Question

The following information relates to Egoly Ltd for the year ended 30^th June 2019:

EGOLY LTD

BALANCE SHEET

AS AT 30^th JUNE 2019

	2019		2018
	$		$
ASSETS
Current Assets
Cash at bank	67,710		59,666
Accounts receivable	252,760		283,290
Inventory	1,107,600		951,400
Prepaid expenses	113,600		35,500
Total current assets	1,541,670		1,329,856
Non-current assets
Equipment	1,263,800		823,600
Accumulated depreciation – equipment	(238,560)		(143,136)
Total non-current assets	1,025,240		680,464
TOTAL ASSETS	2,566,910		2,010,320
LIABILITIES & SHAREHOLDERS EQUITY
Current Liabilities
Accounts payable	348,916		391,940
Accrued expenses	36,920		44,000
Income tax payable	24,400		28,000
Total current liabilities	410,236		463,940
Non-current liabilities
Bills payable	75,260		45,440
Debentures payable	198,800		284,000
Total non-current liabilities	274,060		329,440
TOTAL LIABILITIES	684,296		793,380
Shareholders’ Equity
Share capital	1,491,000		852,000
Retained profits	391,614		364,940
Total shareholders’ equity	1,882,614		1,216,940
TOTAL LIABILITIES & SHAREHOLDERS EQUITY	2,566,910		2,010,320

QUESTION 3 CONT’D

The Income Statement and general ledger for the year ended 30^th June 2019 reflected the following:

PERFORMANCE DETAILS
Sales	3,030,053
Less: sales returns	(59,413)
Net sales		2,970,640
Cost of goods sold		1,928,360
General expenses (All expenses EXCLUDING depreciation, bad debts written off & Income tax expense)		606,482
Income tax expense		97,860
Bad debts written off		2,840
Depreciation expense		109,624

       Profit after tax                                                                                                     $225,474

Additional information:

1. A fully depreciated machine with a cost of $14,200 was scrapped during the year. No proceeds were received when it was scrapped.

2. New equipment was purchased for cash during the year.

3. No new debentures were issued during the current year.

4. As at 1^st July 2018, Egoly had 284,000 shares issued, at an issue price of $3 per share. During the current year, Egoly issued an additional 213,000 fully paid shares at an issue price of $3 per share.

5. A cash dividend of 40c per share was declared and paid during the year on all issued shares including those issued during the year.

6. Bills payable are used by Egoly as part of their longer-term cash management and are repayable within five years.

REQUIRED:

1. Prepare a cash flow statement for Egoly Ltd using the DIRECT method for the year ended 30^th June 2019. [18 Marks]

2. Wayne Deng is reviewing the statement of cash flows for his technology business. The statement has been provided by his accountant. He is concerned that the statement shows net cash outflows for investing activities. Discuss if Wayne should be worried by this. [3 marks].

Answer 1