Question

A summarised comparative statement of financial position of Kangaroo Ltd is presented below. 30-Jun-20 30-Jun-19 Cash $80,000 $60,000 Accounts Receivable $65,000 $90,000 Inventories $58,000 $62,000 Prepayments $10,000 $12,000 Land $90,000 $90,000 Plant $380,000 $300,000 Accumulated Depreciation ($70,000) ($57,000) $621,000 $557,000 Accounts Payable $45,000 $52,000 Long-term Borrowings $170,000 $200,000 Share Capital $280,000 $230,000 Retained Earnings $126,000 $75,000 $621,000 $557,000 Additional information There were no disposals of land or plant during the year. A $30 ,000 borrowing was settled through the issue of ordinary shares. There were no other repayments of borrowings. Profit for the year was $120 ,000, interest expense was $24,000, and income tax paid was $20,000. There were no items of other comprehensive income. A $49,000 dividend was paid during the year. Sales revenue for the year was $600 ,000. There was no other revenue. Required Prepare the operating activities section of the statement of cash flows using the indirect method of presentation for the year ended 30 June 2020

Answer 1

The cash flow from operating activities are derived under two stages;

A. Calculating the operating profit before changes in working capital

B. The effect of changes in working capital

Effect of changes in Working Capital is to be taken into as follows:
a. Current Assets

i. An increase in an item of current assets causes a decrease in cash inflow because cash is blocked in current assets

ii. A decrease in an item of current assets causes an increase in cash inflow because cash is released from the sale of current assets

b. Current Liabilities

i. An increase in an item of current liability causes a decrease in cash outflow because cash is saved

ii. A decrease in an item of current liability causes an increase in cash outflow because of payment of the liability

Answer:
Net profit before tax and extra ordinary items 120000

Add: Non cash and non operating items which have already been debited to Statement of profit and loss accounr.

1) Depreciation {(70000)-(57000)}. 13000

2) Dividend paid 49000

3) Provision for tax paid. 20000

less: Non-cash and Non-operating Items which have already been credited to Profit and Loss Account

None.

therefore, operating profit before working capital changes: 202000.

Effect of change in working capital:

a, Add net decrease in current assets

Accounts receivable (90000-65000) 25000

Inventories (62000-58000) 4000

Prepayments (12000-10000) 2000

b,Add net increase in current liabilities- none

c, Less net increase in current assets

cash (60000-80000) (20000)

d, Less net decrease  in current liabilities

Accounts payable (45000-52000) (7000)

Total: 31000-20000-7000=4000.

Net cash flow from operating activities: 202000+4000= $206000