Semester One Final Examinations, 2017 ACCT2101 Financi BYRON LTD Statement of Pr

Question

Semester One Final Examinations, 2017 ACCT2101 Financi BYRON LTD Statement of Profit or Loss for the year ended 31 December 2017 Sales $480,000 Less: Cost of sales Operating expenses (excluding depreciation) Depreciation expense Income taxes Interest expense $290,000 60,000 17,000 15,000 18,000 3,000 403.000 $ 77000 Loss on sale of plant assets Profit after income tax Additional information: 1. New plant assets costing $85,000 were purchased for cash in 2. Old plant assets costing $25,000 were sold for $10,000 cash when their carrying amount wa? $13,000 3. Notes with a face value of $30,000 were convertld nto $30,000of ardinary shares. 4. A cash dividend of $24,000 was declared and paid during the year. 5. Accounts payable relate to merchandise purchases. Required: (a e a statement of cash flows for the year, showing cash flows from operating activities using the INDIRECT method. Show ALL workings. (16 marks) (b) How is it possible for a company to report a LOSS in their statement of profit or loss and a POSITIVE net cash flow from operating activities? (4 marks)

Explanation / Answer

1) STATEMENT OF CASH FLOWS Cash flow from operating activities: Net income 77000 Adjustments to reconcile net income with net cash from operating activities: Depreciation 17000 Loss on sale of plant assets 3000 Increase in accounts receivable (85000-53000) -32000 Decrease in inventory (132000-120000) 12000 Decrease in prepaid expenses (25000-19000) 6000 Increase in accounts payable (93000-75000) 18000 Increase in accrued expenses (29000-24000) 5000 29000 Net cash from operating activities 106000 Cash flow from investing activities: Purchase of Plant assets (given) -85000 Sale of old plant assets 10000 Purchase of investments (90000-75000) -15000 Net cash from investing activities -90000 Cash flow financing activities: Sale of ordinary shares 45000 Dividends paid -24000 Net cash from financing activities 21000 Decrease in cash and cash equivalents 37000 Beginning balance of cash and cash equivalents 35000 Ending balance of cash and cash equivalents 72000 2) Positive net cash flow with a net loss in the income statement may be due to: *More collections of receivables from prior year sales. *Accumulation of accounts payable and accrued expenses during the year by delaying the payments.

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