TUTORIAL 12 &13 (Answers)

Preparation of Group Cash Flow Statement

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Question 1
Goodwill computation
Cost of investment (80%) RM’m
Shares issued (48m share capital, 72m share premium) 120
Cash 80
FV of NCI 50
250
FV of net assets at acquisition:
PPE 130
Intangible assets 20
Inventory 35
Cash 10
Trade payables (15) (180)
Goodwill 70

(b) Consolidated Cashflow Statement for the year ended 31 March 2017

Operating Activities RM’m RM’m

Profit before taxation √(600)
Gains on revaluation of financial assets (100)
Finance costs 300
Goodwill impairment charge 10
Depreciation of PPE (W1) 250
Amortisation of intangibles (W2) 20
Movement in inventory (400 – (275 + 35)) (90)
Movement in trade receivables (460 – 340) (120)
Movement in trade payables [(466-27) – (280-14+15)] 158
Movement in provision for warranty claims (27-14) 13
441
Finance costs paid (300)
Taxation paid (W5) √(90) 51
Net cash flow from operating activities (549)
Investing Activities
Acquisition of subsidiary (80-10) (70)
Purchase of fixed assets (W1) (80)
Proceeds form disposal of financial assets (W4) 70
Net cash flow from investing activities (80)

Financing Activities
Issue of 6% bonds (680-550) 130

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Proceeds of equity share issue (W6) 130
Equity dividends paid (1205-685-504) (16)
Dividend paid to NCI (W7) (5)
Net cash flow from financing activities 239
Net cash flow for the year (390)
Opening cash & cash equivalents 230
Closing cash & cash equivalents (160)
W1     PPE  

RMm   RM'm

Bal. b/d 2,400   Depreciation 250

Acquisition of sub 130  

Purchased of FA 80   Bal. c/d 2,360

2,610   2,610

W2   Intangible Assets  
RM'm   RM'm
Bal. b/d 350   Impairment 20
Acquisition of sub 20   Bal. c/d 350
370   370

W3    Goodwill    
RM'm   RM'm
Bal. b/d -   Impairment 10
Acquisition of sub 70  
  Bal. c/d 60
70   70

W4   Financial Assets  
RM'm   RM'm
Bal b/d 180 Bal. c/d 210
SOCI 100 Cash 70

 
280   280
W5   Tax    
RM'm   RM'm
Cash 90   Bal. b/d 90
  SOCI 80
Bal. c/d 80  
170   170

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 W6     SC/Premium  
RM'000   RM'000
  Bal. b/d 1,300
  Bal. b/d 350
Bal – c/d 1,400   Shares issued 130
Bal. c/d 500   New Sub 120
1,900   1,900

W7     NCI  
RM'000   RM'000
Bal. b/d -
Dividends paid to NCI 5 New Sub 50
SOCI 5
Bal. c/d 50
55   55

Question 2

Consolidated Statement of cash flows for the year ended 31 December 2015

RM000 RM000
Cash flows from operating activities
Cash generated from operations
Profit before tax 2,350

Finance cost 100

Depreciation charge 782
Amortisation charge (w3) 80
Loss on disposal of PPE (1,800-680) 1,120
Share of profits from associates (240)
4,192
Changes in working capital
Decrease in inventories (740-610-150) 20
Decrease in trade and other receivables (390-350-85) 45
Decrease in trade and other payables (520-480-75) (35)
4,222
Interest paid (100)
Income tax paid (w1) (1,347)
Net cash from operating activities 2,775
Cash flows from investing activities
Purchase of PPE (w2) (4,002)
Acquisition of subsidiary net of cash acquired (w7) (177.5)

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Dividends received from associates (w6) 220
Proceeds from sale of property plant and equipment 680
Net cash used in investing activities (3,279.5)
Cash flows from financing activities
Loan 800
Dividends paid NCI (w8) (326.5)
Dividends paid (w5) (14)
Net cash used in financing activities 459.5
Net increase in cash and cash equivalents (45)
Cash and cash equivalents at beginning of period 85
Cash and cash equivalents at end of period 40

W1 Income Tax
RM000 RM000
Cash β 1,347 Bal b/d 210
Bal c/d 455 Income statement 1,482
Acquisition taxation 110
1,802 1,802
W2 PPE
RM000 RM000
Bal b/d 2,610 Disposals 1,800
Acquisition of sub (610+90) 700
Cash β 4,002 Income statement: depreciation 782
Bal c/f 4,730
7,312 7,312
W3 Intangibles
RM000 RM000
Bal b/d 310 IS amortised 80
Acquisition 120 Bal c/f 350
430 430
W4 Share capital and premium
RM000 RM000
Bal b/d (1,000 +200) 1,200
Bal c/d (1,400+300) 1,700 Acquisition of Mutiara Bhd 500
1,700 1,700

W5 Retained earnings
RM000 RM000
Dividends paid 14 Bal b/d 865
Bal c/d 1,615 IS 764

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 1,629 1,629
W6 Investments in Associates
RM000 RM000
Bal b/d 500 Cash 220
IS 240 Bal c/f 520
740 740

W7 Acquisition of subsidiary
PPE (610+90) 700
Inventories 150
Trade receivables 85
Cash and cash equivalents 20
Trade payables (75)
Taxation (110)
Non controlling interest (192.50)
577.50
Goodwill 120
697.50
Less: cash and cash eq. (20)
Non cash consideration (400 *RM1.25) (500)
Cash flow on acquisition: net of cash acquired 177.50

500,000+197,500 = 697,500
680,000+90,000=770,000*.75 = 577,500
Goodwill 120,000

W8 Non-controlling interest
RM000 RM000
Cash 326.50 Bal b/d 610
Acq.of sub. (865-185+90)*25% 192.50
Bal c/d 580 IS 104
906.50 906.50

Inventories
Bal b/d 610 Decrease 20
Acquisition 150 Bal c/d 740
Trade & other receivables
Bal b/d 350 Decrease 45
Acquisition 85 Bal c/d 390
Trade & other payables
Decrease 35 Bal b/d 480
Bal c/d 520 Acquisition 75

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Question 3

Consolidate Cash Flow Statement for the year ended.

RM'000 RM'000

Cash flow from Operating activities

Profit before taxation 2,650
Loss on disposal of assets (W2) 38
Share of associate profit( W3) (80)
Adjustments for non-cash items
Depreciation (W1) 190
Increase in trade & receivable (1,370)
Increase in inventories (470)
Goodwill impairment 100

Cash generated from operations

Income tax paid (W8) (960)

(2,552)

Net cash from operating activities 98

Cash flow from Investing Activities

Acquisition of subsidiary Net of cash (340)
Dividend from associate co 30
Purchase of PPE (W1) (70)
Proceeds for sale of property (W2) 92
Acquisition of Associate (100)
Net Cash flow from investing activities (388)

Cash flow from Financing Activities

Dividend paid by parent (W6) (280)
Dividend paid to NCI (W5) (30)
 
Net cash used from financing activities (310)

Net decrease in cash and cash equivalents (600)

Cash and cash equivalents at opening 400
Cash and cash equivalents closing (200)

W1     PPE    

RM'000   RM'000

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 Bal. b/d 2,300   Depreciation 190

Bank- purchase of assets 70   Disposal 130

New Sub. 450  

Revaluation 500   Bal. c/d 3,000

3,320   3,320

W2    Disposal of Fixed Assets    

RM'000   RM'000
PPE 130   Bank 92
  Loss on disposal 38
130   130

W3    Associated Co    
RM'000   RM'000
Bal. b/d 250   Dividend received 30
SOCI 80  
Bank-acquisition of Associate 100  
Debenture 100   Bal. c/d 500
530   530

W4   Acquisition of New Subsidiary  

RM'000   RM'000
T. Payable 600   PPE 450
NCI 140   Inventory 230
Consideration   Receivable 480
- shares 380   Bank 140
- cash 480   Goodwill 300
 
1,600   1,600

W5     NCI    
RM'000   RM'000
  Bal. b/d 100
  SOCI 150
Bank - dividend paid to NCI 30   New Sub. 140
Bal b/f 360  
390   390

W6    Retained Earning    
RM'000   RM'000

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 Dividend paid by parent 280   Bal. b/d 1,880
  SOCI 1,820
 
Bal. c/d 3,420  
3,700   3,700

W7     Goodwill    
RM'000   RM'000
Bal. b/d 100  
New sub 300   SOCI 100
  Bal. c/d 300
400   400
W8     Tax    
RM'000   RM'000
Bank 960   Bal. b/d - tax 100
  Bal - deferred tax 420
Bal - deferred tax 240   SOCI 680
Bal. c/d 0  
1,200   1,200
W9     Inventory    
RM'000   RM'000
Bal. b/d 500  
New sub 230  
Bank 470  
  Bal. c/d 1,200
1,200   1,200
W10     T. Receivable    
RM'000   RM'000
Bal. b/d 1,850  
Bank 1,370  
New sub 480  
  Bal. c/d 3,700
3,700   3,700
 
W11  S/capital and Premium    
RM'000   RM'000
  Bal. b/d - share 1,100
Bal. b/d -
  premiums 100
Bal - share 1,300   New sub 380
Bal. premiums 280  
1,580   1,580
W12     T. Payable    

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 RM'000   RM'000
  Bal. b/d 1,700
  New Sub 600
Bal. 2,300  
2,300   2,300

Question 4
Answer

This question was intended to test student’ ability to analyse key financial data. The scenario at
the start gave them a steer that the entity was refocusing activities, hence the additional
investment in PPE and sale of a (non-core) subsidiary.

Student should have worked through the individual elements of the statement within each
heading, highlighting key aspects of each and concluding on the links between them. It was
important to keep points relevant to the scenario provided in the question.

Report to: Investor

Re: FAM BHD - Cash Flow Statement

Date: XX

From: XX

Overall, FAM BHD has seen a considerable increase of RM530 million in its cash balance
during the year. There has been a cash inflow from operations of RM700 million, an inflow from
investing activities of RM150 million and an outflow from financing activities of RM320
million. Each of these will be considered in turn.

Cash inflow from operating activities:

FAM BHD has generated a significant amount of cash from operating activities, a positive
indicator of an entity committed to being a going concern. Indeed FAM BHD has generated a
profit before taxation of RM950 million which would appear to indicate a good performance in
the year, although without comparative information it is difficult to be definitive if only
considering profit.

Investment income and gains from the sales of investments are important elements contributing
to the cash inflow from operations and indicate that directors have made some good investment
decisions with both investment income and gains from the sale of some of the investments. The
sale of investments may have been part of the overall strategy with the cash inflow from the sale
helping to fund the acquisition of PPE. A loss was made on the sale of PPE, although the
amounts for the proceeds and ultimate loss were not significant.

Finance costs for the year were RM320 million but only RM140 million has been paid in the
year. This may mean that an amount for interest would have been payable immediately after the

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year end which will have the effect of reducing the cash balance. Alternatively, it could mean
that FAM BHD has some bonds or debentures which carry a low coupon rate of interest but
which will be redeemable at a premium in the future. If this is the case then interest payments
will be low now but in the future FAM BHD will need to find a significant sum of money to
redeem the debt. This would obviously be a drain on cash resources in the future.

FAM BHD appears to have prioritised working capital management during the implementation
of the new strategy. There has been a significant decrease in trade receivables whilst payables
have increased. This has had a positive effect on cash flow at the year end. However, to counter-
act this, inventory levels have increased indicating a possible stocking up in advance of a major
sales drive (which could also be a factor as to why payables have increased).

One last point to note regarding cash flows from operations is that the tax paid figure seems very
high in relation to the profit generated during the year. However, tax is usually paid a year in
arrears and therefore the tax payment made in this year will relate to the profits earned in the
previous year. If this is the case then it would appear that profits have declined this year
compared to last year – which could be a reason why FAM BHD has implemented a new
strategy.

Cash inflow from investing activities:

The investing activities section is where we see the main components of the new strategy, with
the sale of a subsidiary and a significant purchase of property, plant and equipment. We know
that FAM BHD has refocused on core areas of the business and has helped fund this investment
by the sale of a non-core subsidiary and investments. It must be noted that the sale of these
profitable investments will result in associated income being reduced in future periods.

Cash outflow from financing activities:

It is evident from the financing section of the statement that FAM BHD has the backing of its
shareholders. A share issue has been supported and the shareholders have been rewarded with a
generous dividend payout. Long-term borrowings have also been raised but since this is just a
fraction of that raised through the share issue the gearing of FAM BHD will have improved. One
important point to make about the dividend is that the dividend paid of RM1,200 million is
significantly in excess of the profits earned in the year (which would be RM950 million less
taxation). This means that FAM BHD has paid part of the dividend out of previously retained
distributable reserves. In addition, given that the net cash inflow in the year from operations and
investing is RM850 million, it means that FAM BHD has had to use long term finance to fund
the RM1,200 million dividend payment

Question 5

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(a)
Peanut Berhad Group
Consolidated Statement of Cash Flows for the year ended 31 December 2014
RM’000 RM’000
Cash Flow from Operating Activities
Profit before tax 11,310
Less: Share of profits fr associate (2,100)
--------
9,210
Depreciation (1200+1500) 2,700
Interest expense 900
Gain on the sale of machinery (600)
Impairment of goodwill 50
Income from investment (1,200)
-------- 1,850
--------
Operating profit before WC changes 11,060

Increase in trade receivables (3,032)

Increase in trade payables 912
Increase in inventories (5,198) (7,318)
--------- ---------
Cash flow from operations 3,742
Interest paid (840)
Tax paid (2,000)
----------
Net cash inflow from operating activities 902

Cash Flow from Investing Activities

Acquisition of PPE (1510+750) (2,260)
Acquisition of subsidiary (-134 + 672) 538
Dividend received from associates 2,700
Disposal of non-current assets 3,000
Income from long term investment 1,200
----------
Net cash from investing activities 5,178

RM’000 RM’000
Cash Flow from Financing Activities
Dividends paid to NCI (280)
Dividends paid to members (6,340)
Issue of shares at a premium 2,250
Repayment of finance lease (1,720)
Acquisition of loan (20490-3000) 17,490 11,400
------- --------
Net cash inflow during the year 17,480

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 Cash and cash equivalents at beginning of the
year 10,670
---------
Cash and cash equivalents at end of the year 28,150
---------

Workings (all amounts in RM’000)

Trade receivables Trade payables

b/d 7900 c/d 11100 c/d 3000 b/d 1680
Acq. 168 Acq. 408
Increase 3032 Increase 912

11100 11100 3000 3000

Inventories Tax Payable & D/Tax

b/d 6460 c/d 11850 c/d 2770 b/d 1800
Acq 192 c/d (DT) 180 b/d (DT) 78
Increase 5198 CSOCI 2970
Cash 2000 Acq 102
11850 11850 4950 4950

Machinery@ NBV Disposal of Machinery

b/d 1800 c/d 5800 Machinery 2400 Bank 3000
Finance Lease 5100 Disposal 2400 Gain 600
Bank 1510 Depn 1200
Acq 990
9400 9400 3000 3000

Building@ NBV Investment in associate

b/d 13200 c/d 12450 b/d 6600 c/d 6000
Bank 750 Dep 1500 CSOCI 2100 Div rec’d 2700

13950 13950 8700 8700

Goodwill Share capital + premium

b/d nil c/d 600 c/d 15000 b/d 12000
Acq 650 Imp Loss 50 c/d (SP) 13470 b/d (SP) 12570
Acq Sub 1,650
Cash 2250
650 650 28,470 28,470

Interest payable Finance Lease

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c/d 242 b/d 182 c/d 4260 b/d 1020
Bank 840 CSOCI 900 c/d 1440 b/d 1300
Bank 1720 Machinery 5100

1082 1082 7420 7420

NCI Retained earnings

c/d 698 b/d nil c/d 16400 b/d 15000
Div paid 280 CSOCI 600 Div paid 6340 CSOCI 7740
Acq * 378
978 978 22740 22740
* NCI in the acquisition of subsidiary:
= 25% x (RM1,512,000#)
= RM378,000

Goodwill on acquisition of subsidiary

= COI – 75% Net worth in sub
= RM1,784,000 – 75% (990,000+192,000+168,000+672,000-408,000-102,000)
= RM1,784,000 – 75% (RM1,512,000#)
= RM650,000

(a) Cash and cash equivalents are those that are not held for investments or other long term
purposes, but rather to meet short term cash commitments. E.g. an investment with a
maturity date that is normally within three months from its acquisition date. At times, if
bank overdraft are repayable on demand and treated as part of an entity’s total cash
management system, the overdrawn balance will be included in the cash and cash
equivalents.

Question 6 (Past year May 2014 section B-Q2)

Tycoon Berhad Group
Consolidated Statement of Cash Flows for the year ended 31 December 2013
RM’000 RM’000
Cash Flow from Operating Activities
Profit before tax 9,680
Less: Share of profits fr associate (1,680)
--------
8,000
Depreciation 1,375
Interest expense 750
Provision for doubtful debts 250
Impairment of goodwill of subsidiaries 1,750
Investment income (1,000)
-------- 3,125
Operating profit before WC changes --------
11,125
Decrease in trade receivables 350

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 Increase in other receivables (90)
Decrease in trade payables (4,000)
Decrease in other payables (915)
Decrease in inventories 2,200
--------- (2,455)
Cash flow from operations ---------
Interest paid 8,670
Tax paid (670)
(3,080)
Net cash inflow from operating activities ----------
4,920
Cash Flow from Investing Activities
Acquisition of fixed assets (2,000)
Acquisition of subsidiary (2250-900) (1,350)
Dividend received from associate 1,280
Disposal of non-current assets 75
Purchase of investments (10000-7500) (2,500)
Investment income 1,000
----------
Net cash from investing activities (3,495)

RM’000 RM’000

Cash Flow from Financing Activities

Dividends paid to NCI (100)
Dividends paid to members (2,300)
Issue of shares at a premium 2,250
Repayment of loan (350)
Repayment of finance lease (650)
-------
Net cash inflow during the year (1,150)
--------
275
Cash and cash equivalents at beginning of the
year [960-2500] (1,540)
---------
Cash and cash equivalents at end of the year (1,265)
[375-1650] ---------

Workings (all amounts in RM’000)

Goodwill on acquisition of Milan: RM
Purchase price 6,000
NCI (4500 x 25%) 1,125
Net assets (4,500) [900+1400+1500+3200-1500-400-600]
Goodwill on acquisition 2,625

Purchase consideration 6,000

Less: Payment through issuance of shares 3,750 [1.50 x2500]

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 2,250
Less: Cash balance in subsidiary 900
Cash used to acquire subsidiary 1,350

Trade receivables Trade payables

b/d 6800 c/d 7600 c/d 4500 b/d 7000
Acq. 1400 PDD√ 250 Decrease 4000 Acq. 1500
Decrease 350

8200 8200 8500 8500

Other receivables Other payables (gen. exp)

b/d c/d c/d 275 b/d 1190
(1500-1280) 220 (1750-1440) 310 Decrease √ 915
Increase 90

310 310 1190 1190

Inventory Tax Payable & D/Tax

b/d 9100 c/d 8400 c/d 2500 b/d 2400
Acq 1500 Decrease 2200 c/d (DT) 2500 b/d (DT) 2600
Cash 3080 CSOCI 2680
Acq 400
10600 10600 8080 8080

PPE Investment in associate

b/d 13000 c/d 19250 b/d 11100 c/d 11340
Finance Lease 2500 Disposal 75 b/d (div) 1280 c/d (div) 1440
Bank 2000 Depn 1375 CSOCI 1680 Div rec’d 1280
Acq 3200
20700 20700 14060 14060

Goodwill Share capital + premium

b/d 1500 c/d 2375 c/d 15000 b/d 10000
Acq 2625 Imp Loss 1750 c/d (SP) 5500 b/d (SP) 4500
Acq Sub 3750
Cash 2250
4125 4125 20500 20500

Interest payable Div Payable

c/d 200 b/d 120 c/d 1500 b/d 1300
Bank 670 CSOCI 750 Bank 2300 CSOCI 2500

870 870 3800 3800

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 NCI Lease creditor
c/d 4875 b/d 3000 b/d 4350 b/d 2500
Div- cl bal 400 Div – op bal 350 Bank 650 PPE 2500
Div paid 100 CSOCI 900
Acq * 1125
5375 5375 5000 5000
* NCI in the acquisition of subsidiary:
= 25% x (900+1400+1500+3200-1500-400-600)
= 1125

Loan
c/d 8250 b/d 8000
Bank 350 Acq of sub 600

8600 8600

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