Question 8.1: Preparation of a cash flow statement You are presented with ...
Preparation of a cash flow statement
You are presented with the following information:
Durton Ltd
Trading and profit and loss account for the year to 31 December 2006
| £000 | £000 | |
| Sales (1) | 1000 | |
| Less: Cost of goods sold: | ||
| Opening stock (NA) | 200 | |
| Purchases (3) | \underline{700} | |
| 900 | ||
| Less: Closing stock | \underline{300} | \underline{600} |
| Gross profit | 400 | |
| Operating expenses (4) | \underline{(240)} | |
| Operating profit | 160 | |
| Debenture interest (5) | \underline{(10)} | |
| Net profit before taxation | 150 | |
| Taxation (6) | \underline{(50)} | |
| Net profit after taxation | 100 | |
| Dividends (7) | \underline{(60)} | |
| Retained profit for the year | \underline{\underline{40}} |
Durton Ltd
Balance sheet at 31 December 2006
| \underline{2005} | \underline{2006} | |||
| £000 | £000 | £000 | £000 | |
| Fixed assets at cost (8) | 900 | 1050 | ||
| Less: Accumulated depreciation (4) | \underline{150} | 750 | \underline{255} | 795 |
| Current assets | ||||
| Stocks (NA) | 200 | 300 | ||
| Trade debtors (1) | 120 | 150 | ||
| Cash (NA) | \underline{20} | \underline{45} | ||
| \underline{340} | \underline{495} | |||
| Less: Current liabilities | ||||
| Trade creditors (3) | 70 | 90 | ||
| Taxation (4) | 40 | 50 | ||
| Proposed dividend (7) | \underline{30} | \underline{60} | ||
| \underline{140} | \underline{200} | \underline{200} | \underline{295} | |
| \underline{950} | \underline{\underline{1090}} | |||
| Capital and reserves | ||||
| Ordinary shares of £1 each (NA) | 750 | 750 | ||
| Profit and loss account (NA) | \underline{200} | \underline{240} | ||
| 950 | 990 | |||
| Loans | ||||
| Debenture stock (10%: issued 1 January 2006 (2) | — | \underline{100} | ||
| \overline {\underline{\underline{950}}} | \underline{\underline{1090}} | |||
Required:
Prepare a cash flow statement for the year to 31 December 2002.
Durton Ltd
Cash flow statement for the year to 31 December 2006
| £000 | |
| Cash receipts | |
| Sale of goods (£1000 + £120 – £150) (1) | 970 |
| Issue of debenture stock (£100 – £0) (2) | \underline{100} |
| \underline{1070} | |
| Cash payments | |
| Purchases of goods (£700 + £70 – £90) (3) | (680) |
| Operating expenses (£240 – (£255 – £150)) (4) | (135) |
| Debenture interest paid (5) | (10) |
| Taxation (6) | (40) |
| Dividends (7) | (30) |
| Purchases of fixed assets (£1050 – £900) (8) | \underline{(150)} |
| \underline{\underline{(1045)}} | |
| Increase in cash during the year (9) | 25 |
| Cash at 1 January 2006 (9) | \underline{20} |
| Cash at 31 December 2006 (9) | \underline{\underline{45}} |
Notes: The number shown after each narration refers to the tutorial notes below.
NA = no adjustment necessary.
Tutorial notes
1 The cash received from the sale of goods has been calculated by taking the sales figure of £1000000, adding the opening trade debtors of £120 000, and then deducting the closing trade debtors of £150 000.
2 The issue of debenture stock equals the closing balance of £100 000 as at 31 December 2006. As there was no opening balance, all of the debenture stock must have been issued during the year.
3 The cash payments to suppliers has been calculated as follows:
Purchases + Opening trade creditors – Closing trade creditors, i.e £700 000 + £70 000 – £90000.
4 The other cash payments relate to the operating expenses of £240 000 less the depreciation on the fixed assets of £105 000 (i.e. the closing accumulated balance of £255 000 less the opening accumulated depreciation balance of £150 000). As there were no opening or closing debtors or creditors for operating expenses, the whole of the £135 000 must have been paid during the year.
5 This is the total amount of debenture interest paid during the year.
6 The tax paid of £40 000 represents the taxation due for payment at 1 January 2006, since the amount outstanding at 31 December 2006 of £50 000 is the same as the figure for tax shown in the profit and loss account.
7 The dividend paid is the same as the proposed dividend at 1 January 2006, because the dividends shown in the profit and loss account as £60 000 had not been paid at 31 December 2006.
8 Purchase of fixed assets equals the closing balance of £1 050 000 less the opening balance of £900 000.
9 The increase in cash during the year of £25 000 plus the opening balance of £20 000 equals the closing balance of £45 000.