Question

1.    Cash Flow Statements

Prepare a cash flow statement for Anna’s Apples Ltd using the information below. Use the indirect method for operating cash flows.

Net Profit for year ended 30 June 2017: $200,000

                                                      30 June 2017                 1 July 2016

Cash                                                         ?                             $20,000

Inventory                                            $30,000                       $40,000

Accounts Payable                               $15,000                       $30,000

Unearned Revenue                              $12,000                       $15,000

Prepaid Insurance                               $18,000                       $33,000

Goodwill                                             $50,000                       $0

Equipment                                          $300,000                     450,000

Acc Dep’n Equipment $150,000                     $160,000

Loan Payable                                      $50,000                       $100,000

During the year equipment with a cost of $150,000 and accumulated depreciation of $50,000 was sold for $115,000. No other purchases or sales of equipment was made during the year.

During the year another business was purchased for cash.

Answer 1

• All working forms part of the answer
• Statement of Cash Flows is prepared below from the available data.
• Concepts – Indirect Method

No.	Conceptual Notes
1	Cash Flow Statement reflects the Cash Inflows and Outflows during a period of time.
2	Effects of Non - Cash Transaction are adjusted from Net Income.
3	Depreciation Expense, Amortisation expenses are Added back to Net Income in Cash Flow Statement.
4	Decrease in Current Assets OR Increase in Current Liabilities are ADDED to Net Income
5	Increase in Current Assets OR Decrease in Current Liabilities are DEDUCTED from Net Income

• Workings

Working #1: Change in Operating Working Capital
	Beginning Balance (1 Jul 2016)	Ending Balance (30 June 2017)	Increase (Decrease)
Inventory	$           40,000.00	$        30,000.00	$           (10,000.00)
Accounts Payable	$           30,000.00	$        15,000.00	$           (15,000.00)
Unearned revenue	$           15,000.00	$        12,000.00	$              (3,000.00)
Prepaid Insurance	$           33,000.00	$        18,000.00	$           (15,000.00)

Working #2: Depreciation Expenses
A	Ending Balance - Accumulated Depreciation	$ 150,000.00
B	Accumulated Depreciation on Equipment sold	$    50,000.00
C	Beginning Balance - Accumulated Depreciation	$ 160,000.00
D = A + B - C	Depreciation expense for the period	$    40,000.00

Working #3: Gain on Sale of Equipment
A	Equipment sold costing	$        150,000.00
B	Accumulated Depreciation on above	$           50,000.00
C = A - B	Book Value	$        100,000.00
D	Sold for	$        115,000.00
E = D - C	Gain on sale of Equipment	$           15,000.00

• Answer: Cash Flow Statement

Statement of Cash Flows - Indirect Method
Cash flows from Operating Activity
Net Income		$ 200,000.00
Adjustments to reconcile Net Income to
Net Cash provided by Operating activities
Depreciation Expenses [Working #2]	$    40,000.00
Gain on sale of Equipment [Working #3]	$ (15,000.00)
Decrease in Inventory [Working #1]	$    10,000.00
Decrease in Accounts payable [Working #1]	$ (15,000.00)
Decrease in Unearned revenue [Working #1]	$    (3,000.00)
Decrease in Prepaid Insurance [Working #1]	$    15,000.00	$    32,000.00
Net Cash flows from Operating Activities		$ 232,000.00
Cash Flows from Investing activities
Cash received from sale of Equipment	$ 115,000.00
Goodwill	$ (50,000.00)
Net Cash flow from Investing activities		$    65,000.00
Cash Flows from Financing Activities
Cash paid for repayment of Loan Payable	$ (50,000.00)
Net Cash flows from Financing activities		$ (50,000.00)
Net Increase in Cash		$ 247,000.00
Cash at the beginning [1 Jul 2016]		$    20,000.00
Cash at the end [30 June 2017]		$ 267,000.00