Cash Flow Statement

2019 HL Question

Worked Solution

1. Prepare the Abridged P and L Account.

2. Get marks on the board
3. Can do this without doing many of the steps!
4. Just need to calculate the interest and investment income for the year

Abridged Profit and Loss Account of Jackson PLC for the year ended 31/12/18

Need to work backwards from Profit and Loss Account 31/12/18 figure

€
Operating Profit 79750
Investment income 2400
82150
Less interest (7200)
Profit before taxation 74950
Taxation Additional info in q (51000)
Profit after taxation 23950
Less Dividends Additional info in q (30600)
Retained Profit (6650)
Profit and Loss Account 1/1/18 Last years B/S 42250
Profit and Loss Account 31/12/18 This year’s B/S 35600
Note 1: Debenture Interest

8% of 80000 x 9/12 = 4800

8% of 120000 x 3/12 = 2400

Figure to Abridged P and L A/C = 7200

Note 2: Investment Income

6% of 40000 =

Figure to abridged p and l ac= 2400

Note 3: Dividends

Ordinary shares: 510000 x 0.06 = 30600

Figure to abridged p and l ac = 30600

Step 1 Calculate the change in cash and change in net debt

Opening Figures Closing Figures Change

Bank Overdraft
Cash
Net Cash
Debentures (minus)
Government Securities
Net Debt

Step 2

Calculate Taxation, Dividends, Interest Paid and Investment Income

Item Opening Figure Add Less Amount

This Year’s Closing Figure Paid/Received
charge
Taxation
Dividends
Interest
Investment
income

Step 3

Calculate adjustments for increase/decrease in Debtors, Stock and Creditors

Item Opening Balance Closing Balance Change Treat as

Debtors
Provision for Bad
Debts
Creditors
Stock

Step 4

(a) Fixed Assets

Calculate the changes in Fixed Assets, including Depreciation

Item Opening Figure Add Less Closing Figure

(Opening Balance Any assets Any assets (Closing Balance
Sheet) purchased during disposed of Sheet)
the period during the period
Fixed Asset
Depreciation

Profit/Loss on Sale of Fixed Assets

Cost Price

Less Depreciation to date

Less Proceeds

Loss on Sale

Step 5

Calculate the changes in the Capital Structure of the Firm

Item Opening Figure Add Less Closing Figure

(Opening Balance Any increase Any decrease (Closing Balance
Sheet) during the period during the period Sheet)
Capital
Share Premium
Debentures
Liquid Resources

Note 1: Reconciliation of Operating Profit to Net Cash Flow from Operating Activities

Need to state whether there is an increase or decrease in the item in the narration

€
Operating Profit
Depreciation charge for the year
Decrease in Debtors
Increase in Provision for Bad Debts
Increase in Stock
Loss on Sale of Fixed Assets
Decrease in Creditors
Goodwill written off
Net Cash Inflow from Operating Activities
Cash Flow Statement

€
Operating Activities
Net Cash Inflow from Operating
Activities
Returns on Investment and
Servicing of Finance
Investment Income Received
Interest Paid
Taxation
Taxation Paid
Capital Expenditure and Financial
Investment
Payments to acquire tangible fixed
assets
Proceeds from the sale of fixed
assets
Equity Dividends Paid
Equity Dividends Paid
Net Cash Outflow Before Liquid
Resources and Financing
Management of Liquid Resources
Purchase of government securities
Financing
Receipts from Issue of Debentures
Receipts from Share Capital Issued
Receipts from Share Premium
Increase in Cash

Note 2: Reconciliation of Net Cash Flow to Movement in Net Debt

€
Increase/Decrease in Cash (From Cash Flow
Statement)
Cash used to purchase liquid resources
Cash received from issue debentures
Change in Net Debt
Net Debt 1/1/18 Step 1
Net Debt 31/12/18 Step 1
(b)

(i) Non-cash items are items in the profit and loss account that affect profit, but do not
affect the cash position
Examples: Depreciation: 72000, increase in bad debt provision 400, goodwill written off 11000,
loss on sale of fixed asset 1700

(ii) The purchase of fixed assets decreases cash but does not affect profit
OR
The sale of fixed assets increases cash but does not affect profit
OR
Drawings reduce cash but has no effect on profit