ACCOUNTING 100 │ ACC100

Chapter 21 – Statement of Cashflows

2024
.

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 6 C AS H F L O W S – C H AP T E R 2 1

a Introduction

A statement of cash flows is the fourth financial statement required by IAS 1. The topic will be dealt
with at an intermediate level.

b Learning Outcomes

After you have completed your studies of this topic you must be able to:

 Present and disclose the statement of cash flows

 Reconciliation of profit before tax with cash generated from operations
 Reconstruction of ledger accounts

c Assessment Possibilities

This topic can be assessed through:

 Theoretical questions involving case-studies whereby students are required to define and
apply applicable theory to scenarios provided
 Individual questions requiring specific, specialized and extensive calculations
 Journals and T-accounts
 Presentation of line items in the Statement of Financial Position and the Statement of Profit
or Loss
 Disclosure in the notes to the financial statements

d Specific Resources

To master this topic you should make use of the following resources:
1. Lecture attendance
2. Chapters 21 in your textbook (Fundamentals of Financial Accounting 4th edition)
3. Moodle
4. Class notes i.e. slides
5. Tutorial questions and tutorial lectures
6. Questions in the question bank

6
 e How to use the question bank questions

Question bank questions are provided to you to assist you to apply and master the principles learned
in the lectures and your study material. In order to fully benefit from the questions in the question
bank you are encouraged to work through the questions under exam conditions.
This means attempting each question:
 Without having sight of the solution in order to avoid auditing the solution also known as the
“Ah Yes” method!
 Completing the question under time constraints. You are allocated 1,2 minutes for every 1
mark in a question. Therefore, if a question counts 10 marks, you allocate 12 minutes to
completing the question. In an assessment, you do not have the luxury of time; therefore,
it is important to use the question bank questions to practice completing questions within
the allocated time.
Solutions to the question bank questions will be released on Moodle after the topic has been
lectured. This is to ensure that you have sufficient opportunity to work through the questions before
seeing the solutions
Once the solutions have been released, mark your attempts against the solution. This is to
ensure that you are able to see what principles you have mastered and which you still
need clarity on. For those parts of the question that you did not get correct, highlight
them and find the linking principle in your study material. If you are still not sure why you
did not get the mark for a particular principle, consult with your lecturers.

7
QUESTION 1 (27 MARKS)
(32 MINUTES)
Note: VAT must be ignored for purposes of this question.
The following information was extracted from the accounting records of Zari Ltd (hereafter Zari) for
the reporting period ended 31 December 2018.
Assets, liabilities and equity as at 31 December 2018 and 31 December 2017:
Additio
nal 2018 2017
informat R R
ion
Land - cost 1. 2 430 000 2 260 000
Building - carrying value 2 500 000 2 750 000
Equipment 2. 2 260 000 2 430 000
Vehicles - carrying value 3. 2 200 000 1 950 000
Trademarks - carrying value 370 000 460 000
Financial investments in listed shares - fair value 4. 228 000 290 000
Investment property - fair value 5. 450 000 0
Trade inventories 1 980 000 2 230 000
Trade receivables 1 300 000 1 450 000
Bank 7 588 000 4 350 000
Ordinary share capital (9 450 000) (9 300 000)
Retained earnings (4 020 000) (3 320 000)
Mortgage bond (2 070 000) (1 900 000)
Bank loan (405 000) 0
Trade payables (1 760 000) (1 670 000)
SARS Income tax payable (120 000) (270 000)

In addition to the information above, the following amounts, amongst others, were extracted from
the statement of profit or loss for the reporting period ended 31 December 2018:

R
Revenue 15 430 000
Fair value adjustment on investment property 0
Write down of inventory to net realisable value (125 000)
Increase in Allowance for doubtful debts (60 000)
Finance costs (27 000)
Income tax expense (345 632)
Profit before tax 2 635 000

8
QUESTION 1 (CONTINUED)

1 The acquisition of the Land was financed by a mortgage bond.

2 Zari purchased new equipment on 31 March 2018 for R50 200 and used a bank loan to pay
for the purchase. It is the accounting policy of Zari to depreciate equipment on a straight-line
basis over a useful life of 5 years.

3 One of Zari’s delivery vehicle was involved in an accident on 1 March 2018. The vehicle was
appropriately impaired and Zari recognised an impairment loss of R200 000.
Zari received R250 000 from its insurance on 30 April 2018. The insurance compensation was
used to repair the damaged inventory that the vehicle was transporting at the time. In addition,
Zari purchased a new delivery vehicle on 31 May 2018 in order to improve deliveries to
customers. The vehicle had a cost of R630 000.

4 Zari bought 100 000 shares of Forever stores on 30 June 2016 at a cost of R2 per share.
The fair market value of each share at year-end was R2,90 in 2017 and R3,80 in 2018.
Zari sold 40% of its shares in Forever on 31 December 2018.

5 Zari paid 10% of the cost of Investment property cash up front, and financed the balance with
a bank loan.

6 There were no other acquisitions or disposals of non-current assets other than those indicated
in the information above.

REQUIRED

Prepare only the following sections of the Statement of cash flows of Zari Ltd for the reporting period
ended 31 December 2018:
a) The “Cash generated from operations” note. (21)
b) The “Cash flows from investing activities”. (6)
Note:
- Ignore VAT
- Show ALL calculations clearly

(Source: ACC100_2019_AO5_Q3)

9
QUESTION 2 (35 MARKS)
(42 MINUTES)
Note: VAT must be ignored for purposes of this question.
Ergo Furn (Pty) Ltd is a specialist manufacturer of ergonomic furniture. The company has a reporting
period that ends on 31 December.
The following information was extracted from the records of Ergo Furn (Pty) Ltd for the reporting
period ended 31 December 2015.
Assets, liabilities and equity as at 31 December 2015 and 31 December 2014:
Additional 2015 2014
information R R

Investment in subsidiary - cost 2 575 000 -

Financial investments in listed shares - fair value 3 1 400 000 990 000
Land - cost 1 760 000 1 760 000
Mortgage bond 4 (1 689 000) (1 550 000)
Plant - cost 5 2 450 000 2 450 000
Loan: ABC Bank 5 (1 755 000) (1 950 000)
Accumulated depreciation - Plant 5 (1 225 000) (980 000)
Accumulated impairment - Plant 5 (78 000) -
Vehicles 6 1 400 000 1 350 000
Accumulated depreciation - Vehicles 6 (975 000) (950 000)
Trademarks 7 655 000 745 000
Accumulated amortisation - Trademarks 7 (290 000) (245 000)
Accumulated impairment - Trademarks 7 (37 000) (29 000)
Bank 1 019 000 1 171 000
Call deposit 167 000 152 000
Trade receivables 8 370 000 245 000
Trade inventories 9 208 000 165 000
Dividends receivable 2 57 000 -
Ordinary share capital (2 300 000) (2 050 000)
Retained earnings 10 (980 000) (545 000)
Trade payables (345 000) (315 000)
Income received in advance 11 (24 000) -
Provision for warranty claims (105 000) (75 000)
Shareholders for dividends (190 000) (230 000)
Income tax payable (68 000) (109 000)
0 0

6
Additional information
1 Sales for the reporting period ended 31 December 2015 amounted to R2 350 000.
2 On 18 February 2015, Ergo Furn (Pty) Ltd acquired all of the shares in Upholstery Goods (Pty)
Ltd. On 31 December 2015, Upholstery Goods (Pty) Ltd declared a dividend of R57 000 which
was paid on 15 January 2016.
3 On 1 January 2015, the investment in listed shares represents 30 000 shares in a listed
company, Fit Furn Ltd. On 15 August 2015, Ergo Furn (Pty) Ltd bought an additional 5 000
shares in Fit Furn Ltd when they were trading at R35 per share. No shares in the listed
investment were sold during the year.
Ergo Furn (Pty) Ltd received dividends of R105 000 from Fit Furn Ltd during the year.
4 The mortgage bond was used for the financing of the land. The instalment including the interest
is payable on 31 December each year. However, due to an oversight, the instalment for 2015
has not been paid and the interest expense for the year has been capitalised to the mortgage
bond.
5 The plant was financed by a loan from ABC Bank. An instalment of R240 000 was paid on the
loan. There were no additions to the loan.
6 During the year, a vehicle with a cost price of R350 000 and a carrying value of R50 000 was
involved in an accident and was written off. The insurance company paid out R400 000 which
was used to replace the vehicle. No other vehicles were purchased or disposed of during the
year.
7 A trademark with a cost of R200 000 and a carrying value of R95 000 was sold for a loss of
R5 000. No impairments have ever been recorded on this trademark.
8 Trade receivables are presented net of the allowance for doubtful debts. The allowance for
doubtful debts was decreased by R70 000 during the reporting period.
9 On 31 December 2015, it was discovered that trade inventories with a carrying value of
R55 000 would only be sold for R40 000 as a result of minor defects.
10 Retained earnings on 31 December 2014 reconciles as follows with retained earnings on
31 December 2015:
Retained
earnings
R
Balance at 31 December 2014 545 000
Profit for the year before tax 1 050 000
Income tax expense for the year (275 000)
Dividend – ordinary (340 000)
Balance at 31 December 2015 980 000

The profit before tax accurately reflects all the transactions that transpired during the year.

11 Income received in advance relates to an order that was placed by a customer who insisted
on paying in advance so that his order would be prioritised.

7
Required:
Present the “Cash flows from operating activities” section of the statement of cash flows of Ergo
Furn (Pty) Ltd for the reporting period ended 31 December 2015 together with the note “Cash
generated from operations”. (35)
Note:
- Ignore VAT.
- Show ALL calculations clearly.
- (Source: ACC100_2019_SAO6_Q4)

8
QUESTION 3 (45 MARKS)
(54 MINUTES)

Ndlovukazi (Pty) Ltd is a manufacturer and retailer of fashion apparel based in Auckland Park.
The Statement of financial position on 31 March 2017 is reflected below.

Additional
information
R R
2017 2016
ASSETS
Non-current assets
Property, plant and equipment 1. 9 980 000 8 800 000
Investment in subsidiary 1 100 000 1 100 000
Intangible assets 830 000 950 000
Other financial investments 2. 1 740 000 1 060 000
Investment property 3. 990 000 900 000
Total non-current assets 14 640 000 12 810 000

Current assets
Inventories 1 850 000 1 400 000
Trade receivables 5 550 000 4 250 000
Cash and cash equivalents 20 799 000 23 189 000
Total current assets 28 199 000 28 839 000
Total assets 42 839 000 41 649 000

EQUITY AND LIABILITIES

Equity
Share capital 21 100 000 20 000 000
Retained earnings 12 169 000 12 709 000
Total equity 33 269 000 32 709 000

Non-current liabilities
Long term borrowings 4 380 000 4 700 000
Total non-current liabilities 4 380 000 4 700 000

Current liabilities
Trade and other payables 3 555 000 2 075 000
Current portion of long term
borrowings 320 000 340 000
Income tax payable 420 000 475 000
Shareholders for dividends 745 000 1 150 000
Short term provision - warranty 150 000 200 000
Total current liabilities 5 190 000 4 240 000
Total liabilities 9 570 000 8 940 000
Total equity and liabilities 42 839 000 41 649 000

8
QUESTION 3 - CONTINUED
In addition the following items appear (amongst others) in the Statement of profit or loss for the
reporting period ended 31 March 2017:

Additional
information R
Revenue 30 400 000
Cost of sales (12 100 000)
Other income 555 000
Income from subsidiary 4. 950 000
Income from financial investments 5. 720 000
Finance costs 6. (465 000)
Profit before tax 9 985 000
Income tax expense (2 075 000)

Amongst other details, the Profit before tax note includes the following items:

R
Income
Decrease in warranty provision 20 000

Expenses
Amortisation of intangible assets (120 000)
Depreciation (1 250 000)
Impairment loss - equipment (150 000)
Loss on fair value adjustment on investment property (25 000)
Allowance for doubtful debts (205 000)
Write down of inventory to net realisable value (420 000)

Other relevant income/expenses and profits/losses are reflected elsewhere in the question or
can be derived from the information provided elsewhere in the question.

Additional information that has been accounted for:

1. Property, plant and equipment consists of vehicles and equipment.

Equipment with a carrying value of R450 000 was sold for a profit of R78 000 on a cash
basis.

A vehicle with a cost of R500 000 and accumulated depreciation of R270 000 was written
off after a serious accident. The insurer paid out an amount of R195 000 on the claim for
the vehicle.

The damaged vehicle was replaced by a new vehicle at a cost of R520 000 financed
through a loan. The loan forms part of the long term borrowings.

Other than the vehicles above, no other property, plant and equipment were disposed of
during the period. All other property, plant and equipment transactions were on a cash
basis.

9
QUESTION 3 - CONTINUED

2. Other financial investments consist of listed shares carried at fair value. There was no
movement in the fair value of the listed shares during the year.

3. It is the policy of Ndlovukazi (Pty) Ltd to carry investment property at fair value. There
were no disposals of investment property in the current reporting period.

4. Income from subsidiary consists of dividends of R800 000 and management fees of
R150 000.

5. Income from financial investments comprises dividends from the listed investments.

6. All finance costs incurred were paid during the year.

REQUIRED:

Present and disclose only the following sections of the statement of cash flows of Ndlovukazi
(Pty) Ltd for the reporting period ended 31 March 2017:

a) The “Cash generated from operations” note (20)

b) “Cash flows from operating activities” (12)

c) “Cash flows from investing activities”. (13)

Ignore VAT.
Show all calculations clearly.

- (Source: ACC100_2017_AO6_Q3)

10
QUESTION 4 (40 MARKS)
(48 MINUTES)

The following balances appeared on the statement of financial position of Legacy (Pty) Ltd on
31 March 2015:

2015 2014
Additional
information R R
Property, plant and equipment 1, 8 21 385 000 18 105 000
Financial investments - listed 2 2 210 000 2 800 000
Investment in subsidiary 2 8 820 000 6 050 000
Intangible assets at carrying value 3 810 000 1 020 000
Inventories 4 7 650 000 8 870 000
Trade receivables 5 9 500 000 11 400 000
Cash and cash equivalents 2 765 000 (5 575 000)
Share Capital (17 800 000) (16 000 000)
Retained earnings (15 520 000) (11 650 000)
Long term borrowings (4 450 000) (2 880 000)
Specific loan for building construction 1 (1 900 000) 0
Trade and other payables (9 930 000) (9 750 000)
Current portion of long term
borrowings ( 410 000) (350 000)
Current tax payable (2 080 000) (1 060 000)
Shareholders for dividends 9 (1 050 000) (980 000)

In addition the following items appear on the statement of profit or loss for the period ended 31
March 2015:

Additional
information R
Revenue 43 500 000
Cost of sales (18 050 000)
Other income 465 000
Income from subsidiary 6 2 050 000
Income from financial investments 7 620 000
Finance costs 8 (485 000)
Income tax expense (2 075 000)

Other relevant income/expenses and profits/losses are reflected elsewhere in the question or
can be derived from the information provided elsewhere in the question.

11
Additional information:

7. Property, plant and equipment comprises the following items:

2015 2014
R R
Land - cost 12 010 000 12 010 000
Building - cost 6 105 000 5 000 000
Accumulated depreciation - Building (1 050 000) (945 000)
Building under construction - cost 1 650 000 0
Vehicles - cost 3 910 000 3 045 000
Accumulated depreciation - Vehicles (1 240 000) (1 005 000)
21 385 000 18 105 000

There were no sales of land and building during the reporting period.

A loan was obtained for the construction of the new building which is a qualifying asset. All
costs incurred for the construction were paid in cash. All unutilised funds were invested in
a short term investment to earn interest.

A vehicle with a cost of R950 000 and a carrying value of R205 000 was involved in an
accident and written off. The insurance company paid out R325 000 on the claim. The
vehicle was replaced by a new one at a cost of R725 000 for a cash purchase.

Another vehicle with a cost of R820 000 and accumulated depreciation of R340 000 was
sold for R620 000 in a cash sale.

8. No financial investments or investments in subsidiaries were disposed of during the year.

9. No intangible assets were purchased or disposed of during the year. Impairment of

R65 000 was however incurred on intangible assets.

10. Inventories are stated net of a write down to net realisable value of R320 000 that was
journalised in the current reporting period.

11. The allowance for doubtful debts was decreased by R460 000 during the year.

12. Income from subsidiary consists of dividends of R1 300 000 and management fees of
R750 000.

13. Income from financial investments comprises dividends from listed and unlisted
investments.

12
14. The following table provides a breakdown of the finance costs incurred during the current
reporting period:

Finance costs R
Interest on general borrowings 485 000
Interest on building loan 160 000
645 000
Interest income on unutilised borrowings (15 000)
Interest capitalised to building under construction (145 000)
Interest expense 485 000

Interest costs incurred were paid during the year.

15. An interim dividend of R1 870 000 was declared during the year. No other dividends were
declared during the year.

Required:

Present and disclose only the following sections of the statement of cash flows of Legacy (Pty)
Ltd for the reporting period ended 31 March 2015:

a) The note “Cash generated from operations” (24)

b) “Cash flows from investing activities”, and (12)
c) “Cash flows from financing activities”. (4)

Note:
 Ignore VAT.
 Show all calculations clearly.

- (Source: ACC100_2016_AO6_Q4)

13
QUESTION 5 (30 MARKS)
(36 MINUTES)
Note: VAT must be ignored for purposes of this question.
You have been provided with the following information, extracted from the financial records of Tshehla
Ltd. The company, based in Vanderbijlpark, Gauteng specializes in the provision of expert consultancy
services to Rand Water overseeing and advising on the purification of drinking water flowing from the
Katse Dam in Lesotho, through to the Vaal Dam and ultimately the drinking taps of consumers in and
around the provinces of Gauteng, North West and the Free State.

Additional 2019 2018

information
Investment in Orange Ltd 1 625 000 0
Investment in Highlands Ltd 1 910 000 615 000
Vehicles 2 1 000 000 1 050 000
Accumulated depreciation – vehicles 2 (355 000) (500 000)
Equipment 3 38 320 000 32 500 000
Accumulated depreciation – equipment 3 (12 108 000 (11 694 000)
Computer Software 4 2 180 000 980 000
Accumulated amortisation – computer software 4 (708 000) (392 000)
Ordinary share capital (18 000 000) (14 000 000)
Payable – equipment item purchased 3 (3 000 000) 0
Long-term borrowings 5 (3 331 456) 0
Current portion of long-term borrowings 5 (881 495) 0

ADDITIONAL INFORMATION:
1. Tshehla Ltd has the following JSE listed investments:
 Orange Ltd
50 000 shares, representing a 5% interest in Orange Ltd, were purchased on 1 July
2019. As at 31 December 2019, the shares were trading at R12,50 per share. The
following journal was processed to recognise the increase in the fair value of the
investment:

2019 DR CR
31 Dec Investment in Orange Ltd (listed shares) (SFP) R175 000
Profit on fair value adjustment of shares (P/L) R175 000
Recognise the profit with the increase in the fair
value of 50 000 shares in Orange Ltd at R12,50 per
share

14
QUESTION 5 (CONTINUED)
 Highlands Ltd
Tshehla Ltd, purchased a 65% shareholding in Highlands Ltd on 1 April 2016 for R575
000. At that date, Highlands Ltd had 200 000 ordinary shares in issue. On 1 August 2019,
an additional 10 000 shares were purchased from another shareholder for R60 000,
bringing the total shareholding to 70%. Highlands Ltd has not issued any additional
shares since Tshehla Ltd became a shareholder. As at 31 December 2019, Highlands
Ltd ordinary shares had a market value of R6,50 per share.

2019 DR CR
31 Dec Investment in subsidiary Highlands Ltd (listed) (SFP) R235 000
Profit on fair value adjustment of shares (P/L) R235 000
Recognise the profit with the increase in the fair
value of 140 000 shares in Highlands Ltd at R6,50
per share

2. A vehicle with a cost of R400 000 and a carrying value of R300 000 was sold during the year.
Profit on the disposal amounted to R200 000. In addition, another vehicle with a cost of
R400 000 and accumulated depreciation of R150 000 was involved in an accident and written
off. An insurance claim was submitted and the insurance company paid out R300 000 on the
claim.
3. On 31 December 2019, equipment with a cost price of R2 880 000 and accumulated
depreciation of R2 808 000, as at that date, was withdrawn and scrapped.
On 25 October 2019, an order to the amount of R4 200 000 was placed to replace the
abovementioned equipment item. The replacing equipment item was received on 29 November
2019 and put into service by Tshehla Ltd on 1 December 2019. On 1 December 2019 an amount
of R1 200 000 was paid to the supplier. The outstanding amount of R3 000 000 is payable on
31 January 2020.
4. To assist in their water purification assessments, Tshehla Ltd purchased computer software
worth R980 000 on 1 January 2017. At the date of purchase it was estimated that the software
would have an expected useful life of 5 years with no residual value. New software was
purchased on 1 July 2019.
5. A loan of R5 000 000 was obtained from Beta Bank on 1 January 2019. Interest is charged at
12% per annum. Capital and interest on the loan are repayable in five equal instalments of R1
387 049 on 31 December each year.
REQUIRED:
a) Prepare only the following sections of the Statement of cash flows of Tshehla Ltd for the
reporting period ended 31 December 2019: (30)
 The “Cash flows from investing activities”.
 The “Cash flows from financing activities”.
Note:
- Ignore VAT.
- Show ALL calculations clearly.
- (Source: ACC100_2019_AO6_Q2)

15