- 20 Marks
FR – L2 – Q75 – Statement of Cash Flows
Prepare a cash flow statement for Apex Ltd for 20X9 per IAS 7 and analyze gross profit margin changes.
Question
(a) Apex Ltd is a wholesaler and retailer of office furniture. Extracts from the company’s financial statements are set out below:
Statement of profit or loss and other comprehensive income for the year ended:
| 31 March 20X9 | 31 March 20X8 | |||
|---|---|---|---|---|
| GH₵’000 | GH₵’000 | GH₵’000 | GH₵’000 | |
| Revenue: | 12,800 | 26,500 | ||
| 53,000 | 65,800 | 28,500 | 55,000 | |
| Cost of sales | (43,800) | (33,000) | ||
| Gross profit | 22,000 | 22,000 | ||
| Operating expenses | (11,200) | (6,920) | ||
| Finance costs: | ||||
| – loan notes | (380) | (180) | ||
| – overdraft | (220) | (600) | – | (180) |
| Profit before tax | 10,200 | 14,900 | ||
| Income tax expense | (3,200) | (4,400) | ||
| Profit for the year | 7,000 | 10,500 | ||
| Other comprehensive income: | ||||
| Gain on property revaluation | 5,000 | 1,200 | ||
| Total comprehensive income | 12,000 | 11,700 |
Statement of changes in equity for the year ended 31 March 20X9
| Stated Capital GH₵’000 | Capital Surplus GH₵’000 | Income Surplus GH₵’000 | Total GH₵’000 | |
|---|---|---|---|---|
| Balances b/f | 8,500 | 2,500 | 15,800 | 26,800 |
| Share issue | 12,900 | 12,900 | ||
| Comprehensive income | 5,000 | 7,000 | 12,000 | |
| Dividends paid | (4,000) | (4,000) | ||
| Balances c/f | 21,400 | 7,500 | 18,800 | 47,700 |
Statements of financial position as at 31 March:
| 20X9 GH₵’000 | 20X9 GH₵’000 | 20X8 GH₵’000 | 20X8 GH₵’000 | |
|---|---|---|---|---|
| Assets | ||||
| Non-current assets | ||||
| Property, plant and equipment | 43,200 | 30,600 | ||
| 43,200 | 30,600 | |||
| Current assets | ||||
| Inventories | 7,800 | 5,600 | ||
| Trade receivables | 8,900 | 4,800 | ||
| Cash and cash equivalents | 600 | 1,200 | ||
| 17,300 | 11,600 | |||
| Total assets | 60,500 | 42,200 | ||
| Equity and liabilities | ||||
| Equity | ||||
| Stated capital | 21,400 | 8,500 | ||
| Capital surplus | 7,500 | 2,500 | ||
| Income surplus | 18,800 | 15,800 | ||
| 47,700 | 26,800 | |||
| Non-current liabilities | ||||
| Loan notes | 5,000 | 3,000 | ||
| Current liabilities | ||||
| Trade payables | 4,800 | 6,900 | ||
| Bank overdraft | 600 | 1,500 | ||
| Taxation | 2,400 | 4,000 | ||
| 7,800 | 12,400 | |||
| Total equity and liabilities | 60,500 | 42,200 |
The following information is also relevant:
(i) During the year, property, plant and equipment costing GH₵2,600,000 was acquired.
(ii) The depreciation charge for the year to 31 March 20X9 was GH₵2,800,000. There were no disposals of non-current assets during the year.
(iii) The increase in loan notes was due to an issue of further notes at par on 1 April 20X8.
Required:
Prepare a statement of cash flows for Apex Ltd for the year ended 31 March 20X9 in accordance with IAS 7, using the indirect method.
(b) In the year to 31 March 20X9, the directors of Apex Ltd decided to source their supplies from a new supplier located in Kumasi. The new supplier offered a 10% reduction in the cost of purchases compared with the previous supplier. However, the new supplier offered a shorter period of credit than the previous supplier (all purchases are on credit). In order to encourage higher sales, Apex Ltd increased its credit period to its customers, and some of the cost savings (on trade purchases) were passed on to customers by reducing selling prices on both cash and credit sales by 5% across all products.
Required:
(i) Calculate the gross profit margin that you would have expected Apex Ltd to achieve for the year ended 31 March 20X9 based on the selling and purchase price changes described by the directors. (2 marks)
(ii) Comment on the directors’ surprise at the unchanged gross profit and suggest what other factors may have affected gross profit for the year ended 31 March 20X9.
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