ACCOUNTING

CASH FLOW
STATEMENTS

NOTES
AND
QUESTIONS
 CONTENTS

TOPIC PAGE

SECTION ONE INTRODUCTION.......................................... 4

What Is A Cash Flow Statement? ........................................................................... 4
Why Draw Up A Cash Flow Statement? ................................................................. 4
Exercise 1.1 .................................................................................................................. 5
Exercise 1.2 .................................................................................................................. 6
Example Of A Cash Flow Statement ...................................................................... 7

SECTION TWO OPERATING ACTIVITIES ........................... 8

What Are Operating Activities? ............................................................................... 8
Cash Provided From Operating Activities ............................................................... 9
Cash Received From Customers ............................................................................ 9
Cash Applied To Operating Activities ................................................................... 11
Cash Paid To Suppliers ........................................................................................ 11
Exercise 2.1 ................................................................................................................ 13
Exercise 2.2 ................................................................................................................ 14
Exercise 2.3 ................................................................................................................ 15
Cash Paid For Expenses ...................................................................................... 16
Payments To Employees ...................................................................................... 19
Interest Paid ......................................................................................................... 19
Exercise 2.4 ................................................................................................................ 20
Exercise 2.5 ................................................................................................................ 21
Exercise 2.6 ................................................................................................................ 22
Exercise 2.7 ................................................................................................................ 23
Cash Paid For Income Tax ................................................................................... 24
Exercise 2.8 ................................................................................................................ 25
Exercise 2.9 ................................................................................................................ 26
Exercise 2.10 .............................................................................................................. 27
Cash Flow Statement – Operating Activities ......................................................... 28
Exercise 2.11 .............................................................................................................. 28

SECTION THREE INVESTING ACTIVITIES ....................... 30

What Are Investing Activities? .............................................................................. 30
Purchase Of Property, Plant And Equipment ........................................................ 31
Sale Of Property, Plant And Equipment................................................................ 33
Exercise 3.1 ................................................................................................................ 35
Exercise 3.2 ................................................................................................................ 36
Exercise 3.3 ................................................................................................................ 37
Exercise 3.4 ................................................................................................................ 38

PAGE 2
SECTION FOUR FINANCING ACTIVITIES ........................ 40
What Are Financing Activities? ............................................................................. 40
Cash Provided From Financing Activities ............................................................. 41
Cash From Issuing Shares ................................................................................... 41
Cash Flow From Increasing Non-Current Liabilities.............................................. 42
Cash Outflow From Repurchase Of Shares ......................................................... 42
Cash Outflow From Decreasing Non-Current Liabilities ....................................... 43
Cash Paid For Dividends ...................................................................................... 44
Exercise 4.1 ................................................................................................................ 45
Exercise 4.2 ................................................................................................................ 46
Exercise 4.3 ................................................................................................................ 47

SECTION FIVE FULLY CLASSIFIED CASH FLOW

STATEMENTS .................................................................... 48
Example: Fully Classified Cash Flow Statement .................................................. 48
Cash Flow Statement For A Sole Trader .............................................................. 53
Exercise 5.1 ................................................................................................................ 53
Cash Flow Statements For Companies ................................................................ 56
Exercise 5.2 ................................................................................................................ 56
Exercise 5.3 ................................................................................................................ 60
Exercise 5.4 ................................................................................................................ 64
Exercise 5.5 ................................................................................................................ 68

GOALS CHECKLIST - ARE YOU ABLE TO DO THE

FOLLOWING? ..................................................................... 71

PAGE 3
SECTION ONE INTRODUCTION
现⾦金金周转
WHAT IS A CASH FLOW STATEMENT?
现⾦金金流⼊入
A Cash Flow Statement shows the cash inflows and outflows from a business’s
operating, investing and financing activities, and explains the change from
opening cash position to ending cash position.

WHY DRAW UP A CASH FLOW STATEMENT?

 The cash flow statement serves as an important aid to both managers and
the owners of an organisation. The statement can assist in:

o Determining how the business is funding its operations i.e. from a long
term (non-current) or short-term sources (current).
o Predicting the expected future levels of financial assistance, which will
be required by the entity.

The basic principles behind the Cash Flow Statement are as follows:

 Covers the same accounting period as the Income Statement or Statement of

Comprehensive Income
 Shows separately cash flows from operating activities, investing activities
and financing activities.
 Presented so as to reconcile cash at the start and end of the period.
 Salaries/Wages, Interest and dividends paid and received should be
disclosed separately.

PAGE 4
EXERCISE 1.1
Complete the following gaps using the words on the next page.

A cash flow statement shows the f________ of cash _________ and _______ of the
business for the accounting period. It explains the ____________ in the ________
balance from the beginning of the period to the end of the period.

A cash flow statement is useful to predict the future c__________r ______________

of the entity.

A cash flow statement is divided into _________ sections; ____________,

_______________ and _______________.

Operating Activities

These are the n ___________ items relevant to the o___________ and

r__________ activities of the entity.

Cash inflows include cash from ____________ and cash from other ___________
e.g. interest received.

Cash outflows include payments to ___________, payments for _____________,

payments for ________ and _________, and payments for _____________
__________.

Investing Activities

Cash __________are received from selling ______-_______ assets. Cash

__________ are from _____________ non-current assets i.e. Property, Plant and
Equipment or Shares in Other Companies.

Financing Activities

This section includes obtaining funds from ___________ entities that must be
__________ and ___________ those parties for their funds.

Cash inflows include receiving cash from ____________ or issuing _____________.

Cash outflows include repaying ___________, paying ___________, or paying for a

share _______________.

PAGE 5
flow change out bank
cash requirements in investing expenses
operating three normal Financing
ordinary routine customers Income
suppliers wages Income tax interest
Inflows outflows external rewarding
repaid loans non-current assets purchasing
shares dividends loans repurchase

EXERCISE 1.2

Classify the following transactions into:

 Inflow, outflow or no cash
 Operating, investing, financing activity or N/A (not applicable – doesn’t go into
the cash flow statement).

Transaction Inflow / Outflow Activity

Cash received from customers
Cash paid to suppliers
Cash expenses
Taxation paid
Cash from sale of equipment
Cash spent on equipment
Revaluation of land
Cash from share issue
Dividends paid
Interest paid
Cash spent on share repurchase
Increase in mortgage
Increase in term deposit
Wages and salaries paid
Purchases of goods on credit
Depreciation

PAGE 6
 Past:12month
EXAMPLE OF A CASH FLOW STATEMENT
Cash Flow Statement
for the year ended 31 March 2012
Cash Flows from Operating Activities $ $ $
Cash was provided from:
Cash receipts from customers (AR) 170,000
Cash was applied to: Pay
Payments to suppliers (AP) 87,500
Interest paid 3,000
Payment to employees Wages of salaries 21,000
Payments for expenses Other expenses 44,500
Tax paid 4,900
(160,900)
Net Cash Flow from Operating Activities 9,100
Cash Flows from Investing Activities
Cash was provided from:
Sale of equipment 3,000
Sale of patent 2,000
Sale of Shares in ABC Ltd 1,000
Decrease in Term Deposit 10,000
16,000
Cash was applied to:
Purchase of vehicle 12,000
Purchase of goodwill 8,000
Purchase of shares in Chan Ltd 6,000
26,000
Net Cash Flow from Investing Activities (10,000)
Cash Flows from Financing Activities
Cash was provided from:
Share Issue 10,000
Increase in Mortgage 30,000
40,000
Cash was applied to:
Share Repurchase 9,200
Payment of dividends 8,000
17,200
Net Cash Flow from Financing Activities 22,800
Net Change in Cash held 21,900
Add: Bank Balance at 1 April 2011 (3,500)
Bank Balance at 31 March 2012 18,400

PAGE 7
SECTION TWO OPERATING ACTIVITIES

WHAT ARE OPERATING ACTIVITIES?

Involve normal items relevant to the ordinary and routine activities of the entity.
 Core business of the firm
 Results from major source of revenue and expenses incurred in gaining
revenue
 Should be positive otherwise business is funding itself mainly from capital
resources

Cash Flows from Operating Activities

Cash provided from:
Cash receipts from customers
Cash was applied to:
Cash paid to suppliers
Payment to employees (salaries & wages)
Interest paid
Payments for expenses
Tax paid
Net Cash flow from Operating activities

PAGE 8
 CASH PROVIDED FROM OPERATING ACTIVITIES

CASH RECEIVED FROM CUSTOMERS

This is calculated by preparing the ledger account for Accounts Receivable.

Example 1

Statement of Comprehensive Statement of Financial Position (Statement of

Income (extract) Financial Position (Balance Sheet)) (extract)
Sales (all credit) 245,000 2001 Current Assets 2002
12,000 Accounts Receivable 17,000

Accounts Receivable
Opening Balance 12,000 Bank 240,000
Sales 245,000 Closing Balance 17,000
257,000 257,000

Cash Flow Statement for the year ended … (extract)

Cash flows from Operating Activities
Cash was provided from
Cash receipts from customers 240,000

PAGE 9
Example 2

When reconstructing the Accounts Receivable ledger account any non–cash

expenses that directly affect it must be included in the ledger account, i.e. Bad
Debts and Discount Allowed.

Statement of Comprehensive Statement of Financial Position (Balance

Income (extract) Sheet) (extract)
Sales (all credit) 245,000 2001 Current Assets 2002
Expenses: 12,000 Accounts Receivable 17,000
Bad debts 1,000
Discount allowed 500

Accounts Receivable
Opening Balance 12,000 Bad debts 1,000
Sales 245,000 Discount allowed 500
Bank 238,500
Closing Balance 17,000
257,000 257,000

Cash Flow Statement for the year ended … (extract)

Cash flows from Operating Activities
Cash was provided from
Cash receipts from customers 238,500

PAGE 10
 CASH APPLIED TO OPERATING ACTIVITIES

CASH PAID TO SUPPLIERS

If credit purchases are given:
This is calculated by preparing the ledger account for Accounts Payable.

Example 1:

Statement of Comprehensive Statement of Financial Position (Balance

Income (extract) Sheet) (extract)
Purchases (all credit) 51,000 2001 Current Liabilities 2002
3,000 Accounts payable 1,500

Accounts Payable
Bank 52,500 Opening Balance 3,000
Closing 1,500 Purchases 51,000
Balance
54,000 54,000

Cash Flow Statement for year ended…. (extract)

Cash flows from Operating Activities
Cash was applied to
Cash paid to suppliers 52,500

PAGE 11
If credit purchases are not given:
Credit purchases are first calculated by preparing the ledger account for Inventory.

Example 2:

Statement of Comprehensive Statement of Financial Position (Balance

Income (extract) Sheet) (extract)
Sales (all credit) 274,000 2001 Current Assets 2002
Discount Received 600 26,000 Inventory 32,000
Cost of goods sold 180,000 Current Liabilities
3,200 Accounts Payable 4,600

Step 1: Calculate credit purchases

Inventory
Opening Balance 26,000 Cost of goods sold 180,000
Purchases 186,000 Closing balance 32,000
212,000 212,000

Step 2: Calculate cash paid to suppliers

Accounts Payable
Bank 184,000 Opening Balance 3,200
Discount 600 Purchases 186,000
Received
Closing Balance 4,600
189,200 189,200

When reconstructing the Accounts Payable ledger any non–cash income that
directly affects it must be included in the ledger account, i.e. Discount
Received.

Cash Flow Statement for the year ended…(extract)

Cash flows from Operating Activities
Cash was applied to
Cash paid to suppliers 184,000

PAGE 12
EXERCISE 2.1

2011 Statement of Financial Position 2012

(Balance Sheet)(extract):
8,250 Accounts Receivable 9,600
15,600 Inventories 12,400
9,845 Accounts Payable 11,650

Statement of Comprehensive Income (extract): 2012

Sales 207,100
Cost of Sales 110,000
Discount Allowed 450
Discount Received 830

Use the information to calculate:

Cash was provided from:
Cash receipts from customers ______________
Cash was applied to:
Cash payments to suppliers ______________

PAGE 13
EXERCISE 2.2

2011 Statement of Financial Position 2012

(Balance Sheet)(extract):
12,350 Accounts Receivable 11,400
35,125 Inventories 30,500
23,045 Accounts Payable 20,670

Statement of Comprehensive Income (extract): 2012

Sales 380,000
Cost of Sales 201,890
Discount Allowed 1,450
Discount Received 2,000
Bad debts 400

Use the information to calculate:

Cash was provided from:
Cash receipts from customers ______________

Cash was applied to:

Cash payments to suppliers ______________

PAGE 14
EXERCISE 2.3
2011 Statement of Financial Position 2012
(Balance Sheet)(extract):
8,440 Accounts Receivable 5,600
180 Less Allowances for Doubtful debts 100
8,260 5,500
9,850 Inventories 11,505
20,580 Accounts Payable 21,340

Statement of Comprehensive Income (extract): 2012

Sales 296,000
Cost of Sales 184,000
Discount Allowed 1,060
Discount Received 2,200
Bad Debts 175
Use the information to calculate:
Cash was provided from:
Cash receipts from customers ______________
Cash was applied to:
Cash payments to suppliers ______________

PAGE 15
 CASH PAID FOR EXPENSES
To calculate cash expenses adjustments have to be made to total expenses:

1. Cost of goods sold (must be excluded – used to calculate purchases)

2. Interest paid (must be excluded - shown separately)
3. Salaries/Wages paid (must be excluded - shown separately)
4. Non–cash items (must be excluded)
5. Prepayments and Accrued Expenses (so that only the cash expenses
paid this period are included in the Cash Flow Statement)

Non-cash Expenses
Example:
(Income statement ) Interest paid 1000
Statement of Comprehensive Income (extract) Payments employees 3000
Cash (other)expenses 5000
Cost of goods sold Purchases of inventory 100,000 Advertising 4000
Advertising 4,000 Insurance 1000 5000

Bad Debts Non-cash 3,800

Depreciation Non-cash 22,000
Insurance 1,000
Loss on sale Non-cash 2,900
Interest Expenses 1,000
Wages 3,000
Total expenses 137,700

To calculate cash expenses:

Cash Expenses =
Total expenses – cost of goods sold – interest expense – salaries/wages –
non-cash expenses

Total expenses 137,700

Less: Cost of goods sold 100,000
Less: Interest Expense 1,000
Wages 3,000
Less: Non–cash items:
Bad debts 3,800
Depreciation 22,000
Loss on sale 2,900
Cash expenses 5,000

PAGE 16
 Prepayments
Beginning prepayments become an expense for this period but were paid last period.

Ending prepayments are paid this period but are expenses for next period.

Cash expenses =
Total expenses – cost of goods sold – interest expense – salaries/wages –
non cash expenses – beginning prepayments + ending prepayments

Example:

Statement of Financial Position (extract)

Beginning of this year 2011 Current Assets 2012 End this year
End of this year 3,000 Prepayments + 6,000

For additional information see previous example under Non- cash expenses.

Total expenses 137,700

Less: Cost of goods sold 100,000
Less: Interest Expense/Wages 4,000
Less: Non–cash 28,700
Less: Beginning Prepayments 3,000
Add: Ending Prepayments 6,000
Cash expenses 8,000

PAGE 17
Accrued Expenses
Beginning accrued expenses were an expense last period but are paid this period.

Ending accrued expenses are an expense this period but are paid next period.

Cash expenses = Total expenses – cost of goods sold – interest expense –

salaries/wages – non cash expenses + Beginning accrued expenses
– Ending accrued expenses

Example:

Statement of Financial Position (extract)

2011 Current Liabilities 2012
4,000 Accrued expenses 2,000

Total expenses 137,700

Less: Cost of goods sold 100,000
Less: Interest expense/wages 4,000
Less: Non–cash expenses 25,700
Add: Beginning Accrued Expenses 4,000
Less: Ending Accrued Expenses 2,000
Add: Ending Prepayments 6,000
Less: Beginning Prepayments 3,000
Cash expenses 10,000

Cash Flow Statement (extract)

Cash flows from Operating Activities
Cash was applied to
Cash Expenses 10,000

PAGE 18
 PAYMENTS TO EMPLOYEES
In most cases this is just taking the salaries and wages figure from the Statement of
Comprehensive Income.

In some cases an adjustment could be necessary for accrued expenses or

prepayments.

INTEREST PAID
In most cases this is just taking the interest expense figure from the Statement of
Comprehensive Income.

In some cases an adjustment may be necessary for interest accrued expenses or

prepayments.

PAGE 19
EXERCISE 2.4

Statement of Comprehensive Statement of Financial Position

Income (extract) (Balance Sheet)
(extracts)
Cost of goods sold 110,000 2011 2012
Advertising 5,000 Current Assets
Depreciation 22,000 9,000 Prepayments 12,000
Bad Debts 3,800
Loss on sale 2,900 Current Liabilities
Total expenses 320,000 4,000 Accrued expenses 6,000

Cash Flow Statement (extracts)

Cash flows from Operating Activities
Cash was applied to
Cash expenses

PAGE 20
EXERCISE 2.5
2011 Statement of Financial Position (Balance Sheet) 2012
(extract):
1,000 Prepayments 1,200
1,200 Accrued Expenses 800

Statement of Comprehensive Income (extract):

Sales 220,000
Expenses:
Cost of sales 140,000
Depreciation 1,000
Interest expense 1,200
Wages & Salaries 30,000
Bad Debts 400
Doubtful Debts 300
Loss on sale of assets 100
Other operating expenses 17,000

Total Expenses 190,000

Use the information to calculate:

Cash applied to:

Interest ______________
Wages & Salaries ______________
Cash expenses ______________

Calculations:

PAGE 21
EXERCISE 2.6

2011 Statement of Financial Position (Balance Sheet) 2012

(extract):
2,800 Prepayments 2,400
1,400 Accrued Expenses 1,800

Statement of Comprehensive Income (extract):

Expenses:
Cost of goods sold 150,000
Interest expense 2,400
Wages & Salaries 60,000
Operating expenses 27,000

Operating expenses include:

Depreciation 2,000
Bad Debts 800
Doubtful Debts 600
Loss on sale of assets 200

Use the information to calculate:

Cash applied to:

Interest ______________
Wages & Salaries ______________
Cash expenses ______________

Calculations:

PAGE 22
EXERCISE 2.7

2011 Statement of Financial Position (Balance Sheet) 2012

extract:
34,000 Accounts Receivable 40,000
2,000 Less Allowance for Doubtful Debts 2,200
2,800 Prepayments 2,400
2,400 Accrued Expenses 1,800

Statement of Comprehensive Income (extract):

Depreciation 1,500
Interest expense 2,000
Wages & Salaries 40,000
Bad Debts 900
Loss on sale of assets 300
Other Operating expenses 8,000

Use the information to calculate:

Cash applied to:

Interest ______________
Wages & Salaries ______________
Cash expenses ______________

PAGE 23
 CASH PAID FOR INCOME TAX
This item is calculated from the amounts owing for tax from the Statement of
Financial Position (Balance Sheet) and the income tax expense from the Statement
of Comprehensive Income.

Statement of Comprehensive Income Statement of Financial Position (Balance

(extract): Sheet) (extract):
Profit before tax 153,000 2011 Current Liabilities 2012
Less Tax expense 51,000 29,000 Taxation Payable 34,000
Profit after tax 102,000

Taxation Payable
Bank (Provisional 46,000 Opening Balance 29,000
tax paid)
Closing Balance 34,000 Tax Expense 51,000
80,000 80,000

Cash Flow Statement (extract)

Cash flows from Operating Activities
Cash was applied to
Tax paid in cash 46,000

PAGE 24
EXERCISE 2.8
2011 Statement of Financial Position 2012
(Balance Sheet) (extract):
15,000 Taxation Payable 20,000

Statement of Comprehensive Income

(extract):
Income Tax Expense 30,000

Use the information to calculate:

Cash applied to:
Income Tax ______________

PAGE 25
EXERCISE 2.9

2011 Statement of Financial Position 2012

(Balance Sheet) (extract):
35,000 Taxation Payable 40,000

Statement of Comprehensive Income

(extract):
Profit before Taxation 240,000
Profit after Taxation 168,000

Use the information to calculate:

Cash applied to:
Income Tax ______________

PAGE 26
EXERCISE 2.10

2011 Statement of Financial Position 2012

(Balance Sheet) (extract):
Current Assets
25,000 Taxation Refundable

Current Liabilities
Taxation Payable 30,000

Statement of Comprehensive Income

(extract):
Income Tax Expense 75,000

Use the information to calculate:

Cash applied to:
Income Tax ______________

PAGE 27
 CASH FLOW STATEMENT – OPERATING
ACTIVITIES

EXERCISE 2.11
Below are extracts from the financial statements of Top Traders:

Statement of Financial Position (Balance Sheet) (extract)

2011 2012
55,000 Accounts Receivable 68,000
65,000 Inventory 52,000
49,000 Accounts Payable 36,000
3,600 Accrued Expenses 1,500
2,500 Prepayments 10,900
17,000 Taxation Payable
Taxation refundable 16,000

Statement of Comprehensive Income (extract)

for the year ended 31 March 2012
Sales (all credit) 980,000
Less: Expenses
Cost of goods sold 530,000
Other expenses 350,000
Total expenses 880,000
Profit before tax 100,000
Less: Income tax expense 30,000
Profit after tax 70,000

Other information for the year:

Depreciation $90,000
Bad Debts $45,000
Discount allowed $23,000
Interest expense $8,000
Salaries $70,000

PAGE 28
Required:
Calculate the Cash Flow from Operating Activities for the year ended 31 March
2012.

Top Traders
Cash Flow Statement for year ended 31 March 2012 (extract)
Cash Flow from Operating Activities
Cash was provided from:

Cash was applied to:

Net Cash inflow from operating activities

PAGE 29
 SECTION THREE INVESTING ACTIVITIES

WHAT ARE INVESTING ACTIVITIES?

Involve items directly relating to the investment of funds within or outside the entity
other than investment revenue or expense items.
 Include those activities associated with the buying and selling of Non-Current
Assets.
 Includes sales or purchase of Property, Plant & Equipment or Shares in other
companies. PPE
Non-current Assets Intangible
Cash Flows from Investing Activities: Investment

Cash was provided from (In)

Sale of Property, Plant & Equipment
Sale of Shares [in another company]
In Sale of Patent
Decrease in Term Deposit
Cash was applied to (Out)
Purchase of Property, Plant & Equipment
Purchase of Shares [in another company]
Out Purchase of Goodwill
Increase in Term Deposit
Net Cash flow from Investing Activities

PAGE 30
 PURCHASE OF PROPERTY, PLANT AND
EQUIPMENT
Example 1 Purchase of Property, Plant & Equipment only:

The amount spent on Property, Plant & Equipment is generally evident from the
Statement of Financial Position (Balance Sheet) where there has been no Property,
Plant & Equipment sold during the year.

Statement of Financial Position (extract):

2011 Property, Plant & Equipment 2012
150,000 Premises 300,000
50,000 Accumulated Depreciation 70,000

Cash Flow Statement (extract):

Cash flows from Investing Activities
Cash was applied to:
Purchase of premises 150,000

PAGE 31
 Example 2 Purchase of Property, Plant & Equipment after a revaluation:

Statement of Financial Position (extract)

Equity
0 Land Revaluation Surplus 50,000
Property, Plant & Equipment
150,000 Land (cost) 300,000
50,000 Accumulated Depreciation 70,000
100,000 Carrying amount (end) 230,000

Land (A)
Opening Balance 150,000 Closing Balance 300,000
Non-Cash Land. Reval.Surplus 50,000
Bank 100,000
300,000 300,000

Cash Flow Statement (extract):

Cash flows from Investing Activities
Cash was applied to:
Purchase of land 100,000

Note:

The Revaluation surplus must be included in the reconstruction of the Property, Plant
& Equipment account but the movement does not affect the Cash Flow Statement as
no cash has changed hands.

PAGE 32
 SALE OF PROPERTY, PLANT AND EQUIPMENT
Example Sale of Property, Plant & Equipment:

Equipment, which had cost $50,000 and had a carrying amount of $30,000, was sold
during the year. A loss on sale of $14,000 was incurred.

Equipment Disposal
Equipment (cost) 50,000 Acc. Depreciation 20,000
Loss on sale 14,000
Bank 16,000
50,000 50,000

Cash Flow Statement (extract):

Cash flows from Investing Activities
Cash was provided from:
Sale of Equipment 16,000

Example 4 Purchase and Sale of Property, Plant & Equipment:

When Property, Plant & Equipment has been both bought and sold during the year, it
is necessary to calculate:

 Cash spent on purchase of asset

 Cash received from sale of asset
 Loss or gain on sale

Statement of Financial Position (extract)

2001 Property, Plant & Equipment 2002
130,000 Equipment 182,000
20,000 Accumulated Depreciation 40,000
110,000 Carrying Amount (end) 142,000

During the year equipment with a carrying amount (book value) of $27,000 was sold
and a loss on sale of $3,000 was incurred. Accumulated Depreciation of $13,000
relates to the equipment sold.

PAGE 33
Calculation of cost price of equipment sold:

Equipment at carrying amount $27,000

Add: Accumulated depreciation $13,000
Cost price of equipment sold $40,000

Equipment
Opening Balance 130,000 Disposal (cost) 40,000
Bank (Equip bought) 92,000 Closing Balance 182,000
222,000 222,000

Accumulated Depreciation - Equipment

Disposal (acc.dep.) 13,000 Opening Balance 20,000
Closing Balance 40,000 Depreciation 33,000
53,000 53,000

Disposal - Equipment
Equipment (cost) 40,000 Accumulated Depn 13,000
Loss on Sale 3,000
Bank (from sale) 24,000
40,000 40,000

Cash Flow Statement (extract):

Cash flows from Investing Activities
Cash was provided from
Sale of equipment 24,000
Cash was applied to:
Purchase of equipment 92,000

PAGE 34
EXERCISE 3.1

Statement of Financial Position (extract)

2011 Property, Plant & Equipment 2012
60,000 Equipment (cost) 87,000

Equipment costing $12,000 was sold.

Accumulated Depreciation on Equipment sold was $3,000.

Statement of Comprehensive Income (extract)

Administrative Expenses 2012
Loss on sale of equipment 4,000

Cash Flow Statement (extract):

Cash flows from Investing Activities
Cash was provided from:

Cash was applied to:

PAGE 35
EXERCISE 3.2

Statement of Financial Position (extract)

2011 Property, Plant & Equipment 2012
100,000 Vans (cost) 95,000
20,000 Accumulated Depreciation on Vans 30,000

A van costing $20,000 was sold.

The carrying value on the van at the date of sale is not given.

Statement of Comprehensive Income (extract):

Expenses 2012
Depreciation on vans 16,000
Loss on sale of van 4,000

Cash Flow Statement (extract):

Cash flows from Investing Activities
Cash was provided from:

Cash was applied to:

PAGE 36
EXERCISE 3.3

The following balances appeared in the Statement of Financial Position for Ping
Traders:
2011 2012
Equity
35,000 Land & Buildings Revaluation Surplus 45,000
Property, Plant & Equipment
250,000 Land & buildings 260,000
45,000 Accumulated Depreciation - Land & buildings 50,000
88,000 Plant 102,000
46,000 Accumulated Depreciation - Plant 45,000
45,000 Motor vehicles 59,000
26,000 Accumulated Depreciation - Vehicle 30,000

Additional information:
 Land & buildings were revalued to the current council value of $260,000.
 Plant, which cost $15,000 and had a carrying value of $8,000, was sold for
$3,500 cash.
 Two new vehicles were purchased during the year for $34,000 cash.
 Depreciation on motor vehicles for the year was $20,000.
 One motor vehicle was sold during the year for $5,000 cash.

PAGE 37
Cash Flow Statement for year ended 31 March 2012 (extract):
Cash Flow from Investing Activities
Cash was provided from:

Cash was applied to:

Net Cash Flow from investing activities

EXERCISE 3.4
The following balances appeared in the books of Ping Traders:

2011 Statement of Financial Position (Balance Sheet) (extract): 2012

Equity:
80,000 Land Revaluation Surplus 120,000

Property, Plant & Equipment:

160,000 Land 140,000
60,000 Vehicles 80,000
20,000 Accumulated Depreciation of Vehicles 28,000
40,000 Equipment 30,000
10,000 Accumulated Depreciation of Equipment 12,000

Investment Assets:
36,000 Shares in XYZ Ltd. 46,000
24,000 Shares in ABC Ltd. 20,000

Statement of Comprehensive Income (extract):

Loss on Sales of Vehicle 2,000
Gain on Sales of Equipment 3,000

Additional information:
 Vehicles, which cost $40,000, were sold during the year. Depreciation on
Vehicles for the year was $16,000.
 Equipment with the book value of $18,000 and the accumulated depreciation
of that equipment sold was $4,000.

PAGE 38
Required:
Calculate the Net Cash Flow from Investing activities.

Cash Flow Statement for year ended 31 March 2012 (extract)

Cash Flow from Investing Activities
Cash was provided from:

Cash was applied to:

Net Cash Flow from investing activities

PAGE 39
SECTION FOUR FINANCING ACTIVITIES

WHAT ARE FINANCING ACTIVITIES?

Involve items directly relating to the funding of the operating or investing activities
other than finance expense items, but including distributions.

 Involve all the transactions relating to obtaining funds from outside entities
that need to be repaid and rewarding those parties for their funds.

Cash Flows from Financing Activities

Cash was provided from
Issue of shares
Increase in non-current liabilities (Loan or Debentures)
Cash was applied to
Repurchase of shares
Payment of dividends
Decrease in non-current liabilities (Loan or Debentures)
Net Cash Flow from Financing Activities

PAGE 40
 CASH PROVIDED FROM FINANCING ACTIVITIES

CASH FROM ISSUING SHARES

Cash received from shares issued, can be identified by examining the Statement of
Financial Position (Balance Sheet).

Example:

Statement of Financial Position (Balance Sheet)

(extract)
2011 Equity 2012
1,500,000 Contributed Equity 2,000,000

Workings:
Contributed Equity
Closing Balance 2,000,000 Opening Balance 1,500,000
Bank (shares issue) 500,000
2,000,000 2,000,000

Cash Flow Statement (extract)

Cash flows from Financing Activities
Cash was provided from
Shares issued 500,000

NOTE: This account can be affected by a bonus issue of shares. As these are not
issued for cash they are not included in the cash flow statement, but will affect the
Bank amount. Also look out for shares being issued to buy assets (or an existing
business -take over).

PAGE 41
 CASH FLOW FROM INCREASING NON-CURRENT
LIABILITIES
An increase in any non-current liability would result in a cash inflow
Examples: Increase in mortgage, _____________, ____________.

Example:

Statement of Financial Position (Balance Sheet) (extract)

2011 Non-Current Liabilities 2012
150,000 Mortgage 200,000

Cash Flow Statement (extract)

Cash flows from Financing Activities
Cash was provided from
Increase in mortgage 50,000

CASH OUTFLOW FROM REPURCHASE OF SHARES

Example:

Statement of Financial Position (Balance Sheet) (extract)

2011 Equity 2012
200,000 Contributed Equity - at $2 each 150,000

During the year 25,000 shares were repurchased at $3 each.

Cash Flow Statement (extract)

Cash flows from Financing Activities
Cash was applied to
Repurchase of shares 75,000

PAGE 42
 CASH OUTFLOW FROM DECREASING NON-
CURRENT LIABILITIES
Example:

Statement of Financial Position (Balance Sheet) (extract)

2011 Non-Current Liabilities 2012
250,000 Mortgage 150,000

Cash Flow Statement (extract)

Cash flows from Financing Activities
Cash was applied to
Decrease in mortgage 100,000

PAGE 43
 CASH PAID FOR DIVIDENDS
This item is calculated from the reconstruction of the Retained Earnings.

Example:

Statement of Comprehensive Income Statement of Financial Position (Balance Sheet)

(extract) (extract)
2012 2011 Equity 2012
Profit before tax 168,000 250,000 Retained Earnings 263,000
Less Tax expense 55,000
Profit after tax 113,000

Retained Earnings
Dividends (final and 100,000 Opening Balance 250,000
interim paid)
Closing Balance 263,000 Profit after tax 113,000
363,000 363,000

Cash Flow Statement (extract)

Cash flows from Financing Activities
Cash was applied to
Dividend paid 100,000

NOTE: Retained Earnings may contain other items, which will affect the calculation
of Dividends, and hence the Cash flow. These may include bonus issue of shares,
loss or gain from repurchase of shares.

PAGE 44
EXERCISE 4.1
Federal Traders Limited provides the following information:
Statement of Financial Position (Balance Sheet) (extract)
2011 Equity 2012
1,000,000 Contributed Equity 1,260,000
250,000 Retained Earnings 263,000
100,000 Land Revaluation Surplus 150,000
$1,350,000 $1,673,000

Other information:
1. The 2011 final dividend of $50,000 was paid.
2. Interim dividend was paid.
3. 150,000 $2 shares were issued to the public.
4. Company repurchased 20,000 shares for $2 each (original issue price was
also $2 each).
5. Profit for the year was $113,000.

Cash Flow Statement for the year ended 31 March 2012 (extract)
Cash Flow from Financing Activities
Cash was provided from:

Cash was applied to:

Net Cash Flow from Financing activities

PAGE 45
EXERCISE 4.2
The following balances appeared in the Statement of Financial Position (Balance
Sheet) for Jim’s Enterprises Limited.
2011 2012
Loan 125,000 85,000
Mortgage 200,000 300,000
Contributed Equity 450,000 850,000
Retained earnings 88,000 102,000
Buildings revaluation surplus 60,000 80,000

 Shares were issued

 Dividends were paid
 Profit after taxation was $ $125,000

Cash Flow Statement for the year ended 31 March 2012 (extract)
Cash was provided from:

Cash was applied to:

Net Cash Flow from financing activities

PAGE 46
EXERCISE 4.3

The following balances appeared in the Statement of Financial Position (Balance

Sheet) of Lorne Traders:
2011 2012
80,000 Loan 100,000
200,000 Mortgage 200,000
650,000 Contributed Equity 700,000
530,000 Retained Earnings 300,000
260,000 Buildings Revaluation surplus 260,000

Additional information:
 Final dividend of $800,000 for 2012 was paid.
 The Profit for the year was $1,250,000.
 500,000 shares which were originally issued at 50 cents per share were
repurchased from the public at their current market price of $1.20.

Cash Flow Statement for year ended 31 March 2012 (extract)

Cash Flow from Financing Activities
Cash was provided from:

Cash was applied to:

Net Cash Flow from financing activities

PAGE 47
SECTION FIVE
FULLY CLASSIFIED CASH FLOW
STATEMENTS

EXAMPLE: FULLY CLASSIFIED CASH FLOW

STATEMENT

Young Enterprises Limited

Statement of Comprehensive Income
for the year ended 31 December 2012
Note $ $
Revenue 1 350,000
Expenses:
Cost of goods sold 160,000
Salaries & wages 42,000
Depreciation 11,000
Loss on sale of equipment 1,000
Other Expenses 90,000
Interest 6,000
Total expenses 310,000
Profit before tax 40,000
Income tax expense 12,000
Profit (after tax) for the period 28,000

Note to the Statement of Comprehensive Income:

1. Revenue
Sales 350,000

PAGE 48
 Young Enterprises Limited
Statement of Change in Equity for the year ended 31 December 2012
Notes Contributed Land Retained Total
equity revaluation earnings equity
surplus
$NZ 000 $NZ 000 $NZ 000 $NZ 000
Balance at 1 January 2012 40,000 20,000 5,000 65,000
Changes in Equity for 2012
Total comprehensive income 2,000 28,000 30,000
for the year
Proceeds for share issue 1 10,000 10,000
Distributions 2 (12,200) (12,200)
Balance at 31 December 2012 50,000 22,000 20,800 92,800

Notes to the Statement of Changes in Equity:

1. Contributed Equity

No of shares $NZ 000

Balance at 1 January 2012 400,000 40,000
Shares fully paid for in cash 100,000 10,000
Balance at 31 December 2012 500,000 50,000

2. Distributions

$NZ 000
Final dividends 2011 6,500
Interim dividends 20112 5,700
Total distributions 12,200

PAGE 49
 Young Enterprises Limited
Statement of Financial Position (Balance Sheet) as at 31 December 2012
2011 Equity Note 2012
40,000 Contributed Equity (500,000 shares fully 50,000
paid)
5,000 Retained Earnings 20,800
20,000 Land Revaluation Surplus 22,000
65,000 Total Equity 92,800

Current Assets
25,000 Accounts Receivable 35,000
1,500 Bank -
19,000 Inventory 24,000
45,500 Total Current Assets 59,000
Non-Current Assets
67,000 Property, Plant & Equipment 1 80,800
Current Liabilities
- Bank 18,500
15,000 Accounts Payable 5,000
2,700 Accrued Expenses 3,700
800 Taxation Payable 3,000
18,500 Total Current Liabilities 30,200
Non- Current Liabilities
29,000 Mortgage 16,800
65,000 Net Assets 92,800

Note to the Statement of Financial Position:

1. Property, plant and equipment
Buildings 60,000 60,000
Less: Accumulated Depreciation 15,000 16,200
45,000 43,800

Equipment 24,000 38,000

Less: Accumulated Depreciation 12,000 13,000
12,000 25,000

Land 10,000 12,000

Total 67,000 80,800

Equipment which had cost $18,000 and had a carrying value of $9,200 was sold
during the year.

PAGE 50
 Required:
Prepare a fully classified Cash Flow Statement.

CALCULATIONS:

A/c Receivable Inventory

O/Bal. 25,000 Bank 340,000 O/Bal. 19,000 COGS 160,000
Sales 350,000 C/Bal. 35,000 Purchases 165,000 C/Bal. 24,000
375,000 375,000 184,000 184,000

A/c Payable Taxation Payable

Bank 175,000 O/Bal 15,000 Bank 9,800 O/Bal. 800
C/Bal. 5,000 Purchases 165,000 C/Bal. 3,000 Income 12,000
Tax
180,000 180,000 12,800 12,800

Equipment Disposal
O/Bal. 24,000 Disposal 18,000 Equip 18,000 Bank 8,200
ment
Bank 32,000 C/Bal. 38,000 Acc Dep 8,800
Loss on 1,000
sale
56,000 56,000 18,000 18,000

Total Expenses 310,000

Less: Cost of goods sold 160,000
Less: Interest paid & Salaries/wages 48,000
Less: Non-cash items
Depreciation 11,000
Loss on sale of equipment 1,000 12,000
90,000
Add: Accrued expenses (beginning) 2,700
Less: Accrued expenses (end) 3,700
Cash paid for expenses 89,000

PAGE 51
 Young Enterprises Limitied
Cash Flow Statement for the year ended 31 December 2012
Cash Flows from Operating Activities $ $ $
Cash was provided from:
Cash receipts from customers 340,000
Cash was applied to
Payments to suppliers 175,000
Interest paid 6,000
Payment to employees 42,000
Payments for expenses 89,000
Tax paid 9,800 (321,800)
Net Cash Flow from Operating Activities 18,200
Cash Flows from Investing Activities
Cash was provided from
Sale of equipment 8,200
Cash was applied to
Purchase of equipment 32,000
Net Cash Flow from Investing Activities (23,800)
Cash Flows from Financing Activities
Cash was provided from
Share Issue 10,000
Cash was applied to
Repayment of Mortgage 12,200
Payment of dividends 12,200 24,400
Net Cash Flow from Financing Activities (14,400)
Net Change in Cash held (20,000)
Add: Bank Balance at 1 January 2012 1,500
Bank Balance at 31 December 2012 (18,500)

Discussion:
How well do you think the business has handled its cash resources?
Consider the overall cash position and the net cash flow in each activity.

PAGE 52
 CASH FLOW STATEMENT FOR A SOLE TRADER

EXERCISE 5.1
The following information has been extracted from the accounting records of McAtee
Wholesaler for the financial year ending 31 March 2012.
.
Income Statement for the Statement of Financial Position
year ended 31 March 2011 (Balance Sheet)
2012 as at 31 March 2012
Sales 85,000 62,840 Capital 65,810
Cost of Sales 40,000
Gross Profit 45,000 4,000 Bank ---
Dividends 500 3,200 Accounts Receivable 7,800
Income
45,500 160 Allowance for 290 7,510
doubtful debts
Less: Expenses 4,500 Inventory 7,900
Wages 5,500 500 Prepayments 700
Depreciation- 3,000 20,000 Equipment 40,000
Equipment
Interest 1,200 6,000 Accumulated 9,000 31,000
Depreciation
Depreciation - 4,000 50,000 Vehicles 70,000
vehicles
Discount 400 22,000 Accumulated 26,000 44,000
Allowed Depreciation
Advertising 2,000 15,000 Shares: Chan Ltd. ---
Rent 8,000 20,000 Goodwill 20,000
Bad debts 1,500 89,040 111,110
Doubtful debts 130 Liabilities
(25,730) --- Bank 3,000
Profit for year 19,770 11,000 Accounts Payable 12,000
200 Accrued Expenses 300
15,000 Loan 30,000 45,300
62,840 65,810

Additional Information:
Cash drawings for the year amounted to $26,900.

Required:
Prepare the Cash Flow Statement for the year ended 31 March 2012.

PAGE 53
Do calculations here!

PAGE 54
 McAtee Wholesalers
Cash Flow Statement for the year ended 31 March 2012
$ $ $
Cash Flows from Operating Activities
Cash was provided from

Cash was applied to

Net Cash Flow from Operating Activities

Cash Flows from Investing Activities
Cash was provided from

Cash was applied to

Net Cash Flow from Investing Activities

Cash Flows from Financing Activities
Cash was provided from

Cash was applied to

Net Cash Flow from Financing Activities

Net change in cash held
Add Bank Balance at 1 April 2011
Bank Balance at 31 March 2012

PAGE 55
 CASH FLOW STATEMENTS FOR COMPANIES

EXERCISE 5.2
The following information has been extracted from the accounting records of Smith &
Koohee Ltd for the financial year ending 31 March 2012.

Statement of Comprehensive Income

for the year ended 31 March 2012
Note $ $
Revenue 1 120,000
Less: Expenses
Cost of goods sold 72,000
Other expenses 22,000
Total expenses 94,000
Profit before Tax 26,000
Income Tax Expense 8,500
Profit for the year 17,500

Note to the Statement of Comprehensive Income:

1. Revenue
Sales 120,000

PAGE 56
 Statement of Financial Position (Balance Sheet)
2011 as at 31 March 2012
$ Notes $
100,000 Contributed Equity 165,000
35,760 Retained Earnings 47,850
--- Premises Revaluation Surplus 20,000
135,760 232,850
Assets
4,000 Bank 6,000
6,460 Accounts Receivable 1 8,550
12,000 Inventory 11,000
1,000 Prepayments 800
142,000 Property, plant and equipment 2 226,500
165,460 252,850
Liabilities
3,000 Taxation Payable 1,500
11,000 Accounts Payable 12,000
700 Accrued Expenses 1,500
15,000 Loan 5,000
135,760 232,850

Notes to the Statement of Financial Position:

2011 2012
1 Accounts receivable 6,800 9,000
Less: Allowance for doubtful debts 340 450
6,460 8,550

2 Property, plant and equipment

Equipment 20,000 20,000
Less: Accumulated Depreciation 6,000 7,500
14,000 12,500

Vehicles 50,000 70,000

Less: Accumulated Depreciation 22,000 26,000
28,000 44,000

Premises 80,000 150,000

Goodwill 20,000 20,000

Total 142,000 226,500

PAGE 57
Additional Information:
 Other expenses include Salaries $5,000, Interest on Loan $1,000 and Bad
Debts $800.
 Part of the Premises was acquired in exchange for 25,000 $2 shares.
 No bonus shares were issued.
 A Final Dividend of $2,410 was paid for the previous financial year.

Required:
Prepare the Cash Flow Statement for the year ended 31 March 2012.

Do calculations here!

PAGE 58
 Smith & Koohee Ltd.
Cash Flow Statement for the year ended 31 March 2012
$ $ $
Cash Flows from Operating Activities
Cash was provided from

Cash was applied to

Net Cash Flow from Operating Activities

Cash Flows from Investing Activities

Cash was provided from

Cash was applied to

Net Cash Flow from Investing Activities

Cash Flows from Financing Activities

Cash was provided from

Cash was applied to

Net Cash Flow from Financing Activities

Net changes in Cash held
Add: Bank Balance at 1 April 2011
Bank Balance at 31 March 2012

PAGE 59
 EXERCISE 5.3
The following information has been extracted from the accounting records of Chen
Ltd for the financial year ending 31 March 2012.

Statement of Comprehensive Income

for the year ended 31 March 2012
Note $ $
Revenue 1 200,000
Less: Expenses:
Cost of sales 120,000
Wages and Salaries 20,000
Depreciation 8,500
Interest 5,000
Loss on sale of equipment 3,000
Other operating expenses 8,500
Total Expenses 165,000
Profit before tax 35,000
Income Tax Expense 11,550
Profit for year $23,450

Note to the Statement of Comprehensive Income:

1. Revenue
Sales 200,000

Statement of Financial Position (Balance Sheet)

2011 as at 31 March 2012
$ Notes $
200,000 Contributed Equity 260,000
41,200 Retained Earnings 57,120
50,000 Premises Revaluation Surplus 70,000
291,200 $387,120
Assets
14,700 Accounts Receivable 1 18,620
24,000 Inventory 21,000
2,000 Prepayments 4,000
322,000 Property, plant and equipment 2 403,500
362,700 447,120
Liabilities
5,000 Bank 25,000
18,000 Accounts Payable 23,000
1,500 Accrued Expenses 1,000
2,000 Taxation Payable 1,000
45,000 Debentures 10,000
$291,200 $387,120

PAGE 60
Notes to the Statement of Financial Position:

2011 2012
1 Accounts receivable 15,000 19,000
Less: Allowance for doubtful debts 300 380
14,700 18,620

2 Property, plant and equipment

Equipment 40,000 35,000
Less: Accumulated Depreciation 6,000 5,500
34,000 29,500

Vehicles 80,000 80,000

Less: Accumulated Depreciation 22,000 26,000
58,000 54,000

Premises 180,000 270,000

Goodwill 50,000 50,000

Total 322,000 403,500

Additional Information:
 Equipment costing $10,000 with a book value of $5,000 was sold during the
year.
 A final dividend of $1,530 was paid for the previous financial year.
 11,000 shares were repurchased at $0.80 each. The original issue of these
shares was at 70c per share.

Required:
Prepare the Cash Flow Statement for the year ended 31 March 2012.

PAGE 61
Do calculations here!

PAGE 62
 Chen Ltd
Cash Flow Statement for the year ended 31 March 2012
$ $ $
Cash Flows from Operating Activities
Cash was provided from

Cash was applied to

Net Cash Flow from Operating Activities

Cash Flows from Investing Activities
Cash was provided from

Cash was applied to

Net Cash Flow from Investing Activities

Cash Flows from Financing Activities
Cash was provided from

Cash was applied to

Net Cash Flow from Financing Activities

Net changes in Cash held
Add: Bank Balance at 1 April 2011
Bank Balance at 31 March 2012

PAGE 63
EXERCISE 5.4
Kim & Chen Ltd
Statement of Comprehensive Income (extract)
for the year ended 31 December 2012
Notes $ $
Revenue 1 900,000
Plus: Other income 2 25,000
Total income 925,000
Less: Expenses
Cost of goods sold 360,000
Other operating expenses 200,000
Wages and salaries 225,000
Finance cost 3 32,000
Total expenses 817,000
Profit before tax 108,000
Income Tax expense 28,000
Profit for the year $80,000

Notes to the Statement of Comprehensive Income:

1. Revenue
Sales 900,000

2. Other income
Gain on sale of land 20,000
Gain on sale of equipment 5,000 25,000

3. Finance cost
Interest 32,000

PAGE 64
 Kim & Chen Ltd
Statement of Financial Position (Balance Sheet) (extract)
as at 31 December 2012
ASSETS Note 2011 2012
Bank 35,000 15,000
Accounts Receivable 85,000 105,000
Prepayments - Other operating expenses 12,000 25,000
Inventory 120,000 200,000
Property, plant and equipment 1 190,000 322,500
$452,000 $667,500
EQUITY AND LIABILITIES 2011 2012
Contributed Equity 140,000 210,000
Retained Earnings 70,000 115,000
Accounts Payable 90,000 145,000
Accrued expenses – interest 3,000 2,500
Taxation Payable 4,000 7,000
Loan 45,000 28,000
Mortgage 100,000 160,000
$452,000 $667,500

Note to the Statement of Financial Position:

1. Property, plant and equipment

2011 2012
Equipment 230,000 290,000
Less: Accumulated depreciation 80,000 107,500
150,000 182,500

Land 50,000 140,000

Total 190,000 322,500

Additional Information:
 Land costing $10,000 was sold for $30 000 and more land was acquired using
a mortgage of $100,000.
 Equipment costing $30,000, with a book value of $10,500 was sold for cash.
 10,000 shares were repurchased at $1 each. The original issue of these
shares was at 80c per share.

Required:
Prepare a Cash Flow Statement for the year ended 31 December 2012.

PAGE 65
Do calculations here!

PAGE 66
 Kim & Chen Ltd
Cash Flow Statement for the year ended 31 December 2012
$ $ $
Cash Flows from Operating Activities
Cash was provided from

Cash was applied to

Net Cash Flow from Operating Activities

Cash Flows from Investing Activities
Cash was provided from

Cash was applied to

Net Cash Flow from Investing Activities

Cash Flows from Financing Activities
Cash was provided from

Cash was applied to

Net Cash Flow from Financing Activities

Net changes in Cash held
Add: Bank Balance at 1 January 2011
Bank Balance at 31 December 2012

PAGE 67
EXERCISE 5.5
Lee Kwon Ltd
Statement of Comprehensive Income (extract)
for the year ended 31 March 2012
Notes $ $
Revenue 1 550,000
Add: Other income 2 10,000
Total income 560,000
Less: Expenses
Cost of goods sold 200,000
Other operating expenses 36,000
Wages and salaries 185,000
Interest expense 6,000
Loss on sale of equipment 3,000
Depreciation 35,000
Total expenses 465,000
Profit before taxation 95,000
Less: Income Tax expense 25,000
Profit for the year $70,000

Notes to the Statement of Comprehensive Income:

1. Revenue
Sales 550,000

2. Other income
Gain on sale of shares 10,000

Lee Kwon Ltd

Statement of Financial Position (extract) as at 31 March 2012
ASSETS Note 2011 2012
Bank 16,000 25,000
Accounts Receivable 42,000 47,000
Inventory 73,000 96,000
Prepayment – other operating expenses 10,000 14,000
Property, plant and equipment 1 490,000 548,000
Patent 28,000 64,000
Shares in City Bank 17,000 -
$676,000 $794,000
LIABILITIES AND EQUITY
Accounts Payable 65,000 58,000
Taxation Payable 7,000 3,000
Accrued expenses – interest expenses 10,000 12,000
Debentures 199,000 239,000
Contributed Equity 312,000 352,000
Retained Earnings 83,000 130,000
$676,000 $794,000

PAGE 68
Note to the Statement of Financial Position:

1. Property, plant and equipment

2011 2012
Land and Buildings 375,000 475,000
Less: Accumulated depreciation – buildings 45,000 62,000
330,000 413,000

Equipment 190,000 175,000

Less: Accumulated depreciation – equipment 30,000 40,000
160,000 135,000

Total 490,000 548,000

Additional information:
 Equipment was sold for cash and no new equipment was purchased during
the financial year ended 31 March 2012.
 20,000 shares were repurchased at $1.50 each. The original issue price of
these shares was $1.00.

Required:
Prepare a cash flow statement for the year ended 31 March 2012.

Do calculations here!

PAGE 69
 Lee Kwon Limited
Cash Flow Statement for the year ended 31 March 2012
$ $ $
Cash Flows from Operating Activities
Cash was provided from

Cash was applied to

Net Cash Flow from Operating Activities

Cash Flows from Investing Activities
Cash was provided from

Cash was applied to

Net Cash Flow from Investing Activities

Cash Flows from Financing Activities
Cash was provided from

Cash was applied to

Net Cash Flow from Financing Activities

Net change in Cash held
Add: Bank Balance at 1 April 2011
Bank Balance at 31 March 2012

PAGE 70
GOALS CHECKLIST - ARE YOU ABLE TO DO
THE FOLLOWING?

1 Explain the reasons for preparing a cash flow statement.

2 Describe the three parts of a cash flow statement.

3 Classify transactions into operating, investing or financing.

4 Prepare a cash flow statement using the direct method i.e. calculating
the figures for the cash inflows and cash outflows, adding on the opening
bank balance to calculate the closing bank balance.

PAGE 71