivable	$    1,740,000.00
Cash paid to Accounts payable	$ (1,064,000.00)
Cash paid for operating expense	$     (415,000.00)
Cash generation from operation	$       261,000.00
Income tax paid	$                         -
Net cash provided by operating activities		$        261,000.00
Cash flows from investing activities:
Net proceeds/(Purchase) of Land	$       125,000.00
Net proceeds/(Purchase) of Building	$     (510,000.00)
Net proceeds/(Purchase) of plant & equipment	$                         -
Net cash used in investing activities		$     (385,000.00)
Cash flows from financing activities:
Cash paid for Interest expense	$       (22,000.00)
Net proceeds/(Repayment))of Mortagage loan payable	$          85,000.00
Drawings	$       (15,000.00)
	$                         -
Net cash provided by financing activities		$          48,000.00
Net increase in cash		$        (76,000.00)
Opening Cash balance, 2020		$        248,000.00
Closing Cash balance, 2020		$        172,000.00
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Sales	$    1,774,000.00
Cost of sales	$    1,132,000.00
Cash paid for operating expense	$       392,000.00
Cash paid for Interest expense	$          20,000.00
Depreciation	$          60,000.00
Depreciation	$          20,000.00
Loss on sale of land	$          25,000.00
Net Income	$       125,000.00

		Ledger Working
Retained earning
	Withdrawn	$        15,000.00		Opening balance	$ 1,188,000.00
				Net income	$      125,000.00
	Closing balance	$ 1,298,000.00
		$ 1,313,000.00			$ 1,313,000.00

Account receivable
	Opening balance	$      304,000.00
	Sales	$ 1,774,000.00		Cash collection	$ 1,740,000.00
				Closing balance	$      338,000.00
		$ 2,078,000.00			$ 2,078,000.00
Account payable
				Opening balance	$      242,000.00
	Cash Paid	$ 1,064,000.00		Purchases	$ 1,090,000.00
	Closing balance	$      268,000.00
		$ 1,332,000.00			$ 1,332,000.00
inventory
	Opening balance	$      496,000.00
	Purchases	$ 1,090,000.00		Cost of sales	$ 1,132,000.00
				Closing balance	$      454,000.00
		$ 1,586,000.00			$ 1,586,000.00