Question Prepare a statement of cash flows

Set out below are the financial statements of Emma Co.

STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 20X2

$'000
Revenue 2,553
Cost of sales (1,814)
Gross profit 739
Other income: interest received 25
Distribution costs (125)
Administrative expenses (264)
Finance costs (75)
Profit before tax 300
Income tax expense (140)
Profit for the year 160

STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER

20X2 20X1
Assets $'000 $'000
Non-current assets
Property, plant and equipment 380 305
Intangible assets 250 200
Investments – 25
Current assets
Inventories 150 102
Receivables 390 315
Short-term investments 50 –
Cash in hand 2 1
Total assets 1,222 948

20X2 20X1
Equity and liabilities $'000 $'000
Equity
Share capital ($1 ordinary shares) 200 150
Share premium account 160 150
Revaluation surplus 100 91
Retained earnings 260 180
Non-current liabilities
Long-term loan 130 50
Environmental provision 40
Current liabilities
Trade payables 127 119
Bank overdraft 85 98
Taxation 120 110
Total equity and liabilities 1,222 948

The following information is available.

(i) The proceeds of the sale of non-current asset investments amounted to $30,000.
(ii) Fixtures and fittings, with an original cost of $85,000 and a net book value of $45,000, were sold
for $32,000 during the year.

384 21: Statements of cash flows  F7 Financial Reporting

(iii) The following information relates to property, plant and equipment.
31.12.20X2 31.12.20X1
$'000 $'000
Cost 720 595
Accumulated depreciation 340 290
Net book value 380 305

(iv) On 31 December 20X2 Emma purchased a chalk quarry from which extraction will take place for
five years. At the end of that time Emma will be obliged to close off the quarry and make the area
safe. The cost of this has been estimated and discounted to a present value of $40,000, which is
included in the carrying amount of the quarry and shown as a provision.
(v) 50,000 $1 ordinary shares were issued during the year at a premium of 20c per share.
(vi) The short-term investments are highly liquid and are close to maturity.
(vii) Dividends of $80,000 were paid during the year.

Required
Prepare a statement of cash flows for the year to 31 December 20X2 using the format laid out in IAS 7.

Answer
EMMA CO
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 20X2
$'000 $'000
Cash flows from operating activities
Profit before tax 300
Depreciation charge (W1) 90
Loss on sale of property, plant and equipment (45 – 32) 13
Profit on sale of non-current asset investments (5)
Interest expense (net) 50
(Increase)/decrease in inventories (48)
(Increase)/decrease in receivables (75)
Increase/(decrease) in payables 8
333
Interest paid (75)
Dividends paid (80)
Tax paid (110 + 140 – 120) (130)
Net cash from operating activities 48

Cash flows from investing activities

Payments to acquire property, plant and equipment (W2) (161)
Payments to acquire intangible non-current assets (50)
Receipts from sales of property, plant and equipment 32
Receipts from sale of non-current asset investments 30
Interest received 25
Net cash flows from investing activities (124)
Cash flows from financing activities
Issue of share capital 60
Long-term loan 80
Net cash flows from financing 140
Increase in cash and cash equivalents 64
Cash and cash equivalents at 1.1.X2 (97)
Cash and cash equivalents at 31.12.X2 (33)

F7 Financial Reporting  21: Statements of cash flows 385

 Workings
1 Depreciation charge
$'000 $'000
Depreciation at 31 December 20X2 340
Depreciation 31 December 20X1 290
Depreciation on assets sold (85  45) (40)
Charge for the year (250)
90
2 Assets
Property, plant and Intangible
equipment assets Investments
$'000 $'000 $'000
B/d 305 200 25
Disposals (85 – 40)* (45)* (25)
Depreciation (W1) (90)
Environmental provision 40
Revaluation (100 – 91) 9
Purchases for cash (β) 161 50 -
Carrying amount 31.12.X2 380 250 -

*Loss on disposal = (45 – 32) = 13

3 Equity
Share Share Revaluation Retained
capital premium surplus earnings
$'000 $'000 $'000 $'000
B/d 150 150 91 180
Revaluation (W2) 9
SPL 160
Dividends paid (80)
Cash received (β) 50 10 - -
200 160 100 260

4 Liabilities
Environmental
Long-term loan provision Taxation
$'000 $'000 $'000
B/d 50 - 110
Provision 40
SPL 140
Cash received /(paid) β 80 - (130)
C/d 130 40 120

5 Working capital movement

Inventory Receivables Payables
$'000 $'000 $'000
B/d 102 315 119
Increase (decrease) 48 75 8
C/d 150 390 127

In the exam you may have a number of issues to deal with in the statement of cash flows. Examples are:
 Share capital issues. The proceeds will be split between share capital and share premium.
 Bonus issues. These do not involve cash.

386 21: Statements of cash flows  F7 Financial Reporting