Surname and Initials Student Number

Exercise 2: Cash Flow

The Mountain Local Municipality
For the year ending 30 June 2011 the Mountain Local Municipality had the following information
at its disposal for the compilation of its financial statements:
Trial Balance for the Mountain Local Municipality on 30 June 2011:
Previous Description Current Year
year Dr Cr

(40,456,945) Property rates 53,174,364

(1,132,432) Property rates - penalties imposed 1,145,987
(48,972,145) Service charges 59,216,147
(10,659,154) Regional service levies 10,763,013
(8,846,001) Rental of facilities and equipment 9,578,023
(1,004,560) Interest earned - Outstanding debtors 1,034,672
(1,459,134) Fines 2,830,128
(2,480,135) Licences and permits 4,810,934
(8,140,199) Government grants and subsidies 9,357,401
32,457,297 Employee related cost 24,576,902
8,013,497 Remuneration of councillors 10,629,781
3,983,014 Bad debts 1,589,301
4,421,906 Collection cost 600,754
8,013,987 Depreciation 7,530,921
15,579,105 Repairs and maintenance 300,648
5,589,948 Interest on external borrowings 1,098,456
7,562,109 Contracted services 2,481,094
8,571,096 Grants and subsidies paid 701,385
19,287,104 General expenses - other 7,920,195
60,792,156 Land and buildings 57,194,561
51,794,099 Infrastructure 57,854,786
12,750,273 Equipment 14,782,097
20,992,151 Investment property 23,158,112
2,057,812 Inventory 2,009,145
4,901,587 Consumer debtors 4,569,104
4,710,932 Other debtors 6,409,981
Bank 10,796,917
(2,622,500) Self-insurance reserve 2,622,500
(23,013,233) Capitalization reserve 23,013,233
(8,068,942) Revaluation reserve 8,068,942
(9,134,193) Capital replacement reserve 9,134,193
(166,666) Accummulated surplus/deficit 9,838,308
(1,328,664) Long-term liabilities 894,531
(6,456,568) Non-current provisions 7,254,712
(1,985,672) Consumer deposits 3,907,610
(760,912) Unspend Conditional grants and receipts 854,601
(25,769) VAT 86,549
(13,901,752) Creditors 15,609,135
(900,345) Short-term loans 1,009,157
(79,962,152) Bank overdraft
- 234,204,140 234,204,140

Required: -
Compile an Income Statement, Balance Sheet and Cash Flow Statement for the municipality.

L J Erasmus - 2010
 MOUNTAIN LOCAL MUNICIPALITY
STATEMENT OF FINANCIAL PERFORMANCE
for the year ended 30 June 2011
Note 2011/10 2009/10
REVENUE
Property rates 53,174,364 40,456,945
Property rates - penalties imposed and collection charges 1,145,987 1,132,432
Service charges 59,216,147 48,972,145
Regional Service Levies 10,763,013 10,659,154
Rental facilities and equipment 9,578,023 8,846,001
Interest earned - external investments
Interest earned - outstanding debtors 1,034,672 1,004,560
Dividends received 2,830,128 1,459,134
Fines 4,810,934 2,480,135
Licences and permits
Government Grants and subsidies 9,357,401 8,140,199
Other income
Public contributions and donations
Gains on the disposal of PPE
TOTAL REVENUE 151,910,669 123,150,705

EXPENSES
Employee related cost 24,576,902 32,457,297
Remuneration of councillors 10,629,781 8,013,497
Bad debts 1,589,301 3,983,014
Collection cost 600,754 4,421,906
Depreciation 7,530,921 8,013,987
Repairs and maintenance 300,648 15,579,105
Interest on external borrowings 1,098,456 5,589,948
Contracted services 2,481,094 7,562,109
Grants and subsidies paid 701,385 8,571,096
General expenses - other 7,920,195 19,287,104
Loss on disposal of property, plant and eq

Total Expenses 57,429,437 113,479,063

Surplus/(Deficit) for the year 94,481,232 9,671,642

L J ERASMUS - 2010
 MOUNTAIN LOCAL MUNICIPALITY
BALANCE SHEET (STATEMENT OF FINANCIAL POSITION)
at 30 June 2010

Note 2010/11 2009/10

NET ASSET AND LIABILITIES
Net Assets 147,158,408 52,677,176
Housing development fund
Capital replacement reserve 9,134,193 9,134,193
Capitalisation reserve 23,013,233 23,013,233
Government grant reserve
Donation and public contribution reserve
Self-insurance reserve 2,622,500 2,622,500
Revaluation reserve 8,068,942 8,068,942
Accumulated surplus/(deficit) 104,319,540 9,838,308

Non-current liabilities 8,149,243 7,785,232

Long-term liabilities 894,531 1,328,664
Non-current provisions 7,254,712 6,456,568

Current liabilities 21,467,052 97,536,602

Consumer deposits 3,907,610 1,985,672
Provisions
Creditors 15,609,135 13,901,752
Unspent conditional grants and receipts 854,601 760,912
Short-term loans 1,009,157 900,345
VAT 86,549 25,769
Bank overdraft - 79,962,152
Current portion of long-term liabilities

Total net assets and liabilities 176,774,703 157,999,010

ASSETS
Non-current assets 152,989,556 146,328,679
Property Plant and Equipment 129,831,444 125,336,528
Investment property 23,158,112 20,992,151
Investments
Long-term receivables

Current assets 23,785,147 11,670,331

Inventory 2,009,145 2,057,812
Consumer debtors 4,569,104 4,901,587
Other debtors 6,409,981 4,710,932
Current portion of long-term investments
Call investment deposits
Bank balances and cash 10,796,917

Total assets 176,774,703 157,999,010

L J ERASMUS - 2010
 MOUNTAIN LOCAL MUNICIPALITY
CASH FLOW STATEMENT
for the year ended 30 June 2011

Note 2010/11
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from ratepayers, government and other 1 149,603,120
Cash paid to suppliers and employees 2 (46,185,086)
Cash generated from operations 3 103,418,034

Dividends received
Interest received 1,034,672
Interest paid (1,098,456)

Net cash flow from operating activities 103,354,250

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property, plant and equipment 4 (12,025,837)
Proceeds on disposal of property, plant and equipment
Increase/decrease in investment property (2,165,961)
Increase/decrease in non-current receivables
Increase/decrease in non-current investments

Net cash flows from investing activities (14,191,798)

CASH FLOWS FROM FINANCING ACTIVITIES

Increase/decrease in long-term liabilities 5 (434,133)
Increase/decrease in consumer deposits 1,921,938
Increase/decrease in short-term loans 108,812

Net cash flows from financing activities 1,596,617

Net increase/(decrease) in cash and cash equivalents 90,759,069

Cash and cash equivalents at beginning of the year 8 (79,962,152)
Cash and cash equivalents at end of the year 9 10,796,917
Notes to the cash flow statement

Note 1 - Cash receipts from ratepayers, government and other

Total revenue 151,910,669
Adjusted for:
Interest earned - external investments
Interest earned - outstanding debtors (1,034,672)
Dividends received
Gain on disposal of PPE
Bad debts 1,589,301
Working capital changes:
Increase/decrease in consumer debtors* (1,256,818)
Increase/decrease in other debtors (1,699,049)
Increase/decrease in unspent conditional grants and receipts 93,689
Cash receipts 149,603,120

* The increase/decrease in consumer debtors is calculated as follows:

Net balance at 30 June 2011 4,569,104
Bad debts 1,589,301
Net balance at 30 June 2010 (4,901,587)
Increase in consumer debtors 1,256,818

Note 2 - Cash paid to suppliers and employees

Total expenditure (57,429,437)
Adjusted for:
Depreciation 7,530,921
Interest paid 1,098,456
Loss on disposal of PPE
Contributions to provisions - non-current 798,144
Contributions to provisions - current
Working capital changes:
Increase/decrease in inventories 48,667
Increase/decrease in creditors 1,707,383
Increase/decrease in VAT 60,780
Cash paid (46,185,086)

Note 3 - Cash generated from operations

Surplus for the year 94,481,232
Ajusted for:
Investment income (1,034,672)
Dividends received
Gain on disposal of PPE
Loss on disposal of PPE
Bad debts 1,589,301
Depreciation 7,530,921
Interest paid 1,098,456
Contributions to provisions - non-current 798,144
Contributions to provisions - current
Operating surplus before working capital changes: 104,463,382
Increase/decrease in consumer debtors (1,256,818)
Increase/decrease in other debtors (1,699,049)
Increase/decrease in unspent conditional grants and receipts 93,689
Increase/decrease in inventories 48,667
Increase/decrease in creditors 1,707,383
Increase/decrease in VAT 60,780
Cash generated from operations 103,418,034
Note 4 - Purchase of PPE
PPE purchased is calculated as follows:
PPE balance at 30 June 2011 129,831,444
Carrying value of PPE disposed of
Depreciation for the year ended 30 June 2011 7,530,921
PPE balance at 30 June 2010 (125,336,528)
12,025,837

Note 5 - Increase/decrease in long-term liabilities

Long term liabilities balance at 30 June 2011 894,531
Current portion of long term liabilities at 30 June
2011 -
894,531
(1,328,664)
Long term liabilities balance at 30 June 2010 (1,328,664)
Current portion of long term liabilities at 30 June
2010 -

Decrease in long term liabilities (434,133)