Accounting Business Reporting for Decision Making

CHAPTER 7 Statement of cash flows 313

7.36 Preparing a statement of cash flows  LO3

Presented below is information for the Hale Partnership for the year ended 31 December 2016.

Use the information to prepare a statement of cash flows.

Cash balance, 31 December 2016

Cash paid to employees and suppliers

Cash received from sale of land

Cash paid as GST

Cash received from debentures

Cash paid to purchase truck

Cash balance, 1 January 2016

Cash paid as drawings

Cash received from customers

Cash received as interest

Cash paid for interest

Cash paid to purchase equipment

$51 618

220 013

38 079

16 924

25 386

30 000

38 925

53 311

279 247

6 770

4 231

12 310

7.37 Cash flow as a performance indicator  LO4

The importance of cash flow to people both inside and outside an entity is apparent by a quick look

through financial papers and internet sites. For instance, Foster’s Group Ltd eagerly announced in

the press that it has curtailed its negative cash flow for its operations in China. BHP Billiton also

announced that its cash flow was benefiting from a strong oil price, and Austar United Commu-

nications Ltd announced a major debt restructure to help it meet its goal of having free cash flow.

Required

a. Outline the reasons why companies are eager to share positive news about their cash flow

performance.

b. What is free cash flow? Is it a good measure of cash flow performance?

7.38 Calculating net cash flows and cash flow ratios  LO4

Information for Frank and Merle’s Bowling Goods Pty Ltd has been extracted from their financial

statements and is presented below.

30 June 2017 30 June 2016

Total current liabilities

Total non-current liabilities

Trade debtors

Trade creditors

Accrued expenses

Income tax payable

Prepaid expenses

Inventory

$100 000

20 700

67 100

51 200

12 200

36 600

9 200

11 700

$90 300

24 400

61 000

43 900

15 900

30 500

11 000

14 600

Information relating to the year ended 30 June 2017 is as follows.

Total asset expenditure

Sales

Cost of sales

Depreciation expense

Income tax expense

Operating expenses (excluding depreciation)

Dividends paid

$51 000

445 000

251 500

30 500

36 600

67 100

12 200

Required

a. Calculate the net cash flows from operating activities.

b. Compute the cash adequacy ratio, the cash flow ratio, the debt coverage ratio and the cash flow

to sales ratio.