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Cash Flow Statement The following information has been extracted from the books of Wheldon Ltd: € Operating Profit 156,000 Interest paid (12,000) Taxation (21,000) Dividends paid (40,000) Retained Profit 105,000 Profit and Loss balance 01/01/2013 18,000 Profit and Loss balance 31/12/2013 123,000 Balance Sheets as at 31/12/2013 31/12/2012 € Fixed Assets Land and Buildings 640,000 490,000 Less depreciation provision (108,000) (32,000) Current Assets Stock 48,000 50,000 Debtors 26,000 24,000 Cash 17,000 5,000 Less Creditors: amounts falling due within 1 year Creditors 9,000 8,000 Taxation 25,000 5,000 Net Current Assets (34,000) Total Net Assets €89,000 Financed by: Creditors: amounts falling due after 1 year 15,000 6% Debentures 20,000 Capital and Reserves Ordinary Share Capital issued 30,000 Share Premium 2,000 Profit and Loss Account €89,000 You are required to: (a) Reconcile the operating profit to net cash inflow from operating activities - Leaving Cert Accounting - Question 7 - 2014

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Question 7

Cash-Flow-Statement--The-following-information-has-been-extracted-from-the-books-of-Wheldon-Ltd:--€--Operating-Profit-156,000-Interest-paid-(12,000)-Taxation-(21,000)-Dividends-paid-(40,000)-Retained-Profit-105,000-Profit-and-Loss-balance-01/01/2013-18,000-Profit-and-Loss-balance-31/12/2013-123,000--Balance-Sheets-as-at-31/12/2013-----31/12/2012--€--Fixed-Assets-Land-and-Buildings-640,000-------------490,000-Less-depreciation-provision-(108,000)-----------(32,000)-Current-Assets-Stock-48,000---------------50,000-Debtors-26,000-------------24,000-Cash-17,000-------------5,000--Less-Creditors:-amounts-falling-due-within-1-year-Creditors-9,000--------------8,000-Taxation-25,000-------------5,000-Net-Current-Assets-(34,000)-Total-Net-Assets-€89,000--Financed-by:-Creditors:-amounts-falling-due-after-1-year-15,000-6%-Debentures-20,000-Capital-and-Reserves-Ordinary-Share-Capital-issued-30,000-Share-Premium-2,000-Profit-and-Loss-Account-€89,000--You-are-required-to:--(a)-Reconcile-the-operating-profit-to-net-cash-inflow-from-operating-activities-Leaving Cert Accounting-Question 7-2014.png

Cash Flow Statement The following information has been extracted from the books of Wheldon Ltd: € Operating Profit 156,000 Interest paid (12,000) Taxation (21,000... show full transcript

Worked Solution & Example Answer:Cash Flow Statement The following information has been extracted from the books of Wheldon Ltd: € Operating Profit 156,000 Interest paid (12,000) Taxation (21,000) Dividends paid (40,000) Retained Profit 105,000 Profit and Loss balance 01/01/2013 18,000 Profit and Loss balance 31/12/2013 123,000 Balance Sheets as at 31/12/2013 31/12/2012 € Fixed Assets Land and Buildings 640,000 490,000 Less depreciation provision (108,000) (32,000) Current Assets Stock 48,000 50,000 Debtors 26,000 24,000 Cash 17,000 5,000 Less Creditors: amounts falling due within 1 year Creditors 9,000 8,000 Taxation 25,000 5,000 Net Current Assets (34,000) Total Net Assets €89,000 Financed by: Creditors: amounts falling due after 1 year 15,000 6% Debentures 20,000 Capital and Reserves Ordinary Share Capital issued 30,000 Share Premium 2,000 Profit and Loss Account €89,000 You are required to: (a) Reconcile the operating profit to net cash inflow from operating activities - Leaving Cert Accounting - Question 7 - 2014

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, we follow these steps:

  1. Start with the Operating Profit:
    The operating profit for Wheldon Ltd is €156,000.

  2. Add Depreciation:
    The depreciation expense is added back to the profit since it is a non-cash charge. Thus, we add €9,000.

  3. Adjust for Changes in Working Capital:

    • Subtract the decrease in Stock: €5,000 (which is a decrease, thus negatively affecting cash)
    • Add the increase in Debtors: €6,000 (more cash tied up in customers)
    • Add the increase in Creditors: €4,000 (cash saved by delaying payments)

  4. Sum up the adjusted figures:

    Cash Inflow Calculation:

    Operating Profit: €156,000

    • Depreciation: €9,000
    • Decrease in Stock: €5,000
    • Increase in Debtors: €6,000
    • Increase in Creditors: €4,000
      = Net Cash Inflow from Operating Activities: €216,000.

Step 2

Prepare the Cash Flow Statement of Wheldon Ltd for the year ended 31/12/2013 using the following headings.

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Answer

Cash Flow Statement for Wheldon Ltd for the year ended 31/12/2013

Operating Activities:
Net Cash inflow from Operating Activities: €216,000

Return on Investment and Servicing of Finance:

  • Interest Paid: €(12,000)
  • Tax Paid: €(21,000)

Total: €(33,000)

Capital Expenditure and Financial Investment:

  • Purchase of Land/Buildings: €(150,000)

Equity Dividends:

  • Dividends Paid: €(40,000)

Financing:

  • Issue of Ordinary Share Capital: €20,000
  • Share Premium: €2,000
  • Repayment of Debentures: €(50,000)

Decrease in Cash:
= €7,000

Step 3

Reconcile the Net Cash Flow to movement in Net Debt.

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Answer

To reconcile the net cash flow to movement in net debt, we follow this structure:

  1. Start with the Decrease in Cash:
    Net cash flow in the period is a decrease of €7,000.

  2. Include Changes in Debentures:

    • New Debentures were €20,000
    • Repayment of Debentures was €40,000
      Thus,
    • Total Change in Debentures = €(20,000)

  3. Calculate Movement in Net Debt:

    Movement in Net Debt = Decrease in cash + Changes in Debentures:

    Movement in Net Debt = €(7,000) + €(20,000) = €(27,000)

  4. End with Net Debt balance:

    • Net Debt as of 31/12/2012: €133,000
    • New Net Debt = €(27,000)
    • Total Net Debt = €106,000

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