The worksheet below presents the comparative statement of financial position items of

NAMIBIA COMPANY at December 31, 2014 and 2013, with a column that shows the
increase (decrease) from 2013 to 2014:
Increase
2014 2013 (Decrease)
Cash P4,037,500 P3,500,000 P537,500
Accounts receivable 5,640,000 5,840,000 (200,000)
Inventories 9,250,000 8,575,000 675,000
Property, plant & equipment 16,535,000 14,835,000 1,700,000
Accumulated depreciation (5,825,000) (5,200,000) (625,000)
Investment in associate 1,525,000 1,375,000 150,000
Loan receivable 1,312,500 ------------- 1,312,500
Total assets P32,475,000 P28,925,000 P3,550,000

Accounts payable P5,075,000 P4,775,000 P300,000

Income taxes payable 150,000 250,000 (100,000)
Dividends payable 400,000 500,000 (100,000)
Liability under finance lease 2,000,000 ---------- 2,000,000
Ordinary shares, P10 par 2,500,000 2,500,000 -----------
Share premium 7,500,000 7,500,000 -----------
Retained earnings 14,850,000 13,400,000 1,450,000
Total liabilities and equity P32,475,000 P28,925,000 P3,550,000

Additional information:

1. On December 31, 2013, Namibia acquired 25% of Orly Co.’s ordinary shares for
P1,375,000. On that date, the book value of Oriy’s assets and liabilities, which
approximated their fair values, was P5,500,000. Orly reported income of P600,000 for
the year ended December 31,2014. No dividend was paid on Orly’s ordinary shares
during the year.

2. During 2014, Namibia loaned P1,500,000 to Ariel Co., an unrelated company. Ariel
made the first semi-annual principal repayment of P187,500, plus interest at 10%, on
December 31, 2014.

3. On January 2, 2014, Naminibia sold equipment costing P300,000, with a carrying

amount of P175,000, for P200,000 cash.

4. On December 31, 2014, Namibia entered into a finance lease for an office building.
The present value of the annual rental payments is P2,000,000, which equals the fair
value of the building. Namibia made the first rental payment of P300,000 when due
on January 2, 2015.

5. Net income for 2014 was P1,850,000

6. Namibia declared and paid cash dividends for 2014 and 2013 as follows:
 Declared Paid Amount
2013 Dec. 15, 2013 Feb. 20, 2014 P500,000
2014 Dec. 15, 2014 Feb. 20, 2015 P400,000

Based on the preceding information, determine the following:

1. Net cash provided by operating activities

2. Net cash used in investing activities
3. Net cash used in financing activities

1. CASH FLOWS FROM OPERATING ACTIVITIES

Net income P1,850,000

Depreciation 750,000 (1)
Gain on sale of equipment (25,000) (2)
Share of income – equity method (150,000) (3)
Decrease in accounts receivable 200,000
Increase in inventories (675,000)
Increase in accounts payable 300,000
Decrease in income taxes payable (100,000)
Net cash provided by operating activities P2,150,000

Answer: B
(1) Net increase in accumulated depreciation P625,000
Add: Accumulated depreciation
On equipment sold:
Cost P300,000
Carrying value (175,000) 125,500
Depreciation for 2014 P750,000

(2) Proceeds from sale of equipment P200,000

Carrying value 175,000
Gain on sale of equipment P 25,000

(3) Share of income – equity method (P600,000 x 25%) P150,000

2. CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of equipment P 200,000

Loan to Ariel Co. (1,500,000)
Principal payment of loan receivable 187,500
Net cash used in investing activities P(1,112,500)

Answer: D

3. CASH FLOWS FROM FINANCING ACTIVITIES

Net cash used in financing activities – dividends paid P(500,000)

 Answer: A

PAS 7 provides that investing and financing transactions that do not require the use of
cash or cash equivalents shall be excluded from a cash flow statement. Such
transaction shall be disclosed elsewhere in the financial statements that provides all
the relevant information about these investing and financing activities.

The finance lease describe in the problem is an example of noncash transactions

referred to in PAS 7.
Cash Flows from Operating, Investing & Financing Activities

The schedule below shows the account balances of LESOTHO CO. at the beginning and end
of the year ended December 31, 2014:

DEBITS Dec. 31, 2014 Dec.31, 2013

Cash and cash equivalents P666,000 P150,000
Investment in trading securities 30,000 120,000
Accounts receivable 444,000 300,000
Inventories 873,000 900,000
Prepaid insurance 7,500 6,000
Land and building 585,000 585,000
Equipment 933,000 510,000
Discount on bonds payable 25,500 27,000
Treasury shares 15,000 30,000
Cost of goods sold 1,617,000
Selling and general expenses 861,000
Income taxes 105,000
Unrealized loss on trading securities 12,000
Loss on sale of equipment 3,000 __________
Total debits P6,177,000 P2,628,000

CREDITS
Allowance for bad debts P24,000 P15,000
Accumulated depreciation – Building 78,750 67,500
Accumulated depreciation – Equipment 137,250 82,500
Accounts payable 165,000 180,000
Notes payable – current 210,000 60,000
Accrued expenses payable 54,000 26,100
Income taxes payable 105,000 30,000
Unearned revenue 3,000 27,000
Notes payable – noncurrent 120,000 180,000
Bonds payable 750,000 750,000
Deferred tax liability 141,000 159,900
Ordinary shares, P10 par 1,078,200 600,000
Retained earnings appropriated for
Treasury shares 15,000 30,000
Retained earnings appropriated for
Possible building expansion 114,000 69,000
Unappropriated retained earnings 103,800 336,000
Share premium 348,000 15,000
Sales 2,694,000
Gain on sale of trading securities 36,000 __________
Total credits P6,177,000 P2,628,000

Additional information:

a) All purchases and sales were on account.

 b) Equipment with an original cost of P45,000 was sold for P21,000.

c) Selling and general expenses include the following:

Building depreciation P11,250
Equipment depreciation 75,750
Bad debt expense 9,000
Interest expense 54,000

d) A six-month note payable for P150,000 was issued in connection with the
purchase of new equipment.

e) The noncurrent note payable requires the payment of P60,000 per year, plus
interest until paid.

f) Treasury shares were sold for P3,000 more than their cost.

g) During the year, a 30% stock dividend was declared and issued. At that time,
there were 60,000 of P10 par ordinary shares outstanding. However, 600 of
these shares were held as treasury shares at that time and were prohibited from
participating in the stock dividend. Market value of ordinary shares was P50
per share when the stock dividend was declared.

h) Equipment was overhauled, extending its useful life, at a cost of P18,000. The
cost was debited to Equipment.

Based on the given data, calculate the following:

1. Net income for 2014

A. P135,000 C. P130,500
B. P150,900 D. P132,000

2. Cash dividends declared and paid during 2014

A. P24,000 C. P22,200
B. P156,000 D. P0

3. Proceeds from issuance of ordinary shares during the year

A. P300,000 C. P630,000
B. P330,000 D. P808,200

4. Proceeds from sale of trading securities

A. P78,000 C. P126,000
B. P114,000 D. P42,000

5. Accumulated depreciation of equipment sold

A. P21,000 C. P24,000
B. P45,000 D. P27,000

6. Cash paid for purchase of equipment

A. P150,000 C. P450,000
B. P318,000 D. P300,000
7. Proceeds from sale of treasury shares
A. P18,000 C. P12,000
B. P15,000 D. P30,000

8. Net cash provided by operating activities

A. P135,000 C. P249,000
B. P261,000 D. P267,900

9. Net cash used in investing activities

A. P318,000 C. P183,000
B. P297,000 D. P279,000

10. Net cash provided by financing activities

A. P564,000 C. P546,000
B. P561,000 D. P318,000