Question

The Statements of Financial Position for Kiwi Limited as at 30 June 2019 and 30 June 2020 are provided below:

Kiwi Limited Statement of Financial Position as at 30 June 2019 2020 Assets $ $ Cash at Bank 68,000 56,000 Accounts Receivable 121,000 139,000 Inventory 44,000 41,000 Land 241,000 241,000 Plant and Machinery 319,000 414,000 Less: Accumulated Depreciation (10,000) (89,000) Total Assets $783,000 $802,000 Liabilities Accounts Payable 55,000 54,000 Tax Payable 16,000 23,000 Loan 536,000 362,000 Total Liabilities $607,000 $439,000 Shareholders' Equity Share Capital 150,000 240,000 Retained Earnings 26,000 123,000 Total Shareholders' Equity $176,000 $363,000 Total Liabilities and Shareholders' Equity $783,000 $802,000

Question One continued on the next page

QUESTION ONE (CONTINUED)

The Statement of Financial Performance for Kiwi Limited for the financial year ended 30 June 2020 is provided below:

Kiwi Limited Statement of Financial Performance for the year ended 30 June 2020 $
Sales		614,000
Less:
Cost of Sales	307,000
Interest Expense	23,000
Other Operating Expenses	91,000
Tax Expense	46,000
Total Expenses		(467,000)
Profit		$147,000

Additional Information:

1. New machinery was purchased for cash during the year.

2. Cash dividend was declared and paid during the year.

3. Other Operating Expenses include depreciation expense of $79,000.

4. Additional shares were issued for cash during the year.

5. All sales and purchases are on credit throughout the year ending 30 June 2020.

6. Accounts Payable reflects inventory purchases on credit from suppliers.

REQUIRED:

1. Prepare a fully classified Statement of Cash Flows for Kiwi Limited for the year ended 30 June 2020 using the direct method. Show all workings.

(b) Based on the Statement of Cash Flows for Kiwi Limited that you have prepared,

      provide two key insights about the cash flows for the company in relation to its ability

      to meet its long-term debt obligations. (word limit: 250 words)

Answer 1

Cash flow statement is divided into 3 categories:

1) Cash flow from operating activities.

2) Cash flow from investing activities.

3) Cash flow from Financing activities.

In the above question, We have calculate the cash flows from all the above 3 categories by using In-direct method.

Kiwi ltd. Cash flow statement for the year ending 30th june 2020

Paticulars	Amount ($)	Amount ($)
Cash flow from operating activities
Net profit before tax (147000+46000)	193000
Adjustments for: Depreciation	79000
Operating profit before working captial changes	272000
Increase in current Assets Accounts receivable	(18000)
Decrease in current Assets Inventory	3000
Increase in current liability Tax payable	7000
Decrease in current Liability	(1000)
Cash From Operating Activities After tax expenses 263000-46000		217000
2) Cash flow from investing Activities
Purchase of plant and machinery (414000-319000)		(95000)
Net cash used in investment Activities		(95000)
3) Cash flow from Financing Activities
proceeds from issue of share captial (240000-150000)		90000
Repayment of loan (536000-362000)		(174000)
Interest expense and Cash dividend paid (balancing figure)		(50000)
Cash used in Financial Activities		(134000)

Net Cash Decrease (217000-95000-134000)		(12000)
Cash Balance at the begging of the period		68000
Cash balance at the closing of the period		56000

Insights:

1) Long term debt obligations can be paid by issue of further Equity shares and preference shares or other securities which saves the interest for the company which is to be paid every year and also by repaying its debts, the coompany can be debt free and dividend on shares can be paid only when there is adequate profits.

2) Dividends can also be paid by capitalising the reserves and by issuing bonus shares, so that share holders get additional shares and additional dividends in future years.

Note: Since cash dividend is declared and paid during the year, the amount is not provided, it is assumed as financing activity and balancing figure has been derived..

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