Accounting Business Reporting for Decision Making

CHAPTER 7 Statement of cash flows 305

Cash paid to other suppliers=Other expenses+/−Increase (decrease)

in prepayments

+/−Decrease (increase)

in accruals

= $36 + $6 + $7

= $49

Total paid to suppliers and employees = $248 + $49 = $297

Step 1c: Calculate other payments for expenses and receipts for income

Interest received

Interest paid

Tax paid

$4 000

6 000

28 000

Step 2: Determine the cash flows from investing activities

Investing activities generally relate to the assets in the balance sheet. An inspection of the assets in the

balance sheet reveals the following changes in the asset values.

2017

$’000

2016

$’000

Change

$’000

Land and buildings

Plant and machinery

$240

377 a

$110

250

$130

127

Total change $257

a The book value of the plant and machinery in the balance sheet was $370 000. The depreciation in the statement of profit or loss

for the year was $7000. Depreciation is not a cash flow, so it should be added back before calculating the increase or decrease
in the investment in assets. Note also that the question indicated that there were no disposals of property, plant or equipment
throughout the year. So, the change is all due to an increase in investment of property, plant and equipment.

Step 3: Determine the cash flow from financing activitiesa $‘000

Proceeds from shares issue

Proceeds from borrowings

Repayment of borrowings

Distributions paid

$ 50

250

(50

(20

)

)

a Financing activities generally relate to the liabilities and equity in the balance sheet.

Examining the differences between the 2017 and 2016 balances shows that there was a share issue of

$50 000. The loan account difference is $350 000 – $150 000 = $200 000. The notes to the accounts indi-

cate that a new loan of $250 000 was acquired and an old loan of $50 000 was paid out. The dividends

payable shows a 2016 balance of $35 000 and a 2017 balance of $20 000. However, the statement of

profit or loss indicates that a dividend of $20 000 was proposed in 2017, so the dividend paid in 2017

must have been $35 000 ($35 000 + $20 000 – $20 000).

Step 4: Calculate the net cash flow and the ending cash balance for the year

Harvey Ltd

Statement of cash flows for the year ended 31 December 2017

$’000

Cash flows from operating activities

Receipts from customers

Payments to suppliers and employees

Interest received

Interest paid

Income taxes paid

365

(312

4

(6

(28

)

)

)

Net cash flows from operating activities 23

(continued)