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Cash Flow Statement The following information has been extracted from the books of Milano Ltd: Profit and Loss Extract for year ended 31/12/2007 Operating Profit € 110,000 Interest paid € (7,000) Taxation € (26,000) Dividends paid € (31,000) Retained profits for year € 40,000 Profit and loss balance 1/1/2007 € 86,000 Profit and loss balance 31/12/2007 € 126,000 Balance Sheets as at 31/12/2007 € 31/12/2006 € Fixed Assets Land & Buildings 730,000 690,000 Less depreciation provision (44,000) (66,000) Current Assets Stock 48,000 40,000 Debtors 85,000 53,000 Cash 3,000 3,000 Less Creditors: amounts falling due within 1 year Creditors 74,000 73,000 Taxation 32,000 19,000 Net Current Assets 60,000 15,000 Total Net Assets 736,000 656,000 Financed by: Creditors: amounts falling due after more than 1 year 8% Debentures 100,000 90,000 Capital and Reserves Ordinary Share capital issued 126,000 100,000 Profit & Loss account 126,000 126,000 Total Net Assets 736,000 656,000 You are required to: (a) Reconcile the operating profit to net cash inflow from operating activities - Leaving Cert Accounting - Question 7 - 2008

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Question 7

Cash-Flow-Statement--The-following-information-has-been-extracted-from-the-books-of-Milano-Ltd:--Profit-and-Loss-Extract-for-year-ended-31/12/2007-Operating-Profit----------------------------------€--110,000-Interest-paid-------------------------------------€--(7,000)-Taxation------------------------------------------€--(26,000)-Dividends-paid------------------------------------€--(31,000)-Retained-profits-for-year--------------------------€--40,000-Profit-and-loss-balance-1/1/2007------------------€--86,000-Profit-and-loss-balance-31/12/2007----------------€-126,000--Balance-Sheets-as-at-----------------------31/12/2007-------€-----------31/12/2006-------€--Fixed-Assets-Land-&-Buildings-------------------------------730,000---------690,000-Less-depreciation-provision----------------(44,000)---------(66,000)--Current-Assets-Stock-----------------------------------------------48,000----------40,000-Debtors-----------------------------------------85,000----------53,000-Cash----------------------------------------------3,000------------3,000--Less-Creditors:-amounts-falling-due-within-1-year-Creditors-----------------------------------------74,000----------73,000-Taxation-----------------------------------------32,000----------19,000--Net-Current-Assets---------------------------60,000-----------15,000-Total-Net-Assets------------------------------736,000--------656,000--Financed-by:-Creditors:-amounts-falling-due-after-more-than-1-year-----8%-Debentures------------------------------100,000----------90,000-Capital-and-Reserves-----Ordinary-Share-capital-issued------126,000----------100,000-----Profit-&-Loss-account--------------------126,000----------126,000-Total-Net-Assets-----------------------------736,000--------656,000--You-are-required-to:--(a)-Reconcile-the-operating-profit-to-net-cash-inflow-from-operating-activities-Leaving Cert Accounting-Question 7-2008.png

Cash Flow Statement The following information has been extracted from the books of Milano Ltd: Profit and Loss Extract for year ended 31/12/2007 Operating Profit ... show full transcript

Worked Solution & Example Answer:Cash Flow Statement The following information has been extracted from the books of Milano Ltd: Profit and Loss Extract for year ended 31/12/2007 Operating Profit € 110,000 Interest paid € (7,000) Taxation € (26,000) Dividends paid € (31,000) Retained profits for year € 40,000 Profit and loss balance 1/1/2007 € 86,000 Profit and loss balance 31/12/2007 € 126,000 Balance Sheets as at 31/12/2007 € 31/12/2006 € Fixed Assets Land & Buildings 730,000 690,000 Less depreciation provision (44,000) (66,000) Current Assets Stock 48,000 40,000 Debtors 85,000 53,000 Cash 3,000 3,000 Less Creditors: amounts falling due within 1 year Creditors 74,000 73,000 Taxation 32,000 19,000 Net Current Assets 60,000 15,000 Total Net Assets 736,000 656,000 Financed by: Creditors: amounts falling due after more than 1 year 8% Debentures 100,000 90,000 Capital and Reserves Ordinary Share capital issued 126,000 100,000 Profit & Loss account 126,000 126,000 Total Net Assets 736,000 656,000 You are required to: (a) Reconcile the operating profit to net cash inflow from operating activities - Leaving Cert Accounting - Question 7 - 2008

Step 1

Reconcile the operating profit to net cash inflow from operating activities.

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Answer

To reconcile the operating profit to net cash inflow from operating activities, start with the operating profit amount and adjust for non-cash expenses as well as changes in working capital.

  1. Operating Profit: €110,000
  2. Add Depreciation: €44,000 (non-cash expense)
  3. Subtract Increase in Stock: €8,000 (reduces cash)
  4. Subtract Increase in Debtors: €12,000 (reduces cash)
  5. Add Increase in Creditors: €1,000 (increases cash)

Thus, the cash inflow from operating activities is calculated as follows:

Final Calculation:

extNetCashInflowfromOperatingActivities=110,000+44,000−8,000−12,000+1,000=96,000 ext{Net Cash Inflow from Operating Activities} = 110,000 + 44,000 - 8,000 - 12,000 + 1,000 = 96,000

Step 2

Prepare the cash flow statement of Milano Ltd. for the year ended 31/12/2007.

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Answer

Cash Flow Statement of Milano Ltd for the year ended 31/12/2007

  1. Operating Activities:

    • Net cash inflow from operating activities: €96,000

  2. Return on Investments and Servicing of Finance:

    • Interest paid: €(7,000)
    • Taxation: €(26,000)

  3. Capital Expenditure and Financial Investment:

    • Purchase of land/buildings: €(40,000)

  4. Equity / Ordinary Dividend paid:

    • Dividend paid: €(31,000)

  5. Financing:

    • Issue of ordinary share capital: €30,000
    • Receipts from debenture loan: €10,000

Increase in Cash:

  • Total: €32,000

Step 3

Reconcile the Net Cash Flow to Movement in Net Debt.

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Answer

  1. Net Cash in the Period:

    • Net cash at 1/1/2007: €32,000
    • Cash receipt from debentures: €10,000
    • Net cash at 31/12/2007: €84,000

  2. Net Debt Calculation:

    • Net debt at 1/1/2007: €(90,000 - 38,000) = €84,000
    • Net debt at 31/12/2007: €(84,000 - 62,000) = €22,000

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