Accounting Business Reporting for Decision Making

310 Accounting: Business Reporting for Decision Making

• Cash from loan


• Dividends payable


• Purchase of goods for cash.
  Required
  State whether each of the items listed would appear in the statement of cash flows and, if so, under
  which classification it would appear (investing, operating or financing).

7.22  LO3

Paul and Peter Partnership provides specialist financial planning services to its clients. The

following information relates to the year just ended.

2017 2016

Cash

Accounts receivable

Prepaid expenses

Accounts payable

$53 000

56 000

12 000

34 000

$26 000

43 000

10 000

37 000

Sales revenue

Operating expensesa

Profit

$156 000

105 000

51 000

aOperating expenses include depreciation of $3000.

Required

Using the direct method, prepare the operating activities section of the statement of cash flows for

the period ending 30 June 2017.

7.23  LO1

‘We made a profit of $66 000, so why is there only $6000 in the bank?’, exclaimed Mr Beattie, the owner

of the local fish takeaway store. Explain to Mr Beattie the relationship between profit and cash flow, to

help him understand the reason why there is such a big difference between profit and cash in the bank.

7.24  LO3

On inspection of the financial statements, you note that sales are $67 500, and the beginning and
closing accounts receivable balances are $49 500 and $63 000 respectively. What were the cash
receipts from customers?

7.25  LO4
The sole trader of Pentland Store has approached you for a loan. You note that the closing cash

balances for the last two years were $10 920 and $13 650 respectively. Pentland Store also took

out a loan of $22 750 for the current year, and sold plant worth $54 600 over the past two years.

The cash from operating activities last year was negative $30 940, and in the preceding year was

$4550. Indicate whether you would advance the loan. Give reasons.

7.26  LO4
Camellia Blooms Ltd has cash from operating activities of $59 746. It has incurred capital

expenditure of $49 896, of which $36 300 was for additional equipment. Calculate the entity’s free

cash flow. Comment on what the figure indicates.

7.27   LO4

Corporate Catering Ltd’s capital expenditure for the current year of new equipment was $146 900.
Current liabilities and non-current liabilities were $48 590 and $682 800 respectively. Sales for the
current year were $281 650, and cash flows from operating activities totalled $58 760. Compute
the cash adequacy ratio, cash flow ratio, debt coverage ratio and cash flow to sales ratio.

7.28   LO1

An entity is converting its accrual-based accounting records to a cash basis. The amount of $53 000
(including $7000 depreciation) was shown as ‘Other expenses’ in the statement of profit or loss.
On inspection of the balance sheet, you find that the beginning and closing balances for ‘Prepaid
expenses’ were $13 000 and $15 000 respectively. Also, the beginning and closing balances of
‘Accrued expenses’ were $5000 and $11 000 respectively.