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Cash Flow Statement The following information has been extracted from the books of Barry Ltd: Profit and loss (extract) for year ended 31/12/2016 € Operating profit 70,000 Interest paid (13,000) Taxation (24,000) Dividends paid (8,000) Retained profit 36,000 Profit and loss balance 01/01/2016 136,000 Profit and loss balance 31/12/2016 161,000 Balance Sheets as at 31/12/2016 € 31/12/2015 € Fixed Assets Land and buildings 880,000 740,000 Less depreciation provision (80,000) (65,000) Current Assets Stock 43,000 70,000 Debtors 29,000 40,000 Bank 80,000 30,000 Less Creditors: amounts falling due within 1 year Creditors (45,000) (36,000) Taxation (24,000) (20,000) Net Current Assets 11,000 22,000 Total Net Assets 781,000 677,000 Financed by Creditors: amounts falling due after 1 year 7% Debentures 145,000 115,000 Capital and Reserves Ordinary share capital issued 450,000 420,000 Share premium 39,000 22,000 Profit and loss account 161,000 136,000 Net Current Assets 781,000 677,000 Required: (a) Reconcile the operating profit to net cash inflow/outflow from operating activities - Leaving Cert Accounting - Question 6 - 2017
Question 6
Cash Flow Statement The following information has been extracted from the books of Barry Ltd: Profit and loss (extract) for year ended 31/12/2016 € Operating prof... show full transcript
Worked Solution & Example Answer:Cash Flow Statement The following information has been extracted from the books of Barry Ltd: Profit and loss (extract) for year ended 31/12/2016 € Operating profit 70,000 Interest paid (13,000) Taxation (24,000) Dividends paid (8,000) Retained profit 36,000 Profit and loss balance 01/01/2016 136,000 Profit and loss balance 31/12/2016 161,000 Balance Sheets as at 31/12/2016 € 31/12/2015 € Fixed Assets Land and buildings 880,000 740,000 Less depreciation provision (80,000) (65,000) Current Assets Stock 43,000 70,000 Debtors 29,000 40,000 Bank 80,000 30,000 Less Creditors: amounts falling due within 1 year Creditors (45,000) (36,000) Taxation (24,000) (20,000) Net Current Assets 11,000 22,000 Total Net Assets 781,000 677,000 Financed by Creditors: amounts falling due after 1 year 7% Debentures 145,000 115,000 Capital and Reserves Ordinary share capital issued 450,000 420,000 Share premium 39,000 22,000 Profit and loss account 161,000 136,000 Net Current Assets 781,000 677,000 Required: (a) Reconcile the operating profit to net cash inflow/outflow from operating activities - Leaving Cert Accounting - Question 6 - 2017
Step 1
Reconcile the operating profit to net cash inflow/outflow from operating activities.
Answer
To reconcile the operating profit to net cash inflow from operating activities, we start with the operating profit and adjust it for non-cash transactions and changes in working capital.
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Operating profit: €70,000
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Add depreciation: This is a non-cash expense, so we add it back: €25,000
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Adjust for changes in working capital:
- Increase in stock: This represents cash outflow, so we subtract: €(6,000)
- Increase in debtors: Another cash outflow, subtract: €(11,000)
- Increase in creditors: Cash inflow, add: €9,000
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Net cash from operating activities:
Net Cash Flow from Operating Activities = Operating profit + Depreciation - Increase in Stock - Increase in Debtors + Increase in Creditors
= €70,000 + €25,000 - €6,000 - €11,000 + €9,000 = €87,000
Step 2
Prepare the cash flow statement of Barry Ltd for the year ended 31/12/2016.
Answer
Cash Flow Statement for the year ended 31/12/2016
Operating Activities
- Net cash inflow from operating activities: €87,000
Returns on Investments and Servicing of Finance
- Interest paid: €(13,000)
Taxation
- Tax paid: €(24,000)
Capital Expenditure and Financial Investment
- Purchase of land/buildings: €(140,000)
Equity Dividends Paid
- Dividends paid: €(8,000)
Total Cash Flow Before Liquid Resources and Financing
= €87,000 - €13,000 - €24,000 - €140,000 - €8,000 = €(98,000)
Financing
- Issue of ordinary share capital: €30,000
- Share premium: €19,000
- Debentures: €79,000
Decrease in cash
= €(98,000) + €30,000 + €19,000 + €79,000 = €7,000
Step 3
Reconcile the net cash flow to movement in net debt.
Answer
To reconcile the net cash flow to movement in net debt:
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Decrease in cash in the period: €(7,000)
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Debentures: €145,000 (new debentures issued)
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Change in net debt:
- Net debt at the beginning of 2016: €(137,000)
- Net debt at the end of 2016: €(143,000)
Thus, the movement in net debt during the year can be represented as:
Movement in Net Debt = Net debt at end of year - Net debt at beginning of year
= €(143,000) - €(137,000) = €(6,000)
Consequently, we can summarize our reconciliation as:
- Starting Net Debt: €137,000
- Decrease in Cash: €(7,000)
- Ending Net Debt: €143,000