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Cash Flow Statement The following information has been extracted from the books of Welinza Ltd - Leaving Cert Accounting - Question 7 - 2006

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Cash Flow Statement The following information has been extracted from the books of Welinza Ltd. Profit and Loss (extract) for year ended 31/12/2005 Operating prof... show full transcript

Worked Solution & Example Answer:Cash Flow Statement The following information has been extracted from the books of Welinza Ltd - Leaving Cert Accounting - Question 7 - 2006

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, we start with the operating profit and then adjust for non-cash transactions and changes in working capital:

  1. Operating Profit: €134,000
  2. Depreciation (non-cash expense): Add back €22,000
  3. Increase in Stock: Subtract €28,000 (this reduces cash as more funds are locked in inventory)
  4. Decrease in Debtors: Add €9,000 (this means cash has been collected from customers)
  5. Increase in Creditors: Add €18,000 (indicating cash is held as expenses are paid later)

Thus, the calculation for net cash inflow from operating activities is:

extNetCashInflow=134,000+22,000−28,000+9,000+18,000=155,000 ext{Net Cash Inflow} = 134,000 + 22,000 - 28,000 + 9,000 + 18,000 = 155,000

So, the net cash inflow from operating activities is €155,000.

Step 2

Prepare the Cash Flow Statement of Welinza Ltd for the year ended 31/12/2005.

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Answer

The Cash Flow Statement for Welinza Ltd for the year ended 31/12/2005 is structured as follows:

Operating Activities

  • Net cash inflow from operating activities: €155,000

Return on Investments and Servicing of Finance

  • Interest Paid: (€12,000)
  • Taxation Paid: (€11,000)

Capital Expenditure and Financial Investment

  • Purchase of land/buildings: (€170,000)

Equity / Ordinary Dividends Paid

  • Dividends Paid: (€26,000)
  • Net cash outflow for liquid resources and financing: (€30,000)

Financing

  • Issue of Ordinary Share Capital: €40,000
  • Receipts from Debenture Loan: €30,000

Finally, the increase in cash for the period is:

extIncreaseinCash=155,000−12,000−11,000−170,000−26,000+40,000+30,000=6,000 ext{Increase in Cash} = 155,000 - 12,000 - 11,000 - 170,000 - 26,000 + 40,000 + 30,000 = 6,000

Thus, the increase in cash is €6,000.

Step 3

Reconcile the Net Cash flow to Movement in Net Debt.

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Answer

The reconciliation of the net cash flow to the movement in net debt involves considering the cash flows related to the debt:

  1. Increase in Cash: €6,000 (As calculated above)

  2. Decrease in Debentures: (€24,000)

  3. Change in Net Debt:

    Net Debt at the beginning of the year = €120,000

    Net Debt at the end of the year: €120,000 - €6,000 - (€24,000) = €136,000

Thus the net debt at 31/12/2005 is €136,000.

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