Apoco Plc. Statements of Financial Position as at December 31 2017 2016 Non-current assets Property plant and equipment (net depreciation) 14,000 12,000 12,000 Current assets Inventory 21,000 18,000 Accounts receivable 8,000 9,000 Cash 10,500 4,000 Total assets £53,500 Equity Share capital 33,000 30,000 Retained earnings 12,500 6,000 Current liabilities Accounts payable 7,000 5,000 Taxes payable 1,000 2,000 14,000 39,500 31,000 45,500 36,000 £43,000 8,000 7,000 £43,000 Total equity and liabilities £53,500 Apoco Income Statement/SPL for period ended 31 December 2017 Sales Cost of goods sold 40,000 Gross profit 21,000 Operating expenses 7,800 Operating profit 13,200 Income tax expense 4,200 Net income £ 9,000 Additional information includes the following: £61,000 1. Operating expenses include depreciation expense of £1,500 2. Equipment costing £3,500 was purchased during the year. 3. Three hundred shares were issued at £10 per share. 4. The company paid cash dividends of paid £2,500. Required: Prepare a cash flow statement using the indirect method. 1
Apoco Plc Statement of Cash Flows for the period ended December 31, 2017 Operating activities Profit from operations 13,200 Add back depreciation 1,500 (Increase) in inventory (3,000) Decrease in receivables 1,000 Increase in accounts payables 2,000 Cash generated from operations 14,700 Less tax paid 5.200 Net cash flow from operating activities 9,500 Investing Activities Purchase of PPE (3,500) Net cash flows from investing activities (3,500) Financing Activities Issue of ordinary share capital 3,000 Dividends paid (2,500) Net cash flow from financing activities 500 Net change of cash in the year 6,500 (previous and current year) Cash at 1 January 2017 4,000 Cash at 31 December 2017 10,500 9500- 3500+500=6500 2
Even though tax shows as a payable in the SOFP, we need to compute the cash paid for tax as the standards require that it be shown as a separate item in the operating section Computing cash paid for tax expense 1. Use information from Statements of Financial Position (opening and closing balances) 2. Use information from Income Statement (amount charged) 3. Check if there is additional information Opening balance + amount charged in income statement+ cash paid=closing balance To find the cash paid we arrange the formula Rearranging the formula Opening balance (2016 SOFP) + amount charged to income statement (2017)-closing balance (2017 SOFP)=cash paid 2,000+4200-1000=5,200 Computing cash paid for investing activity 1. Use information from the Statements of Financial Position 2. Use information from income statement if required 3. Check for additional information But note in this case we are given the amount paid for acquisition. But when not given use the following: Beginning balance [net] + Acquisitions - Depreciation - Book value of assets sold = Ending balance [net] 3