Cash Flow Questions

Question 1

Reynolds a chain of stores has the following extracts from the accounts:

Income Statement 2007

Revenue 320
Cost of sales (143)
Gross Profit 177

Interest Received 5
Gain on Disposal of equipment 7
Depreciation (39)
Administrative expenses (13)
Operating profit 137
Interest paid (20)
Profit before Tax 117
Tax (35)
Profit after Tax 82

Balance Sheets April 2006 and 2007

2007 2006
m m m m
Non-Current Assets
Vehicles at cost 195 130
Accumulated Depreciation (79) (52)
116 78
Investments 100 80

Current Assets
Stock 26 20
Trade Receivables (Debtors) 23 21
Cash 43 6
92 47
Current Liabilities
Trade Payables (Creditors) (18) (13)
Interest payable (8) (7)
Taxes payable (10) (7)
(36) (27)
56 20
Non Current Liabilities
Long-Term loans (26) (18)
Net Assets 246 160

Capital and Reserves

Share Capital 152 120
Share Premium 26 23
Retained Earnings 68 17
246 160

The dividend paid during 2007 was 31m. The retained earnings increased by the
82m profit and decreased by the dividend of 31m.
 During year 2 Reynolds acquired vehicles costing 90m and sold vehicles for 20m
that had an original cost of 25m and had an accumulated depreciation of 12m.

a) Prepare a cash flow statement using the indirect method of calculating

operating cashflow. (20 marks)

b) Why are cash flow statements useful? (5 marks)

Question 2

The following changes in the main accounting statements have been noted in
Neutrino PLC for June 2006 to June 2007

June June 2006

2007
Inventory 954 900
Trade Receivables 6,900 7,176
Trade Payables 5,120 3,200
Depreciation charged in Year 1,058
Operating Profit after interest before tax 15,200
Interest Paid 4,280
Dividend Paid 3,800
Tax Paid 1,750
Share Capital and Share premium 5,320 4,256
Purchase of Tangible non current assets 7,600
Issue of Debentures 1,824
Cash and Cash equivalents 9,838 1,700

a) Produce a cash flow statement for Neutrino PLC for the year ended June 2007. (18
marks)

b) Why is the cash flow statement so important ? ( 7 marks)

Question 3

Salcombe a boatyard has the following results for the year ending 31 May 2006:

Sales 4,927,000
Cost of sales
Opening stock 310,040
Purchases 3,866,130
4,176,170
Less: closing stock (367,600)
3,808,570
Gross profit 1,118,430
Interest received 8,040
Expenses (627,340)
Net profit 499,130

These expenses include 9,630 of interest paid and 48,200 of depreciation.

In addition to the information in the profit and loss account and the balance sheet; it
can be noted that Debtors have decreased by 21,880 between 1st June 2005 and
31st May 2006 and Creditors have decreased by 34,340 between 1st June 2005 and
31st May 2006.

Produce the initial part of the cash flow statement showing the net cash inflow or
outflow from operating activities for Salcombe.

Question 4

The following changes in the main accounting statements have been noted in CERN
PLC for the period June 2006-June 2007

June June 2006

2007
Inventory 636 600
Trade Receivables 6,700 6,968
Trade Payables 5,600 3,500
Depreciation charged in Year 1,289
Operating Profit after interest before tax 16,800
Interest Paid 5,240
Dividend Paid 4,200
Tax Paid 1,750
Share Capital and Share premium 5,880 4,704
Sale of Tangible non current assets 8.400
Repayment of Debentures 2,016
Cash and Cash equivalents 23,731 1,700

Produce a cash flow statement for CERM PLC for the year ended June 2007
Question 5

Compile a cash flow statement from the accounts below using the indirect
method.

Income statement Year 2

Revenue 246
Cost of sales (110)
Gross Profit 136
Investment income interest received 4
Gain on disposal of equipment 5
Depreciation (30)
Administrative and selling expenses (10)
Operating profit before interest 105
Interest expense (15)
Profit after deducting interest 90
Taxation (30)
Profit after tax 60

Balance Sheets at 31 December

Year 2 Year 1
m m m m
Non-Current Assets
Property Plant and equipment cost 150 100
Accumulated Depreciation (60) (40)
90 60
Investments 100 100

Current Assets
Stock 20 15
Trade Receivables (Debtors) 18 16
Cash 32 5
70 36

Current Liabilities
Trade Payables (Creditors) (14) (13)
Interest payable (6) (7)
Taxes payable (8) (7)
(28) (27)
42 9

Non Current Liabilities

Long-Term loans (20) (15)
Net Assets 212 154

Capital and Reserves

Share Capital 140 130
Share Premium 20 18
Retained Earnings 52 6
212 154
Additional Information
The dividend paid during the year was 14m. The retained earnings increased
by 60m profit and decreased by the amount of dividend 14m.
During Year 2 the company acquired property, plant and equipment costing
80m.
During Year 2 the company sold property, plant and equipment that had an
original cost of 30m and accumulated depreciation of 10m. The proceeds of
the sale were 25m.

Question 6

a) Produce a cash flow statement for Ingentia a nanotechnology firm for

the year ending May 2007. (15 marks)

Income statement for Year ended May 2007.

000s
Sales 200
Cost of goods sold
Opening stock 30
Purchases 150
180
Less closing stock 10 170
Gross Profit 30

Profit on sale of fixed asset 1

31
Depreciation 5
Other expenses 39 44
Net Loss (13)

Balance sheets May 2006 May 2007

000s 000s
Fixed assets: net book value 22 15
Current Assets
Inventory 30 10
Trade Receivables 28 15
Cash 10 45
68 70
Trade payables 20 48 28 42
70 57

Capital 40 40
Retained Profits 30 17
70 57

A fixed asset which had originally cost 4000 and on which depreciation of
2000 had been charged was sold during the year for 3000. The profit was
included in the income statement. No fixed assets were bought during the
year.
b) The management of working capital is an important aspect of cash financial
management. Outline some of the financial techniques available in working
capital management which can help \improve cash flow in a business.
(10 marks)

Question 7

The following information relates to Sonia Ltd for the year ended 30 th June
2008.

Gross Profit 229
Administration Expenses 76
Loss on sale of vehicle 3
Depreciation on vehicles 35 114
Net Profit 115
Taxation 65
50
Dividends 25
Retained Profit 25

Balance Sheet at 30th June 2008

2008 2007
Non Current Assets
Vehicle at cost 200 150
Less Depreciation 100 75
100 75

Current Assets
Inventory 50 60
Trade Receivables 95 76
Cash 8 6
153 142

Total Assets 253 217

Capital and Reserves

Ordinary Share Capital 75 75
Retained Profit 35 10
110 85

Current Liabilities
Trade Payables 53 60
Taxation 65 52
Proposed Dividend 25 20
143 132
253 217
The company purchased some new vehicles during the year for 75,000 and
sold a vehicle for 12,000 in cash. The vehicle had originally cost 25,000
and 10,000 had been set aside for depreciation.

a) Prepare a cash flow statement for Sonia Ltd for the year ended 30 th
June 2008. ( 20 marks)
b) What does this statement tell the managers of Sonia Ltd? ( 5 marks)