Accounting Business Reporting for Decision Making

314 Accounting: Business Reporting for Decision Making

7.39 Reading and interpreting financial information   LO4

Centro Property Group was a company operating in the property development area. Its cash flows

from operations and investment are outlined below.

2001 2002 2003 2004 2005 2006 2007

Total

01–07

Operating cash flow 76.28 98.24 107.02 23.96 247.05 269.85 309.52 1 131.92

Investment spend −208.43 −270.9 −458.95 −181.9 −1 134.55 −369.06 −2 878.2 −5 501.99

Cash flow after

investing

−132.15 −172.66 −351.93 −157.94 −887.5 −99.21 −2 568.68 −4 370.07

Dividends paid −23.46 −29.14 −47.61 −24.11 −61.47 −144.12 −316.2 −646.11

Other financing cash

flows

−2.43 −3.3 −11.16 −0.95 −6.26 −1.32 −2.59 −28.02

Foreign exchange

effects

0 0 0 0 0 0.03 0.06 0.09

Funding surplus/(gap) −158.04 −205.1 −410.7 −183.01 −955.23 −244.62 −2 887.41 −5 044.11

Source: Extracts from Montgomery, R 2011, p. 2.

Required

a. Examine each line item. Outline what the cash flow data is communicating to you about the

operations of Centro Property Group.

b. The GFC, which started in 2008, impacted on many businesses. Hypothesise what the conse-

quences would have been for Centro Property Group.

c. Centro Property Group did in fact get into operating trouble. ASIC took Centro Property Group

and its key management to court. Judge Middleton found that the directors breached their duties

when they approved the financial statements for 2006–07 which did not disclose that Centro

was required to repay billions of dollars of debt within a matter of months. In short, the judge

indicated that it was not a ‘mere technical oversight’ but that directors of companies must

‘apply their minds’ to the review of financial statements. Centro Property Group argued that it

relied on the expert advice of the entity’s auditors in regard to whether the financial statements

were materially misstated. Critique the judgement made in the case regarding the level of finan-

cial knowledge required of directors.

7.40 Preparing a statement of cash flows   LO3

Comparative balance sheets as at 31 December 2016 and 2017 for Chartowers Ltd are shown below.

Chartowers Ltd

Balance sheet as at 31 December

2017 2016

Assets

Cash

Accounts receivable

Inventory

Prepaid expenses

Property, plant and equipment

Less: Accumulated depreciation

$ 4 835

11 372

22 034

1 421

63 972

(18 480)

$ 3 554

8 529

15 637

2 132

49 755

(14 215)

Total assets $85 154 $65 392

Liabilities and equity

Accounts payable

Debentures

Paid-up capital (ordinary shares, par value $1)

Retained earnings

7 108

12 794

35 000

30 252

10 490

35 000

19 902

Total liabilities and equity $85 154 $65 392