FA – L1 – Q101 – Statement of cash flows

Prepare a statement of cash flows for StarPharma Ltd for the year ended 30 June 20X9 using the indirect method.

Question

The financial statements of StarPharma Ltd, a limited liability company that operates in the pharmaceuticals sector, at 30 June were as follows.

	20X9		20X8
	GH¢000	GH¢000	GH¢000	GH¢000
Assets
Non-current assets
Property cost	22,000		12,000
Depreciation	(4,000)		(1,000)
Plant and equipment		18,000		11,000
Cost	5,000		5,000
Depreciation	(2,250)		(2,000)
		2,750		3,000
		20,750		14,000
Current assets
Inventories	16,000		11,000
Trade receivables	9,950		2,700
Cash and cash equivalents	–		1,300
		25,950		15,000
Total assets		46,700		29,000
Equity and liabilities
Capital and reserves
Equity capital		3,000		3,000
Accumulated profits		16,200		3,800
		19,200		6,800
Non-current liabilities
Loan		6,000		10,000
Current liabilities
Operating overdraft	11,000
Trade payables	8,000		11,000
Income tax payable	1,800		1,000
Accrued interest	700		200
		21,500		12,200
Total equity and liabilities		46,700		29,000

Statement of profit or loss (extracts)
Operating profit
Financing cost (Interest)
Profit before tax
Income tax expense
Net profit for the year

Equipment of carrying amount GH¢250,000 was sold at the beginning of 20X9 for GH¢350,000. This equipment had originally cost GH¢1,000,000.
In recent years, no dividends have been paid.

Required
Prepare a statement of cash flows, under the indirect method, for the year ended 30 June 20X9.

Answer

StarPharma Ltd: Statement of cash flows for the year ended 30 June 20X9

	GH¢000	GH¢000
Cash flows from operating activities
Net profit before tax		15,200
Adjustments for
Depreciation GH¢(3,000 + 1,000)	4,000
Profit on sale of non-current assets (W3)	(100)
Interest expense	1,200
Operating profit before working capital adjustments		20,300
Increase in inventories	(5,000)
Increase in trade receivables	(7,250)
Decrease in trade payables	(3,000)
Cash generated from operations		5,050
Interest paid (W5)	(700)
Income taxes paid (W4)	(1,000)
Net cash from operating activities		3,350
Cash flows from investing activities
Purchase of property	(10,000)
Purchase of plant and equipment (W1)	–
Proceeds from sale of plant and equipment (W3)	350
Net cash used in investing activities		(9,650)
Cash flows from financing activities
Part repayment of loan	(4,000)
Net cash used in financing activities		(4,000)
Net decrease in cash and cash equivalents		(12,300)
Cash and cash equivalents at beginning of year		1,300
Cash and cash equivalents at end of period		(11,000)

Workings

(1) Plant and machinery – Cost

	GH¢000		GH¢000
Bal b/d	5,000	Disposal	1,000
Additions (β)	1,000	Bal c/d	5,000
	6,000		6,000

(2) Plant and machinery – Accumulated depreciation

	GH¢000		GH¢000
Disposal	750	Bal b/d	2,000
Bal c/d	2,250	Depreciation charge	1,000
	3,000		3,000

(3) Plant and machinery – Disposals

	GH¢000		GH¢000
Cost	1,000	Accumulated depreciation	750
Profit on sale	100	Disposal proceeds	350
	1,100		1,100

(4) Income taxes paid

	GH¢000
Income tax payable b/d	1,000
Tax charge (balancing figure)	1,800
	2,800
Income tax payable c/d	(1,800)
Income taxes paid	1,000

(5) Interest paid

	GH¢000
Accrued interest b/d	200
Interest charge	1,200
	1,400
Accrued interest c/d	(700)
Interest paid	700

(6) Profit before tax

	GH¢000
Accumulated profits c/d	16,200
Accumulated profits b/d	(3,800)
Net profit for the year	12,400
Income tax expense	2,800
Profit before tax	15,200

Tags: Cash Flows, Depreciation, Financial Statements, Financing Activities, Indirect Method, Investing Activities, Operating Activities, Statement of Cash Flows, Working Capital
Level: Level 1

Topic: IAS 7: Statement of cash flows

Uploader: Samuel Duah