- 15 Marks
Question
Global Plc is an entity quoted on the Nigerian Stock Exchange. You are provided with the following set of summarized published financial statements of the company for the year ended September 30, 2014:
Statement of profit or loss and other comprehensive income for the year ended September 30, 2014
| Item | N’000 |
|---|---|
| Revenue | 500,000 |
| Cost of sales | (300,000) |
| Gross profit | 200,000 |
| Administrative expenses | (29,000) |
| Finance cost | (1,000) |
| Profit before taxation | 170,000 |
| Income tax expense | (40,000) |
| Profit for the period | 130,000 |
Statement of financial position as at September 30, 2014
| Item | 2014 (N’000) | 2013 (N’000) |
|---|---|---|
| Non-current assets | ||
| Property, plant, and equipment | 200,000 | 220,000 |
| Goodwill | – | 10,000 |
| Current assets | ||
| Inventories | 100,000 | 80,000 |
| Trade receivables | 75,000 | 60,000 |
| Bank balances | 20,000 | 5,000 |
| Total assets | 395,000 | 375,000 |
| Equity and Liabilities | 2014 (N’000) | 2013 (N’000) |
|---|---|---|
| Equity | ||
| Ordinary shares @ N1.25 each | 10,000 | 8,000 |
| Retained earnings | 250,000 | 197,000 |
| Total equity | 260,000 | 205,000 |
The following information is relevant:
- During the financial year, the company paid a dividend of N87,000,000 to equity holders, and this had been accounted for during the year. The current market price of the company’s shares is N10 per share.
- The company is planning to take a long-term loan of N400,000,000 from a consortium of banks. The company’s financial statements and loan applications have already been submitted to the bank.
Answer
GLOBAL PLC
STATEMENT OF CASH FLOW
FOR THE YEAR ENDED SEPTEMBER 30, 2014
METHOD 1- USING INDIRECT METHOD
b. Comments
– The company has not managed its cash flows properly despite Net cash inflow of
N65,000,000 generated from operations, since the company still went ahead to
pay dividend of N87,000,000.
– As a result of high dividend payment the company depleted all funds generated
from operation, share premium and part of other revenue reserve.
– The company might be profitable but the profit is not reflected in its liquidity
position hence the request for additional long term loan of N400 m.
– Their bankers may not be too willing to extend the additional loan request in view
of poor state of short term liquidity which may jeopardize the long term liquidity
position of the company
- Tags: Cash Flow, Direct Method, Financing Activities, IAS 7, Indirect Method, Operating Activities
- Level: Level 2
- Topic: Statement of Cash Flows (IAS 7)
- Series: NOV 2015
- Uploader: Kwame Aikins