AC4301 Corporate Accounting II

HKAS 7 Statement of Cash Flows

In-class Assignment

Question 1

What are the advantages of including the Statement of Cash Flows in the Corporate
Annual Report?

Question 2

The financial statements of Plate Limited for the financial year 1 are as follows:

Statement of Financial Position at 31 December

Year 1 Year 0
$m $m
ASSETS
Non-Current Assets
Intangible assets 277 234
Tangible assets 1,023 600
Financial assets PPE-1464 220205 200 depn 5
depn 1464-244 1,520 1,034

Current Assets
Inventories 246 128
Trade Receivable 509 335
Short-term investments 50 30
Total current assets 805 493

Total assets 2,325 1,527

EQUITY AND LIABILITIES

Ordinary shares capital 476 401
Revaluation surplus 251 -
Retained profits 116 26
843 427

Non-current liabilities
Long-term bank loans 759 557

Current liabilities
Bank overdraft 388 185
Trade payables 244 311
Interest payables 49 22
Tax payables 42 25
Total current liabilities 723 543
Total liabilities 1,482 1,100

Total equity and liabilities 2,325 1,527

⽂字
 The statement of profit or loss and other comprehensive income
for the year ended 31 December Year 1
$m
Revenue 1,162
Cost of goods sold (866)
Gross profit 296
Distribution costs (47)
Administrative expenses (110)
Net profits before interest and tax 139
Interest Income 79
Finance cost (55)
Profit before tax 163
Taxation (24)
Profit for the period 139
Retained profit as at 1 January Year 1 26
Dividend paid (49)
Retained profit as at 31 December Year 1 116

Other supplemental information:

1. The operating profit is after charging depreciation on the non-current asset of $22
million and amortization on the intangible non-current assets of $7 million.

2. During the year ended 31 December Year 1, plant and machinery costing $1,464
gain or
million, net book value of $244 million, was sold for $250 million. loss: 6

3. During the year, some financial assets were written down by $15m to reflect the
permanent diminution in value. Additional financial assets were purchased on 31
December Year 1 for $40m. Other financial assets were disposed of for a value of
$50m during year.

4. During the year ended 31 December Year 1, 25 million shares were issued at $3.0.

Required:

(a) Prepare the statement of cash flows for Plate Limited for the year ended 31
December Year 1, using indirect method.

(b) Explain the treatment of depreciation charge and of the dividends paid.

(Work to the nearest million.)

Question 3

The statement of profit or loss and other comprehensive income for the year ended 31
December for Susan Trading Limited and its Statement of Financial Position as at 31
December Year 0 and Year 1 are provided below:

Year 1 Year 0
$m $m
ASSETS
Non-Current Assets 272 196
Intangible Asset - Development costs 3 4
275 200

Current Assets
Inventories 140 155
Accounts receivable 130 110
Cash and cash equivalents 102 23
372 288

Total assets 647 488

EQUITY AND LIABILITIES

Ordinary shares capital 165 135
Retained profits 153 91
318 226

Non-current liabilities
Lease liability 49 30
Long term loan 31 60
80 90

Current liabilities
Accounts payable 228 151
Interest payable - 8
Lease liability 5 3
Tax payable 16 10
Total current liabilities 249 172
Total liabilities 329 262

Total equity and liabilities 647 488

The statement of profit or loss and other comprehensive for the year ended 31
December Year 1 is as follows:
$m
Revenue 335
Cost of goods sold (177)
Gross profit 158
Distribution costs (31)
 Administration costs (24)
Operating profit before interest and tax 103
Finance costs (7)
Profit before tax 96
Taxation (22)
Profit for the period 74
Dividend paid (12)
Retained profit for the year 62
Retained profit as at 1 January Year 1 91
Retained profit as at 31 December Year 1 153

Additional information:

1. Non-current assets
$m
Carrying amount at 1.1.Year 1 196
Additions – finance leases 28
Purchase at cost 104
Disposals (19)
Depreciation for the year (37)
Carrying amount at 31 Dec Year 1 272

The proceeds from disposal of assets was $21m

2. Interest Expense
$m
Finance charges payable under finance lease 3
Long term loan interest 4
7
3. Lease liability
Year 1 Year 0
$m $m
Amount payable within one year 6 4
Within two to five years 55 33
61 37
Less: finance charges allocated to (7) (4)
future periods
54 33
Interest paid on leases in the year to 31 December Year 1 amounted to $3m.

Required:

Prepare the statement of cash flows for Susan Trading Limited for the year ended 31
December Year 1, using indirect method to calculate for the cash flow from operating
activities.
Question 4

Isabella Wong is the finance manager of People’s Medical Trading Company Limited
(the “Company”). She is in the process of closing the financial statement of the
Company as at and for the year ended 31 December Year 1.

The following information was provided by the accountant of the Company to

Isabella Wong:

Statement of Financial Position at 31 December

Year 1 Year 0
$000 $000
ASSETS
Non-Current Assets
Property, plant and equipment 8,280 7,520

Current Assets
Inventories 12,000 15,000
Trade Receivable 8,000 12,000
Prepayments and other assets 900 600
Cash and bank balances 7,520 9,300
Total current assets 28,420 36,900

Total assets 36,700 44,420

EQUITY AND LIABILITIES

Ordinary shares capital 10,000 10,000
Retained profits 12,200 11,900
22,200 21,900

Non-current liabilities
Long-term bank loans 1,800 2,500

Current liabilities
Current portion of long-term loans 3,000 3,000
Account payable and accruals 6,850 7,670
Trade payables 2,700 9,000
Tax payables 150 350
Total current liabilities 12,700 20,020
Total liabilities 14,500 22,520

Total equity and liabilities 36,700 44,420

 The statement of profit or loss and other comprehensive income
for the year ended 31 December Year 1
$000
Revenue 60,000
Cost of goods sold (45,000)
Gross profit 15,000
Distribution costs (3,500)
Administrative expenses (8,200)
Profits before interest and tax 3,300
Interest Income 500
Finance cost (100)
Profit before tax 3,700
Taxation (700)
Profit for the period 3,000
Retained profit as at 1 January Year 1 11,900
Dividend paid (2,700)
Retained profit as at 31 December Year 1 12,200

Other supplemental information:

During the year, the company acquired non-current assets with costs of $1,960,000.
Depreciation charges for the year amounted to $850,000. The remaining change to
non-current assets represented disposal of the non-current assets at the disposal
consideration of $100,000.

Required:

(a) Prepare the Company’s Statement of Cash Flows for the year ended 31 March
Year 1, using indirect or direct method.

(b) The financial controller of the Company told Isabella that management plans to
obtain further banking facilities from a bank for a 3 year long-term loan in June
Year 1. In connection with this, certain of the Company’s bank deposits
approximately HK$5 million will be pledged as a guarantee of such bank
facilities, and it will therefore not be possible to withdraw these funds on demand
during the loan period of 3 years.

Explain and discuss whether such pledged bank deposits in June Year 1 should
be included as cash and cash equivalents?

(HKICPA Financial Reporting June 2003)