- 20 Marks
FR – L2 – Q72 – Statement of Cash Flows
Question
MODEL LTD
The following trial balance relates to Model Ltd as at 31 December 20X4.
| GH¢’000 | GH¢’000 | |
|---|---|---|
| Freehold property at cost | 5,700 | |
| Plant and machinery at cost | 36,000 | |
| Fixtures and fittings at cost | 12,000 | |
| Inventories | 14,000 | |
| Trade receivables | 15,200 | |
| Long-term investments | 4,600 | |
| Cash at bank | 11,400 | |
| Accumulated depreciation: Plant and machinery | 12,000 | |
| Accumulated depreciation: Fixtures and fittings | 7,000 | |
| 10% Long-term loan | 1,800 | |
| Ordinary share capital | 20,000 | |
| Share premium | 2,500 | |
| Retained earnings | 14,000 | |
| Revenue | 92,000 | |
| Cost of sales | 60,000 | |
| Operating expenses | 7,200 | |
| Corporation tax | 21,500 | |
| Trade payables | 14,440 | |
| Long-term investment income | 450 | |
| Government stock | 3,000 | |
| 169,250 | 169,250 |
The following information is relevant.
(a) There had been no disposal of freehold property in the year.
(b) A machine tool which had cost GH¢8,000,000 (in respect of which GH¢6,000,000 depreciation had been provided) was sold for GH¢3,000,000, and fixtures which had cost GH¢5,000,000 (in respect of which depreciation of GH¢2,000,000 had been provided) were sold for GH¢1,000,000. Profits and losses on those transactions had been dealt with through the statement of profit or loss.
(c) The statement of profit or loss charge in respect of tax was GH¢22,000,000.
(d) The premium paid on redemption of the long-term loan was GH¢2,000,000, which has been written off to the statement of profit or loss.
(e) The proposed dividend for 20X3 had been paid during the year.
(f) Interest received during the year was GH¢450,000. Interest charged in the statement of profit or loss for the year was GH¢6,400,000. Accrued interest of GH¢440,000 is included in payables at 31 December 20X3 (nil at 31 December 20X4).
(g) The government stock is a long-term investment.
Required
Prepare a cash flow statement for the year ended 31 December 20X4, together with notes as required by IAS 7.
Answer
MODEL LTD
Statement of cash flows for the year-ended 31 December 20X4
| GH¢’000 | |
|---|---|
| Cash flows from operating activities | |
| Net profit before tax (W7) | 64,000 |
| Adjustments for: | |
| Depreciation, loss on sale (W1-5) | 3,200 |
| Interest receivable | (450) |
| Interest and premium payable | 8,400 |
| Operating profit | 75,150 |
| Increase in inventories | (14,000) |
| Increase in receivables | (1,200) |
| Increase in payables | 14,440 |
| Cash generated from operations | 74,390 |
| Interest paid | (6,840) |
| Tax paid (W6) | (10,500) |
| Net cash from operating activities | 57,050 |
| Cash flows from investing activities | |
| Acquisition of long-term investment | (4,600) |
| Purchase of property plant and equipment | (69,000) |
| Receipt from sale of long-term investment | 4,000 |
| Interest received | 450 |
| Net cash used in investing activities | (69,150) |
| Cash flows from financing activities | |
| Proceeds of share issue | 20,500 |
| Redemption of long term loan | (2,000) |
| Dividends paid | (15,000) |
| Net cash used in financing activities | 3,500 |
| Net increase in cash and cash equivalents | (8,600) |
Workings
(1) Plant and machinery account – at cost
| GH¢’000 | GH¢’000 | ||
|---|---|---|---|
| Balance b/d | 36,000 | Disposal | 8,000 |
| Additions | 69,000 | Balance c/d | 97,000 |
| 105,000 | 105,000 |
(2) Fixtures and fittings – at cost
| GH¢’000 | GH¢’000 | ||
|---|---|---|---|
| Balance b/d | 12,000 | Disposal | 5,000 |
| Additions (to balance) | 8,000 | Balance c/d | 15,000 |
| 20,000 | 20,000 |
(3) Accumulated depreciation – Plant and machinery
| GH¢’000 | GH¢’000 | ||
|---|---|---|---|
| Disposal | 6,000 | Balance b/d | 12,000 |
| Balance c/d | 15,000 | Depreciation charge (to balance) | 9,000 |
| 21,000 | 21,000 |
(4) Accumulated depreciation – Fixtures and fittings
| GH¢’000 | GH¢’000 | ||
|---|---|---|---|
| Disposal | 2,000 | Balance b/d | 7,000 |
| Balance c/d | 8,000 | Depreciation charge (to balance) | 3,000 |
| 10,000 | 10,000 |
(5) Non-current assets disposals account
| GH¢’000 | GH¢’000 | ||
|---|---|---|---|
| Plant cost | 8,000 | Plant depreciation | 6,000 |
| Fittings cost | 5,000 | Fittings depreciation | 2,000 |
| Cash proceeds | 3,000 | ||
| Plant | 1,000 | ||
| Fittings | 1,000 | ||
| Depreciation underprovided (balancing figure) | 1,000 | ||
| 13,000 | 13,000 |
(6) Tax account
| GH¢’000 | GH¢’000 | ||
|---|---|---|---|
| Cash paid (bal fig) | 10,500 | Balance b/f – corporation tax | 21,500 |
| Balance c/f – corporation tax | 33,000 | I&E account – corporation tax | 22,000 |
| 43,500 | 43,500 |
(7) Net profit before tax
Note: As profit before tax is required, reconstruct the statement of profit or loss up to this figure.
| GH¢’000 | |
|---|---|
| Profit before tax | 64,000 |
| Taxation – Corporation tax | (22,000) |
| Dividends | (15,000) |
| Retained profit for year | 27,000 |
| Balance b/f | 14,000 |
| Balance c/f | 41,000 |
(8) Cash and cash equivalents as shown in the statement of financial position
Cash and cash equivalents consist of cash on hand and balances with banks.
| GH¢’000 | ||||
|---|---|---|---|---|
| 20X4 | 20X3 | Change in year | ||
| Cash at bank | 11,400 | 200 | 11,200 | |
| Bank overdraft | – | (14,000) | 14,000 | |
| 11,400 | (13,800) | 25,200 |
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