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Cash Flow Statement The following are the Balance Sheets of Danton plc as at 31/12/2010 and 31/12/2011: Balance Sheets as at Fixed Assets Land & buildings € 850,000 € 730,000 Machinery € 220,000 € 670,000 Less accumulated depreciation € 225,000 € 124,000 Less accumulated depreciation € 55,000 € 65,000 Financial Assets Quoted investments € 60,000 € 60,000 Current Assets Stocks € 111,000 € 135,000 Debtors € 36,000 € 40,000 Government securities € 60,000 € 0 Bank € 5,000 € 22,000 Investment income due € 5,000 € 3,000 Less Creditors: amounts falling due within 1 year Trade creditors € 170,000 € 402,000 Corporation tax € 11,000 € 15,000 Interest due € 10,000 € 15,000 € 227,000 € 416,000 € 1,316,000 € 981,000 Financed by: Creditors: amounts falling due after more than one year € 100,000 debentures (€ 50,000 redeemed on 31/12/2011) Capital and Reserves Ordinary shares @ €1 each € 800,000 € 600,000 Share premium € 120,000 € 120,000 Profit and Loss account € 196,000 € 311,000 € 1,316,000 € 981,000 The following information is also available for the year 2011: 1) Buildings with €90,000 were disposed of for €13,000 - Leaving Cert Accounting - Question 7 - 2012
Question 7
Cash Flow Statement The following are the Balance Sheets of Danton plc as at 31/12/2010 and 31/12/2011: Balance Sheets as at Fixed Assets Land & buildings ... show full transcript
Worked Solution & Example Answer:Cash Flow Statement The following are the Balance Sheets of Danton plc as at 31/12/2010 and 31/12/2011: Balance Sheets as at Fixed Assets Land & buildings € 850,000 € 730,000 Machinery € 220,000 € 670,000 Less accumulated depreciation € 225,000 € 124,000 Less accumulated depreciation € 55,000 € 65,000 Financial Assets Quoted investments € 60,000 € 60,000 Current Assets Stocks € 111,000 € 135,000 Debtors € 36,000 € 40,000 Government securities € 60,000 € 0 Bank € 5,000 € 22,000 Investment income due € 5,000 € 3,000 Less Creditors: amounts falling due within 1 year Trade creditors € 170,000 € 402,000 Corporation tax € 11,000 € 15,000 Interest due € 10,000 € 15,000 € 227,000 € 416,000 € 1,316,000 € 981,000 Financed by: Creditors: amounts falling due after more than one year € 100,000 debentures (€ 50,000 redeemed on 31/12/2011) Capital and Reserves Ordinary shares @ €1 each € 800,000 € 600,000 Share premium € 120,000 € 120,000 Profit and Loss account € 196,000 € 311,000 € 1,316,000 € 981,000 The following information is also available for the year 2011: 1) Buildings with €90,000 were disposed of for €13,000 - Leaving Cert Accounting - Question 7 - 2012
Step 1
Prepare an Abridged Profit & Loss account to ascertain the operating profit for the year ending 31/12/2011
Answer
To prepare an Abridged Profit & Loss account, we follow these steps:
-
Calculate Operating Profit:
Operating Profit = Profit Before Tax - Taxation
= €337,000 - €45,000
= €292,000 -
Deduct Other Expenses:
Less:- Debenture Interest = €15,000
- Taxation = €45,000
-
Calculate Profit After Tax:
Profit After Tax = Operating Profit - Debenture Interest
= €292,000 - €15,000
= €277,000
The final rundown of the Abridged Profit & Loss account is as follows:
| Item | Amount (€) |
|---|---|
| Operating Profit | 337,000 |
| Less: Debenture Interest | (15,000) |
| Profit before Tax | 322,000 |
| Less: Taxation | (45,000) |
| Profit after Tax | 277,000 |
| Dividends | (60,000) |
| Profit and Loss Balance | 196,000 |
Step 2
Prepare the Cash Flow statement for Danton plc for the year ending 31/12/2011
Answer
For the Cash Flow statement, we will:
-
Identify Cash Flows from Operating Activities:
- Start with Operating Profit €337,000
- Add: Depreciation Charge €72,000
- Less: Tax Paid (€45,000)
- Less: Increase in Working Capital (Debtors, Stocks)
- Equals: Net Cash from Operating Activities
-
Cash Flows from Investing Activities:
- Proceeds from Sale of Buildings = €13,000
- Purchase of Equipment = (€119,000)
- Equals: Net Cash Used in Investing Activities
-
Cash Flows from Financing Activities:
- Repayment of Debentures = (€50,000)
- New Share Issuance = €200,000
- Equals: Net Cash from Financing Activities
Finally, we summarize the Net Cash Movement:
| Activity | Amount (€) |
|---|---|
| Net Cash from Operating Activities | €234,000 |
| Net Cash Used in Investing Activities | (€178,000) |
| Net Cash from Financing Activities | €170,000 |
| Net Increase in Cash | €226,000 |
Step 3
Explain why capital profit does not arrive in a corresponding increase in net cash.
Answer
Capital profit is essentially revenue generated from non-operational activities, such as the sale of fixed assets. While this profit may appear in financial reports, it does not always translate into immediate cash inflow for the business for several reasons:
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Timing Differences: The sale of an asset may occur, but cash may not be received immediately, leading to a lag in cash accounted for in reports.
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Reinvestment of Funds: Often, profits from asset sales are reinvested into new projects, reducing the immediate increase in cash reserves.
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Non-Cash Transactions: Some profits can stem from non-cash transactions (e.g., barter deals) that do not affect cash balance directly.
In essence, while capital profit reflects a healthy position on financial statements, the actual movement of cash can fluctuate significantly based on operational activities, reinvestment strategies, and timing.
Step 4
Outline two responsibilities of the Directors of a plc.
Answer
The responsibilities of directors of a public limited company (plc) include the following:
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Compliance with Legislation: Ensure that the company adheres to all relevant laws and regulations, such as the Companies Act, and that statutory financial statements are prepared and submitted on time.
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Fiduciary Duty: Act in the best interests of the shareholders, making decisions that directly influence the company's performance and shareholder value. This includes overseeing management and maintaining transparency in reporting.
Directors bear considerable responsibility for the company's governance and must fulfill these duties diligently to avoid potential liabilities.