FINANCIAL ACCOUNTING – A3

STATEMENT OF CASH FLOWS – IAS 7

Prepared By
Henry Touwa [Bachelor of Accounting (Hons), CPA (T) IP)]
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 FINANCIAL ACCOUNTING TOPIC: STATEMENT OF CASH FLOWS – IAS 7

CASH FLOW STATEMENT OF A COMPANY

QUESTION ONE
The statement of comprehensive income, statement of financial position and cash account for Lee ltd for the year 2004
are given below.
Statement of comprehensive income for the year ending 31st December 2004
$ $
Sales 6,500
Less: Cost of goods sold (3,000)
Gross profit 3,500
Add: Investment income: Interest received 50
3,550
Less: Expenses
Distribution costs 2,400
Administration expenses 600
Finance charge: Interest paid 100 3,100
Profit before tax 450
Income tax expenses 80
Profit for the year 370

Statement of financial position as at 31st December

2004 2003
$ $ $ $
ASSETS
NON-CURRENT ASSETS
Non-current assets at cost: tangible 4,140 3,800
Less: Accumulated depreciation 2,300 1,800
Net book value 1,840 2,000
Non-current asset investment 400 -
2,240 2,000
CURRENT ASSETS
Inventory 380 480
Account receivable 150 180
Prepaid administration expenses 20 40
Cash 680 100
1,230 800
3,470 2,800
EQUITY AND LIABILITIES
EQUITY
Ordinary share capital 1,400 1,000
Revaluation surplus 40 -
Retained profits 770 450
2,210 1,450
NON –CURRENT LIABILITIES
Debentures 900 1,000
CURRENT LIABILITIES
Trade creditors 325 300
Accrued distribution costs 10 35
Tax 25 15
360 350
3,470 2,800
Additional information
Equipment that had cost $200 and with a net book value of $100 was sold for $300. Depreciation and gain or loss in
disposal of noncurrent assets are included in distribution costs
Required: Prepare a cash flow statement for the year to 31 st December 2004. Use
a) The direct method
b) The indirect method

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 FINANCIAL ACCOUNTING TOPIC: STATEMENT OF CASH FLOWS – IAS 7

QUESTION TWO
The statement of comprehensive income, statement of financial position and cash account for
Lee ltd for the year 2004 are given below.
Statement of comprehensive income for the year ending 31st December 2004
$ $
Sales 6,500
Less: Cost of goods sold (3,000)
Gross profit 3,500
Gain on sale o f non-current asset 200
Interest received 50
3,750
Less: Expenses 2,000
Distribution costs 600
Administration expenses 600
Depreciation 100
Interest 3,300
Profit before tax 450
Income tax expenses 80
Profit for the year 370

Statement of financial position as at 31st December

2004 2003
$ $ $ $
NON-CURRENT ASSETS
Non-current assets at cost: tangible 4,100 3,800
Less: Accumulated depreciation (2,300) (1,800)
Net book value 1,800 2,000
Non-current asset investment 400 -
2,200 2,000
CURRENT ASSETS
Inventory 380 480
Account receivable 150 180
Prepaid administration expenses 20 40
Cash 680 100
1,230 800
Less: Current liabilities
Trade creditors 325 300
Accrued distribution costs 10 35
Tax 25 15
(360) (350)
3,070 2,450
Financed by:
Debentures 900 1,000
Ordinary share capital 1,400 1,000
Retained profits 770 450
3,070 2,450

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 FINANCIAL ACCOUNTING TOPIC: STATEMENT OF CASH FLOWS – IAS 7

Dr CASH ACCOUNT FOR 2004 Cr

$ $
Opening balance 100 Distribution costs 2,025
Cash from customers 6,530 Administration expenses 580
Proceeds from sale of non current assets 300 Cash paid to suppliers 2875
Issue of shares 400 Interest paid 100
Interest received 50 Cash purchase of Non-current asset 900
Cash paid to debenture holders 100
Dividends paid 50
Tax 70
Closing balance 680
7,380 7,380
Required: Prepare a cash flow statement for the year to 31st December 2004. Use
a) The direct method
b) The indirect method

QUESTION THREE

Pato Hilary is a public listed company. Its summarised financial statements for the years ended 31
March 2012 and the comparative figures are shown below.
Statements of comprehensive income for the year ended 31 March:

2012 2011
$m $m
Revenue 2,700 1,820
Cost of sales (1,890) (1,092)
–––––– ––––––
Gross profit 810 728
Distribution costs (230) (130)
Administrative expenses (345) (200)
Finance costs (40) (5)
–––––– ––––––
Profit before tax 195 393
Income tax expense (60) (113)
–––––– ––––––
Profit for the year 135 280
Other comprehensive income 80 nil
–––––– ––––––
Total comprehensive income 215 280
–––––– ––––––

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 FINANCIAL ACCOUNTING TOPIC: STATEMENT OF CASH FLOWS – IAS 7

Statements of financial position as at 31

March:
2012 2011

$m $m $m $m

Assets
Non-current assets
Property, plant and equipment 680 410
Intangible asset: manufacturing licence 300 200
Investment at cost: shares in Raremetal 230 nil
–––––– ––––
1,210 610
Current assets
Inventory 200 110
Trade receivables 195 75
Bank nil 395 120 305
–––– –––––– –––– ––––
Total assets 1,605 915
–––––– ––––
Equity
Equity shares of $1 each 350 250
Reserves
Revaluation 80 nil
Retained earnings 375 295
–––––– ––––
805 545
Non-current liabilities
5% loan notes 100 100
10% secured loan notes 300 400 nil 100
–––– ––––
Current liabilities
Bank overdraft 110 nil
Trade payables 210 160
Current tax payable 80 400 110 270
–––– –––––– –––– ––––
Total equity and liabilities 1,605 915
–––––– ––––
The following information is relevant:
a) Depreciation/amortisation charges for the year ended 31 March 2012 were:
$m
Property, plant and equipment 115
Intangible asset: manufacturing licence 25
b) There were no sales of non-current assets during the year, although property has been revalued.
Required:
a) Prepare the statement of cash flows for the year ended 31 March 2012 for Pato Hilary
in accordance with the indirect method in accordance with IAS 7 Statement of cash
flows.
b) Prepare the statement of cash flows for the year ended 31 March 2012 for Pato Hilary
in accordance with the direct method (assume administrative expenses includes depreciation and
amortization)

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 FINANCIAL ACCOUNTING TOPIC: STATEMENT OF CASH FLOWS – IAS 7

QUESTION FOUR
The balance sheets and additional information relating to Pennylane Ltd are given below.
Prepare a cash flow statement for Pennylane Ltd for the year ended 31 December 2003
Pennylane Ltd
Balance Sheets as at 31 December
TAS.
TAS. 000's
000's
2003 2002
Non-current assets:
Tangible assets 400 325
Intangible assets 230 180
Investments - 25
Total non-current assets 630 530
Current assets
Stocks 120 104
Debtors 400 295
Short-term investments (90 day deposit) 50
Cash in hand 10 4
580 403
Creditors: amount falling due in less than one year
Trade creditors 122 108
Bank overdraft 188 185
Taxation 120 110
430 403
Net current assets 150 -
Total assets less current liabilities 780 530
Creditors: amounts falling due after more than one year
Long-term loan (100)
Provisions for liabilities and charges: Deferred taxation (80) (60)
600 470
Capital and reserves
Share capital (TAS. 1 ordinary shares) 200 150
Share premium account 160 150
Revaluation reserve 100 90
Profit and loss account 140 80
600 470

Additional information
During the year interest of £75,000 was paid, and interest of £25,000 was received.
The following information relates to tangible fixed assets:
31.12.2003 31.12.2002
TAS. 000's TAS. 000's
Cost 740 615
Accumulated depreciation (340) (290)
Net book value 400 325

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 FINANCIAL ACCOUNTING TOPIC: STATEMENT OF CASH FLOWS – IAS 7

(d) The proceeds of the sale of fixed asset investments were £30,000.
(e) Plant, with an original cost of £90,000 and a net book value of £50,000, was sold for
£37,000.
(f) Tax paid to the Inland Revenue during 2003 amounted to £110,000.
(f ) Dividends of £80,000 were paid during 2003

QUESTION FIVE
The balance sheets of NYEGERE Ltd for the year ended 31 December 2006 and 2007 were as
follows:
Details 2006 2007
Non-Current Assets TZS ‘000’ TZS ‘000’
Property, Plant and Equipment (cost) 1,743,750 1,983,750
Accumulated Depreciation -551,250 1,192,500 -619,125 1,364,625

Current Assets
Inventory 101,250 85,500
Trade receivables 252,000 353,250 274,500 360,000
Total Assets 1,545,750 1,724,625

Capital and reserve

Common shares TZS 1/- each 900,000 1,350,000
Share premium 0 30,000
Retained Earnings 387,000 1,287,000 176,625 1,556,625

Current liabilities
Trade payables 183,750 159,750
Bank overdraft 75,000 258,750 8,250 168,000
Owners Equity and liabilities 1,545,750 1,724,625

Note that during the year ended 31st December, 2007:

i. Equipment that had cost TZS 25,500,000 and with a net book value of TZS 9,375,000 was
sold for TZS 6,225,000.
ii. The company paid a dividend of TZS 45,000,000.
iii. A bonus issue of common shares was made by the company’s director on 30th
September, 2007.
iv. A new issue of common shares was made on 1st July 2007 at a price of TZS 1.20 per
share.

Required:

By using indirect method, prepare a cash flow statement of NYEGERE ltd for the year ended
December 31st 2007.

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 FINANCIAL ACCOUNTING TOPIC: STATEMENT OF CASH FLOWS – IAS 7

QUESTION SIX
Set out below are the financial statements of Twidi Ltd.
Twidi Ltd. Statement of comprehensive income for the year ended 31st December 2009
TAS. 000's
Turnover 2,553
Cost of Sales 1,814
Gross profit 739
Distribution costs 125
Administrative expenses 264
Operating profit 350
Interest received 25
Interest paid 75
Profit on ordinary activities before taxation 300
Taxation 140
Profit after tax 160
Dividends 100
Retained profit for the year 60
Twidi Ltd. Statement of financial position as at 31st December
TAS. 000's TAS. 000's
2009 2008
Non-current assets:
Tangible assets 380 305
Intangible assets 250 200
Investments - 25
Total non-current assets 630 530
Current assets
Stocks 150 102
Debtors 390 315
Short-term investments 50
Cash in hand 2 1
Total current assets 592 418
Creditors: amount falling due in less than one year
Trade creditors 127 119
Bank overdraft 85 98
Taxation 120 110
Dividends proposed 100 80
Total current liabilities 432 407
Net current assets 160 11
Net assets 790 541
Creditors: amounts falling due after more than one year
Long-term loan 100
Provisions for liabilities and charges
Deferred taxation 70 50
Total non-current liabilities 170 50
Capital and reserves
Share capital (TAS. 1 ordinary shares) 200 150
Share premium account 160 150
Revaluation reserve 100 91
Profit and loss account 160 100
Total owners equity 620 491
Capital employed 790 591

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 FINANCIAL ACCOUNTING TOPIC: STATEMENT OF CASH FLOWS – IAS 7

The following information is available.

i. The proceeds of the sale of fixed asset investments amounted to TAS. 30,000. Fixture and
fittings, with an original cost of TAS. 85,000 and a net book value of TAS. 45,000, were
sold for TAS. 32,000 during last year.
ii. The short term investment are highly liquid and are close to maturity
iii. The following information relates to tangible fixed assets:
31.12.2009 31.12.2008
TAS.
TAS. 000's
000's
Cost 720 595
Accumulated depreciation 340 290
Net book value 380 305
iv. 50,000 TAS. 1 ordinary shares were issued during the year at a premium of 20 cents per
share.
Required:
Prepare a cash flow statement for the year to 31 December 2009 using the indirect method.

QUESTION SEVEN
The following information has been extracted from the books of Nimmo Limited for the
year to 31 December 20X9:
Profit and Loss Accounts for year to 31 December
20X8 20X9
£000 £000
Profit before taxation 9,500 20,400
Taxation (3,200) ( 5,200)
Profit after taxation 6,300 15,200
Dividends:
Preference (paid) ( 100) ( 100)
Ordinary: interim (paid) (1,000) ( 2,000)
final (proposed) (3,000) ( 6,000)
Retained profit for the year 2,200 7,100
Balance Sheets at 31 December
20X8 20X9
£000 £000
Fixed assets
Plant, machinery and at cost 17,600 23,900
equipment,
Less Accumulated 9,500 10,750
depreciation 8,100 13,150
Current assets
Stocks 5,000 15,000
Trade debtors 8,600 26,700
Prepayments 300 400
Cash at bank and in hand 600 –
14,500 42,100
Current liabilities
Bank overdraft – (16,200)
Trade creditors ( 6,000) (10,000)
Accruals ( 800) ( 1,000)
Taxation ( 3,200) ( 5,200)
Dividends ( 3,000) ( 6,000)
(13,000) (38,400)
9,600 16,850

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 FINANCIAL ACCOUNTING TOPIC: STATEMENT OF CASH FLOWS – IAS 7

Share capital
Ordinary shares of £1 each 5,000 5,000
10% preference shares of £1 1,000 1,000
each and loss account
Profit 3,000 10,100
9,000 16,100
Loans
15% debenture stock 600 750
9,600 16,850
Additional information:
1. The directors are extremely concerned about the large bank overdraft as at 31
December 20X9 and they attribute this mainly to the increase in trade debtors as a
result of alleged poor credit control.
2. During the year to 31 December 20X9, fixed assets originally costing £5,500,000
were sold for £1,000,000. The accumulated depreciation on these assets as at 31
December 20X8 was £3,800,000.
Required: Prepare a cash flow statement for the year to 31 December 20X9.

CASH FLOW OF SOLE TRADER

QUESTION EIGHT
From the following details you are to draft a cash flow statement for D Duncan for the
year ended 31 December 20X5: using the IAS 7 layout.

D Duncan

Profit and Loss Account for the year ending 31

December 20X5

£ £

Gross profit 44,700

Add Discounts received 410

Profit on sale of van 620 1,030

45,730
Less Expenses
Motor expenses 1,940
Wages 17,200
General expenses 830
Bad debts 520
Increase in doubtful debt provision 200
Depreciation: Van 1,800 22,490
23,240

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 FINANCIAL ACCOUNTING TOPIC: STATEMENT OF CASH FLOWS – IAS 7

Balance Sheets as at 31 December

20X4 2
£ £ £ 0 £
Fixed assets
Vans at cost 15,400 X 8,200
Less Depreciation to date ( 5,300) 5 ( 3,100)
10,100 5,100
Current assets
Stock 18,600 24,000
Debtors less provision* 8,200 6,900
Bank 410 720
27,210 31,620
Less Current liabilities
Creditors ( 5,900) ( 7,200)
21,310 24,420
31,410 29,520
Less Long-term liability
Loan from J Fry (10,000) ( 7,500)
21,410 22,020
Capital
Opening balance b/d 17,210 21,410
Add Net profit 21,200 23,240
38,410 44,650
Less Drawings (17,000) (22,630)
21,410 22,020
*Debtors 20X4 £8,800 –
provision £600. Debtors
20X5 £7,700 – provision
£800.

Note: A van was sold for £3,820 during 20X5. No new vans were purchased during the year.

QUESTION NINE
Malcolm Phillips is a sole trader who prepares his accounts annually to 30 April. His
sum- marised balance sheets for the last two years are shown below.
Balance Sheets as at 31 April
20X 20X9
8
£ £ £ £ £ £
Fixed assets 15,500 18,500
Less Provision for depreciation ( 1,500) ( 1,700)
14,000 16,800
Current assets
Stocks 3,100 5,900
Trade debtors 3,900 3,400
Bank 1,500 –
8,500 9,300
Current liabilities
Trade creditors 2,000 2,200
Bank overdraft – 900
(2,000) (3,100)
6,500 6,200
20,500 23,000
Represented by
Capital account:
Balance at 1 May 20,000 20,500
Add Net profit for the year 7,000 8,500
Additional capital introduced – 2,000

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 FINANCIAL ACCOUNTING TOPIC: STATEMENT OF CASH FLOWS – IAS 7

27,000 31,000
Less Drawings ( 6,500) ( 8,000)
20,500 23,000

Malcolm is surprised to see that he now has an overdraft, in spite of making a

profit and bringing in additional capital during the year.

REQUIRED:
(a) Draw up a suitable financial statement which will explain to Malcolm
how his overdraft has arisen.
(b) The following further information relates to the year ended 30 April 20X9.
£
Sales (all on credit) 30,000
Cost of sales 22,500
Calculate Malcolm’s
(i) gross profit margin
(ii) rate of stock turnover.

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