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Cash Flow Statement The following information has been extracted from the books of Roger Ltd - Leaving Cert Accounting - Question 7 - 2010
Question 7
Cash Flow Statement The following information has been extracted from the books of Roger Ltd. € Operating Profit 80,000 Interest paid (9,000) Taxation (32,000) D... show full transcript
Worked Solution & Example Answer:Cash Flow Statement The following information has been extracted from the books of Roger Ltd - Leaving Cert Accounting - Question 7 - 2010
Step 1
Reconcile the operating profit to net cash inflow from operating activities.
Answer
To reconcile operating profit to net cash inflow:
-
Operating Profit:
The starting point is the operating profit of €80,000.
-
Add Depreciation:
Add depreciation of €20,000 to account for non-cash expenses.
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Less Stock Increase:
Deduct the increase in stock of €13,000, which indicates cash outflow.
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Less Debtors Increase:
Deduct the increase in debtors of €12,000; this represents cash not yet received.
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Add Creditors Increase:
Add the increase in creditors of €10,000, representing a cash inflow.
The net cash inflow from operating activities is calculated as follows:
egin{align*}
& ext{Operating Profit}
& + ext{Depreciation}
& - ext{Stock Increase}
& - ext{Debtors Increase}
& + ext{Creditors Increase}
& = 80,000 + 20,000 - 13,000 - 12,000 + 10,000
& = 86,000
ext{Thus, Net Cash Inflow from Operating Activities} = €86,000.
ext{
}
Step 2
Prepare the cash flow statement of Roger Ltd for the year ended 31/12/2009.
Answer
The Cash Flow Statement for Roger Ltd for the year ended 31/12/2009 can be structured as follows:
Cash Flow Statement
Operating Activities:
Net Cash Inflow from Operating Activities: €86,000
Return on Investments and Servicing of Finance:
Interest Paid: €(9,000)
Taxation:
Tax Paid: €(32,000)
Capital Expenditure and Financial Investment:
Purchase of Land/Buildings: €(90,000)
Equity/Ordinary Dividends Paid:
Dividends Paid: €(14,000)
Financing:
Issue of Ordinary Share Capital: €50,000
Repayment of Debentures: €(30,000)
Net Cash Flow for the Period:
This sums the above sections for the total cash flow in the reporting period.
Step 3
Calculate the net debt for 31/12/2008 and 31/12/2009.
Answer
(i) Net Debt Calculation:
-
Net Debt at 31/12/2008:
Cash and cash equivalents: €(55,000)
Less Debentures: €(30,000)Net Debt 31/12/2008 = €(55,000) + €(30,000) = €(25,000)
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Net Debt at 31/12/2009:
Cash and cash equivalents: €4,000
Less Debentures: €(30,000)Net Debt 31/12/2009 = €4,000 + €(30,000) = €(26,000)
(ii) Reconcile the Net Cash Flow to Movement in Net Debt: Net cash flow movements indicate a shift from (€25,000) to (€26,000), reflecting a decrease in liquidity.