Advanced Level Principles of Accounts --- Cash Flow Statements

Transcription

1 Advanced Level Principles of Accounts --- Cash Flow Statements ( A ) Definitions : ( 1 ) Cash ( 2 ) Cash Equivalents ( ) ( 3 ) Cash Flows ( 4 ) Operating Activities ( 5 ) Investing Activities ( 6 ) Financing Activities ( B ) Presentation of a Cash Flow Statement : Headings Examples ( 1 ) Operating Activities ( a )cash receipts from ( b )cash payments to reporting methods :(i) (ii) ( 2 ) Investing Activities ( a )cash receipts from ( b )cash payments to ( 3 ) Financing Activities ( a )cash receipts from ( b )cash payments to ** please visit : and technical >>> accounting & financial reporting

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3 Example 1 : F. 6 Principles of Accounts --- Cash Flow Statements The following financial statements relate to Winter Limited for the two years, 2001 and 2002 : Income statement for the year ended 31 December $000 $000 Turnover Cost of sales (14 025) (11 850) Gross profit Salaries and wages (3 240) (3 150) Other operating expenses (4 890) (4 305) Operating profit Interest expenses (1 275) (930) Profit before tax Taxation (540) (450) Profit for the year Dividends (825) (525) Retained profit for the year Balance sheet as at 31 December Assets Non-current Assets $000 $000 $000 $000 $000 $000 Tangible assets Current assets Inventories Trade debtors Prepaid expenses Short-term investments Cash and bank Less : Current liabilities Trade creditors Accrued wages Bank overdrafts Taxation 540 (2 825) 450 (2 760) Net current assets ( to be continued ) P. 1

4 Less : Long-term liabilities 15% Debentures % Debentures (6 800) --- (3 300) Financed by : Capital and reserves Ordinary share capital at $10 each Share premium Retained profits Proposed dividends Additional information : ( 1 ) Turnover Winter Limited sold all its goods on credit. ( 2 ) Other expenses included depreciation charges and loss on disposal of fixed assets. ( 3 ) Non-current assets $000 Carrying amount at 1 January Additions-purchases at cost Disposals at carrying amount (570) Depreciation for the year (2 190) Carrying amount at 31 December The assets disposed of during 2002 realized $ ( 4 ) Current assets Short-term investments are investments in money market instruments, which are readily convertible into cash without notice and within three months of maturity. ( 5 ) The company adopts the policy that all highly liquid financial instruments with original maturities of three months or less to be cash equivalents. ( 6 ) Part of the debentures was redeemed at par during You are required to : Prepare a cash flow statement by using direct method for Winter Limited for the year ended 31 December 2002 and disclose the component of cash and cash equivalents in compliance with HKAS 7. P. 2

5 Example 2 : The draft accounts of Summer Limited for the year ended 31 December 1992 are set out below : Income statement for the year ended 31 December $000 $000 $000 $000 Turnover Less : Operating expenses Interest on debentures Cost of sales and other operating expenses Profit on sales of property, plant and equipment (205) Profit before tax Taxation (40) (2) Profit after tax Retained profit brought forward Dividends paid and proposed (62) (28) Retained profit carried forward Balance sheet as at 31 December Assets Non-current assets $000 $000 $000 $000 Property, plant and equipment ( note 1 ) Current assets Inventories Trade debtors Less : Provision for bad debts Short-term investment ( note 2 ) Cash at bank Share capital ( note 3 ) Redeemable preference shares of $1 each Ordinary shares of $1 each fully paid Retained profits Proposed dividends Debentures Asset revaluation reserve Trade creditors Tax payable P. 3

6 Note : 1. Property, plant and equipment ( a ) Freehold land At cost, 31 December 1991 $ At valuation, 31 December 1992 $ Freehold land, which originally cost $ , was sold during the year for $ ( b ) Plant and equipment Cost Depreciation $000 $000 On 31 December Additions at cost Disposals ( realizing $ ) (109) (25) Provision for the year On 31 December The maturity date for short-term investment acquired in December 1992 of $ is 15 January 1993 and that acquired in December 1991 of $ is 28 May New shares had been issued for cash during the year. 4. Cash and cash equivalents consist of cash on hand and balance with banks and investments, which have a short maturity of three months or less from the date of acquisition. You are required to : Prepare a cash flow statement for the year ended 31 December 1992 together with the analysis of balance of cash and cash equivalents in accordance with HKAS 7 using the indirect method for operating activities. P. 4

7 Example 3 : The following are the draft financial statements of Senior Company Limited : Balance sheet as at 30 April $m $m $m $m $m $m Plant and machinery (net)(note 1) Motor vehicles(net)(note 2) Inventories Debtors Quoted investment (note 4) Time deposits (note 5) Interest receivable Cash in hand Trade creditors Interest payable Tax payable Dividend payable Short-term loan Accrued operating expenses Bank overdraft % Debentures Long-term bank loan Capital and reserves (note 6) Ordinary share capital Share premium Capital redemption reserve Profit and loss account P. 5

8 Income statement for the year ended 30 April 2001 $m Sales 760 Cost of sales 502 Gross profit 258 Other income Expenses Tax Dividend 12 Retained profit for the year 100 Notes : ( 1 ) A machine with a net book value of $19m was sold for $21m during the year ended 30 April The company purchased a new machine at a list price of $160m. The supplier offered a special trade discount of 30% on list price. The company incurred freight charges and installation cost of $17m and $4m respectively. However, the machine broke down on 20 June 2000 and the company incurred $1m repair cost to restore the machine to its original condition. The freight charges, installation cost and repair cost had been charged to the profit and loss account. ( 2 ) During the year, there was no addition or disposal of motor vehicles. ( 3 ) It is the company s policy to provide a full year s depreciation in the year of purchase and none in the year of disposal. The following depreciation rates are to be applied: Plant and machinery % per annum on a reducing balance basis Motor vehicles % per annum on a reducing balance basis ( 4 ) Other income consists of interest income of $4m, dividend income of $1m, and profit on the disposal of the machine. ( 5 ) Time deposits : Amount ( $m ) Date of deposit Maturity date 10 1 January December April May January May April May 2001 P. 6

9 ( 6 ) Movement of capital and reserves : Ordinary share capital $m Share premium $m Capital redemption reserve $m Profit and loss account $m At 1 May Issue of shares Purchase of own shares ( 12 ) ( 12 ) Retained profit for the year At 30 April ( 7 ) The $17m share premium on the new issue represented an amount net of issue costs of $3m. ( 8 ) Interest expenses of $11m were incurred during the year. You are required to prepare : ( a ) A statement showing the adjusted operating profit before tax for the year ended 30 April ( b ) Using direct method, the cash flow statement of Senior Company Limited for the year ended 30 April 2001 together with the analysis of the balances of cash and cash equivalents ( c ) The following notes to the cash flow statement : ( i ) reconciliation of operating profit to the net cash inflow from operating activities, and ( ii ) analysis of changes in financing during the year P. 7

10 Example 1 Winter Limited Cash flow statement for the year ended 31 December 2002 Cash flow from operating activities $000 $000 Cash received from customers Cash payments to suppliers (15 375) Cash payment for salaries and wages Cash payment for operating expenses (3 295) (2 785) Cash generated from operations Interest paid (1 275) Tax paid (450) (1 725) Net cash from operating activities Cash flow from investing activities Purchase of fixed assets (7 575) Proceeds from sale of fixed assets 495 Net cash used in investing activities (7 080) Cash flow from financing activities Issue of ordinary share capital Proceeds from issuance of 13% debentures Redemption of 15%debenture (1 000) Dividend paid (525) Net cash provided by financing activities Net increase in cash and cash equivalents for the year (585) Cash and cash equivalents at the beginning of the period (450) Cash and cash equivalents at the end of the period (1 035) Analysis of cash and cash equivalents as at 31 December 2002 Cash and bank ( ) (1 115) Short-term investments 80 (1 035)

11 Example 2 Summer Limited Cash flow statement for the year ended 31 December 1992 Cash flow from operating activities $000 $000 Profit before tax and interest (290+39) 329 Adjustment for : Depreciation 6 Profit on sale of property, plant and equipment (205) Decrease in provision for doubtful debts (30-20) (10) Operating profit before working capital changes 120 Increase in inventories (108) Decrease in trade debtors 48 Increase in trade creditors 20 (40) Cash generated from operations 80 Interest on debentures paid (39) Tax paid ( ) (8) (47) Net cash from operating activities 33 Cash flow from investing activities Sale of short-term investments 100 Proceeds from disposal of property, plant and equipment 524 Purchase of plant and equipment (53) Net cash provided by investing activities 571 Cash flow from financing activities Issue of share capital 20 Redemption of preference shares (130) Redemption of debentures (129) Net cash used in financing activities (239) Net increase in cash and cash equivalents 317 Cash and cash equivalents at the beginning of the period 10 Cash and cash equivalents at the end of the period 327 Cash and cash equivalents as at 31 December 1992 Cash at bank 7 Short-term investments