Question

QUESTION 2

The following transactions were undertaken by ABC Pty Ltd during the financial year ended 30 June 2019.

1. Sold for $12,000 used machinery with a carrying amount of $75,000.
2. Issued ordinary shares for cash, $300,000.
3. Purchased land to be held for future expansion for $220,000.
4. Paid off a long-term $90,000 loan plus interest of $8,000.
5. Purchased machinery, giving $50,000 cash and signing a mortgage loan for $90,000.
6. Purchased shares in A Ltd to be held as an investment for $100,000 cash.
7. Sold a long-term government bond, with a carrying amount of $45,000, for $56,000, including $5,000 accrued interest.
8. Purchased shares in Rouge Ltd to be held as a long-term investment, paying $170,000 cash.
9. Issued 7% debentures for $500,000
10. Paid cash dividends of $60,000

Required:

1. Prepare the net cash flow used in investing activities section of the statement of cash flows. Must show your calculations
2. Prepare the net cash flow used in financing activities section on the statement of cash flows. Must show your calculations
3. What are the limitations of a statement of cash flows? Explain. You must disclose the source of your information by referencing and support your statements by readings and research.

Answer 1

Net Cash flows from Investing Activities
Sl. No.	Particulars							Amount ( $)
a.	Sale of Machinery							12,000.00
b.	Purchase of Land							(220,000.00)
c.	Purchase of Machinery							(50,000.00)
d.	Purchase of shares in A Ltd.							(100,000.00)
e.	Sale of Government Bond							56,000.00
f.	Purchase of Shares in Rouge Ltd.							170,000.00
								(132,000.00)
Net Cash flows from Financing Activities
Sl. No.	Particulars							Amount ( $)
a.	Issue of Ordinary shares							300,000.00
b.	Payment of Long term loan Principal- 90,000 Interest -8000							(98,000.00)
c.	Issue of Debentures							500,000.00
d.	Payment of Cash Dividends							(170,000.00)
								532,000.00

Limitations of Statement of Cash Flows:

1. It does not disclose any Non- Cash Transactions

2. A Cash flow statement cannot replace the position of Income Statement. The Income statement discloses the overall profitability position of the organaisation as a whole irrespective of cash/ Non- cash transaction

3. It consists of information which is of historical in nature that means, we will prepare cash flow statement to disclose the cash inflow or outflow relating to those transactions which affects cash which are already occurred.

4. It ignores Accrual Concept

5. Working Capital being a wider concept of funds, a funds flow statement presents a more complete picture than cash flow statement.

Note : As you asked the source of Information by reference to support my statements please refer to any Financial Statements of an Well known Organisation. So that one can get view of the above points. My suggestion is to refer any Cash flow statement of the well known organisation from the Fiancial Statements.

For Ex: i had referred the Consolidated Cash Flow statements of an organisation AMAZON of the year 2018 which i had obtained form SECURITIES AND EXCHANGE COMMISSION.

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