Suggested Solution
Exercise 1
Premium Products Ltd Statement of Cash Flow for the year ended
31 December 2008
$
$
Cash flows from operating activities
Cash was provided from:
Receipts from customers
1,479,401
Dividends Received
2,250
1,481,651
Cash was applied to:
Payments to suppliers
1,106,098
Other expenses paid
224,475
Interest paid
15,500
Income tax paid
64,000
1,410,073
Net cash inflows from operating activities
71,578
Cash flows from investing activities
Cash was provided from:
Sale of Office Equipment
13,200
Cash was applied to:
Purchase of Office Equipment
Purchase of Motor Vehicles
20,500
6,900
Net cash outflow from investing activities
(14,200)
Cash flows from financing activities
Cash was provided from:
Issue of Shares
30,000
Cash was applied to:
Repayment of mortgage
Dividend paid
45,000
37,500
Net cash inflows from financing activities
(52,500)
Net increase in cash held
Add cash at start of year
Balance at end of year
1.Cash from Operating Expenses
Advertising
Audit Fees
Printing and Postage
Wages paid
Other Operating Expenses
plus Accrued wages (beg)
4,878
5,372
10,250
42,750
9,000
1,050
167,700
6,025
226,525
8,500
less Accrued Wages (end)
Cash from Operating Expenses
10,550
224,475
2.
Office Equipment has had a net increase of $5,500 over the year. This change has come
about because of the disposal of an asset which had cost the business $15000. The increase
in the office equipment account is due to the purchase of equipment at a cost of $20,500.
3.
The equity position has increased by a total of $273,558 over the year. This has come about
through an increase in retained earnings, an increase in the asset revaluation reserve and an
issue of shares to shareholders. While the issue of shares does reflect a cash increase, the
asset revaluation is a non-cash transaction and will not affect the cash balance.
The increase in retained earning reflects the profit in the business less any dividends paid.
From the Cash from Operating Activities it can be seen that more cash is paid to suppliers
during the period than COGS. This is an indication of the build up of inventory over the
year. This increase in inventory will contribute to the increase in equity while at the same
time explain the reduced cash balance.
Exercise 2
Mt Albert Bookstores
Statement of Cash Flows for the year ended 30 September 2008
$
$
$
Cash flows from operating activities
Cash was provided from:
Receipts from customers
192,500
Cash was applied to
Payments to suppliers
Other operating expenses
(131,300)
(17,000)
Interest paid
(1,500)
Tax
(7,000)
(156,800)
Net cash flow from operating activities
35,700
Cash flow from investing activities
Cash was provided from
Sale of assets
3,000
3,000
(17,000)
(17,000)
Cash was applied to
Purchase of PPE
(14,000)
Net cash flow from investing activities
Cash flows from financing activities
Cash was provided from
Loan
15,000
15,000
(33,200)
(33,200)
Cash was applied to
Drawings
Net cash flow from financing
(18,200)
Net change in cash held
3,500
Cash at 1 October 2007
(10,000)
Closing cash at 30 September 2008
(6,500)