Exercise 17.

5 PREPARATION OF A STATEMENT OF CASH FLOWS\

1. Using the indirect method of presenting cash flows from operating activities,
prepare a statement of cash flows in accordance with IAS 7 for the year ended 31
December 2017.

Worksheet
a)
2016 Dr Cr 2017
$ $ $ $
Cash 25 000 (12) 20 000 45 000
Trade receivables 50 000 (2) 15 000 65 000
Investments in financial assets 40 000 (3) 10 000 50 000
Plant 130 000 (11) 50 000 180 000
Accumulated depreciation (45 000) (7) 15000 (60 000)
200 000 280 000
Trade accounts payable 6 000 (4) 2 000 4 000
Interest payable 7 000 (6) 7 000 0
Current tax payable 20 000 (8) 8 000 28 000
Deferred tax liability 0 (8) 3 000 3 000
Borrowings 40 000 (9) 30 000 10 000
Share capital 100 000 (9) 30 000 130 000
Retained earnings 27 000 (10) 23 000 (1) 132 000 105 000
(8) 31 000
200 000 280 000
Operating activities
Profit before tax (1) 132 000 132 000
Increase in trade receivables (2) 15 000 (15 000)
Decrease in trade payables (4) 2 000 (2 000)
Interest expense (5) 14 000 14 000
Gain on revaluation of financial (3) 10 000 (10 000)
investments
Depreciation (7) 15 000 15 000
Cash generated from operations 161 000 27 000 134 000
Interest paid (5) 14 000 (21 000)
(6) 7000
Income taxes paid (8) 8000 (8) 31 000 (20 000)
(8) 3 000
Net cash from operating activities 172 000 79 000 93 000
Investing activities

Purchase of plant (11) 50 000 (50 000)

50 000 (50 000)
Financing activities

Dividend paid (10) 23 000 (23 000)

Net cash used in financing activities 23 000 (23 000)
Net increase in cash and cash equivalents (12) 20 000
Cash and cash equivalents at beginning of year 25 000
Cash and cash equivalents at end of year $45 000

Explanations:
(1) Profit before tax $132 000 (profit $101 000 + tax expense $31 000).
(2) Increase in Trade receivables $15 000.
(3) Gain on revaluation of financial assets recognised in profit $10 000.
(4) Decrease in Trade accounts payable $2000.
(5) Interest expense $14 000 as per additional information item (d).
(6) Decrease in interest payable,
(7) The increase in accumulated depreciation must represent the depreciation for the year
$15 000.
(8) Income tax expense $31 000, refer and increase in Current tax payable $8000 and
Deferred tax liability $3000.
(9) Borrowing of $30 000 settled through the issue of shares. .
(10) Dividend paid $23 000
(11) The increase in the plant must represent the purchase of plant $50 000.
(12) Increase in cash and cash equivalents.

2. Prepare the operating section of the statement of cash flows using the direct method
 Black Inc.
Statement of Cash Flows for the year ended 31 December 2017
$
Cash flows from operating activities
Profit before tax 132 000
Interest expense 14 000
Depreciation of plant 15 000
Gain on revaluation of financial (10 000)
assets
Increase in trade receivables (15 000)
Decrease in trade accounts (2 000)
payable
Cash generated from operations 134 000
Interest paid (21 000)
Income tax paid (20 000)
Net cash from operating activities 93 000
Cash flows from investing activities
Purchase of plant (50 000)
Net cash used in investing activities (50 000)
Cash flows from financing activities
Dividends paid (23 000)
Net cash from financing activities (23 000)
Net increase in cash and cash equivalents 20 000
Cash and cash equivalents at beginning of year 25 000
Cash and cash equivalents at end of year $45 000

b) Cash received from customers = Service revenue – increase in accounts receivable

= $300 000 - $15 000
= $285 000

Revenue + Gain on Revaluation Expenses (excluding tax expense) = Profit before tax

Hence, total expenses excluding income tax expense

= Revenue + Gain on Revaluation –Profit before tax:
= $300 000 +$10 000 - $132 000 = $178 000

$
Total expenses 178 000
- depreciation (15 000)
- interest expense (14 000)
Expenses for supply of goods and services 149 000
+ decrease in accounts payable 2 000
Cash paid for supply of goods and services 151 000

$
Cash flows from operating activities
Cash collected from customers 285 000
Cash paid for supply of goods and services (151 000)
Interest paid (21 000)
Income tax paid (20 000)
Net cash from operating activities 93 000