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Cash Flow Statement The following information has been extracted from the books of Connolly Ltd: Profit and Loss (extract) for year ended 31/12/2010 Operating profit € 104,000 Interest paid (4,000) Taxation (23,000) Dividend paid (40,000) Retained Profit for year 37,000 Profit and Loss Balance 01/01/2010 76,000 Profit and Loss Balance 31/12/2010 93,000 Balance Sheets as at 31/12/2010 € 31/12/2009 € Fixed Assets Land and Buildings 740,000 670,000 Less depreciation provision (72,000) (68,000) Current Assets Stock 58,000 54,000 Debtors 63,000 32,000 Cash 41,000 52,000 Less Creditors: amounts falling due within 1 year Creditors (38,000) Taxation (47,000) Net Current Assets 105,000 110,000 Total Net Assets 773,000 716,000 You are required to: a) Reconcile the Operating Profit to Net Cash Inflow from operating activities - Leaving Cert Accounting - Question 7 - 2011
Question 7
Cash Flow Statement The following information has been extracted from the books of Connolly Ltd: Profit and Loss (extract) for year ended 31/12/2010 Operating pro... show full transcript
Worked Solution & Example Answer:Cash Flow Statement The following information has been extracted from the books of Connolly Ltd: Profit and Loss (extract) for year ended 31/12/2010 Operating profit € 104,000 Interest paid (4,000) Taxation (23,000) Dividend paid (40,000) Retained Profit for year 37,000 Profit and Loss Balance 01/01/2010 76,000 Profit and Loss Balance 31/12/2010 93,000 Balance Sheets as at 31/12/2010 € 31/12/2009 € Fixed Assets Land and Buildings 740,000 670,000 Less depreciation provision (72,000) (68,000) Current Assets Stock 58,000 54,000 Debtors 63,000 32,000 Cash 41,000 52,000 Less Creditors: amounts falling due within 1 year Creditors (38,000) Taxation (47,000) Net Current Assets 105,000 110,000 Total Net Assets 773,000 716,000 You are required to: a) Reconcile the Operating Profit to Net Cash Inflow from operating activities - Leaving Cert Accounting - Question 7 - 2011
Step 1
Reconcile the Operating Profit to Net Cash Inflow from operating activities.
Answer
To reconcile the Operating Profit to Net Cash Inflow, we start with the Operating Profit:
-
Starting with Operating Profit:
- Operating Profit = €104,000
-
Add Depreciation:
- Add Depreciation = €8,000
- New Total = €104,000 + €8,000 = €112,000
-
Adjust for changes in Working Capital:
- Less Stock Increase:
- Stock increase = €6,000
- New Total = €112,000 - €6,000 = €106,000
- Add Debtors Decrease:
- Debtors decrease = €2,000
- New Total = €106,000 + €2,000 = €108,000
- Less Creditors Increase:
- Creditors increase = €16,000
- New Total = €108,000 - €16,000 = €92,000
- Less Stock Increase:
-
Calculate Net Cash Inflow:
- Net Cash Inflow from Operating Activities = €101,000 (after adjustments)
Therefore, the Net Cash Inflow from Operating Activities is €101,000.
Step 2
Prepare the Cash Flow Statement of Connolly Ltd for the year ended 31/12/2010.
Answer
Cash Flow Statement of Connolly Ltd for the year ended 31/12/2010
Operating Activities
- Net Cash Inflow from Operating Activities: €101,000
Returns on Investments and Servicing of Finance
- Interest Paid: €4,000
Taxation
- Tax Paid: €23,000
Capital Expenditure and Financial Investment
- Purchase of Land/Building: €70,000
Equity/Ordinary Dividend Paid
- Dividends Paid: €40,000
Financing
- Issue of Ordinary Shares: €60,000
- Repayment of Debentures: €5,000
Net Cash Flow for the year
- Closing Cash Position: Total change in Cash Position (inflows minus outflows).
Summary of Cash Flow Movement**
This statement will detail how cash has been generated and used throughout the period based on the operations, saving for investment, and financing activities.
Step 3
Reconcile the Net Cash flow to Movement in Net Debt.
Answer
To reconcile the Net Cash flow to Movement in Net Debt:
-
Beginning Net Debt:
- Cash in hand at the start of the year: €1,000
- Cash used to repay debentures: €0 (assumed as no change)
-
Changes in Net Debt:
- Change in Net Debt = Cash at end of the year – Cash in start of year =
- €12,000 - €1,000
- = €11,000 decrease.
-
Ending Net Debt:
- Net Debt at 31/12/2010 = €19,000
This shows the reconciliation of Net Cash movements indicating a decrease in debt over the period.