CHAPTER 7 Statement of cash flows 285To illustrate the preparation of the statement of cash flows (using the direct method) and the reconcil-
iation (using the indirect method) we will use the example of Coconut Plantations Pty Ltd, a manufac-
turer of coconut-based products that commenced business in August 2016. The illustrative example below
presents the 2017 statement of profit or loss and 2016 and 2017 balance sheets for Coconut Plantations
Pty Ltd. Details relating to the nature of the operating expenses in the statement of profit or loss below are
given in self-evaluation question 6.2 in chapter 6 and reproduced in illustrative example 7.17.
ILLUSTRATIVE EXAMPLE 7.17Coconut Plantations Pty Ltd statement of profit or loss and
balance sheetCoconut Plantations Pty Ltd
Statement of profit or loss for the year ended 31 December 2017Income $ $ $Sales
Less: Cost of sales
Inventory — Direct materials 1 January 2017
Plus: Purchases of direct materials
Inventory — Direct materials 31 December 20175 000
650 000
15 0001 550 000Direct materials used
Direct labour
Manufacturing overhead (includes depreciation of $25 000)640 000
245 000
122 500
$1 007 500
Inventory — Finished goods 1 January 2017
Inventory — Finished goods 31 December 201755 000
160 000 902 500
Gross profit
Other income (interest received)
Operating expenses
Warehouse
Distribution
Sales and marketing
Administrative
Finance48 000
18 000
131 000
109 500
14 000647 500
1 000320 500
Profit before income tax
Income tax expense328 000
98 400
Profit 229 600Details of nature of operating expenses
Administrative salaries
Telephone expense
Advertising expense
Warehouse insurance expense
Warehouse rates expense
Utilities expense
Depreciation of warehouse
Sales salaries
Interest expense
Delivery costs and postage95 000
5 000
59 000
15 000
21 000
9 500
12 000
72 000
14 000
18 000
Total $320 500