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Cash Flow Statement The following are the Balance Sheets of Butler Plc as at 31/12/2004 and 31/12/2005, together with an abridged Profit and Loss account for the year ended 31/12/2005: Abridged Profit and Loss Account for the year ended 31/12/2005 € Operating profit 140,000 Interest for year 7,000 Profit before taxation 147,000 Taxation for year (42,000) Profit after taxation 105,000 Dividends - Proposed (21,000) Retained profits for the year 84,000 Retained profits on 31/12/2005 66,000 Retained profits on 31/12/2004 212,000 Balance Sheets as at 31/12/2005 € Fixed Assets Land and buildings at cost 825,000 Less accumulated depreciation (95,000) Machinery at cost 400,000 Less accumulated depreciation (202,000) Financial Assets Quoted investments 13,000 Current Assets Stocks 220,000 Debtors 120,000 Government securities 20,000 Bank 4,000 Less Creditors: amounts falling due within 1 year Trade creditors 250,000 Interest due 7,000 Taxation 42,000 Dividends 21,000 Net Current Assets Financed by: Creditors: amounts falling due after more than 1 year 6% Debentures Capital and Reserves Ordinary shares 830,000 Profit and loss account 212,000 The following information is also available: 1 - Leaving Cert Accounting - Question 3 - 2006

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Question 3

Cash-Flow-Statement--The-following-are-the-Balance-Sheets-of-Butler-Plc-as-at-31/12/2004-and-31/12/2005,-together-with-an-abridged-Profit-and-Loss-account-for-the-year-ended-31/12/2005:--Abridged-Profit-and-Loss-Account-for-the-year-ended-31/12/2005--€-Operating-profit-140,000-Interest-for-year-7,000-Profit-before-taxation-147,000-Taxation-for-year-(42,000)-Profit-after-taxation-105,000-Dividends---Proposed-(21,000)-Retained-profits-for-the-year-84,000-Retained-profits-on-31/12/2005-66,000-Retained-profits-on-31/12/2004-212,000--Balance-Sheets-as-at-31/12/2005--€-Fixed-Assets--Land-and-buildings-at-cost-825,000-Less-accumulated-depreciation-(95,000)-Machinery-at-cost-400,000-Less-accumulated-depreciation-(202,000)--Financial-Assets--Quoted-investments-13,000--Current-Assets--Stocks-220,000-Debtors-120,000-Government-securities-20,000-Bank-4,000--Less-Creditors:-amounts-falling-due-within-1-year--Trade-creditors-250,000-Interest-due-7,000-Taxation-42,000-Dividends-21,000--Net-Current-Assets--Financed-by:--Creditors:-amounts-falling-due-after-more-than-1-year-6%-Debentures--Capital-and-Reserves--Ordinary-shares-830,000-Profit-and-loss-account-212,000--The-following-information-is-also-available:-1-Leaving Cert Accounting-Question 3-2006.png

Cash Flow Statement The following are the Balance Sheets of Butler Plc as at 31/12/2004 and 31/12/2005, together with an abridged Profit and Loss account for the ye... show full transcript

Worked Solution & Example Answer:Cash Flow Statement The following are the Balance Sheets of Butler Plc as at 31/12/2004 and 31/12/2005, together with an abridged Profit and Loss account for the year ended 31/12/2005: Abridged Profit and Loss Account for the year ended 31/12/2005 € Operating profit 140,000 Interest for year 7,000 Profit before taxation 147,000 Taxation for year (42,000) Profit after taxation 105,000 Dividends - Proposed (21,000) Retained profits for the year 84,000 Retained profits on 31/12/2005 66,000 Retained profits on 31/12/2004 212,000 Balance Sheets as at 31/12/2005 € Fixed Assets Land and buildings at cost 825,000 Less accumulated depreciation (95,000) Machinery at cost 400,000 Less accumulated depreciation (202,000) Financial Assets Quoted investments 13,000 Current Assets Stocks 220,000 Debtors 120,000 Government securities 20,000 Bank 4,000 Less Creditors: amounts falling due within 1 year Trade creditors 250,000 Interest due 7,000 Taxation 42,000 Dividends 21,000 Net Current Assets Financed by: Creditors: amounts falling due after more than 1 year 6% Debentures Capital and Reserves Ordinary shares 830,000 Profit and loss account 212,000 The following information is also available: 1 - Leaving Cert Accounting - Question 3 - 2006

Step 1

Prepare the Cash Flow Statement of Butler Plc for the year ended 31/12/2005

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Answer

Cash Flow Statement of Butler Plc for the year ended 31/12/2005

Operating Activities

  • Net cash inflow from operating activities: €209,000

Returns on Investments and Servicing of Finance

  • Interest Paid: (6,800)

Taxation

  • Taxation Paid: (38,000)

Capital Expenditure and Financial Investment

  • Investments in fixed assets: (30,000)
  • Receipts from sale of fixed assets: 35,000

Equity Dividends Paid

  • Dividends paid during the year: (55,000)

Management of Liquid Resources

  • Purchase of Government Securities: (12,000)

Financing

  • Repayment of Debentures: (105,000)
  • New Shares Issued: 22,000

Net Cash Flow

  • Net Cash Flow: (43,000)

Reconciliation of Net Cash Flow to Movement in Net Debt

  • Decrease in Cash during the period: (15,800)
  • Cash used to purchase Government Securities: (105,000)
  • Cash used to repay Debentures: (105,000)
  • Net Debt at 31/12/2005: €67,800

Step 2

To show the cash inflows and outflows during the past year

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Answer

The Cash Flow Statement details the cash inflows and outflows for the business over the financial year. It illustrates how the company's operations generated cash, how investments were made, and the financing activities undertaken, presenting a holistic view of liquidity.

Step 3

To help predict future cash flows

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Answer

The Cash Flow Statement is vital for forecasting future cash flows. By understanding past cash flows, the business can better project future inflows and outflows, aiding in effective financial planning.

Step 4

To help financial planning

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By analyzing cash flow patterns, management can make informed decisions regarding budgeting, investment, and financing, ensuring that the company maintains adequate liquidity for operations.

Step 5

To provide information to assess liquidity

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Answer

The statement provides insights into the cash available to meet short-term obligations, allowing stakeholders to assess the company's financial health and ability to sustain operations.

Step 6

To show that profits do not equal cash

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Answer

The Cash Flow Statement clarifies that profitability and cash flow are distinct concepts. It illustrates instances where profits may be high while cash flows could be low due to credit sales or significant capital expenditures.

Step 7

To comply with legal requirements

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Preparation of the Cash Flow Statement is often mandated by accounting standards and regulations, ensuring transparency and compliance in financial reporting.

Step 8

Identify a Non cash expense and a Non Cash gain

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Answer

Non-Cash Expense

  • Depreciation: Representing the allocation of the cost of assets over their useful life.

Non-Cash Gain

  • Profit on Sale of Assets: The gain recognized from selling assets above their book value, which affects the income statement but does not involve an immediate cash transaction.

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