ACCT2005 Techniques in Financial Accounting

Autumn 2022
Topic 9: Statement of cash flows (Module 9)

Additional Revision Exercise

Problem 18.17

Statement of cash flows for a sole trader

Non-GST version

Financial figures of the business of K. Towd for the last 2 years are shown below.

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The statement of financial performance for the business for the year ended 30 June 2024
reveals the following details.

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Additional information
1. During the year ended 30 June 2024, Towd withdrew $60 per week in cash for 52
weeks for private purposes.
2. Towd also withdrew $2400 on her business bank account to pay her personal income
tax.
3. Land, shown in the accounts at $12 000, was sold during the year for $16 800.
4. Plant costing $3600 and written down to $1800 was sold for $1440.
5. Ignore GST.

Required
Prepare a statement of cash flows for the year ended 30 June 2024 using the direct
method.

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Solution

K. TOWD
Statement of Cash Flows
for the year ended 30 June 2024

Cash flows from operating activities:

Cash receipts from customers $34 200
Cash paid to suppliers and employees (28 080)
Net cash from operating activities $6 120

Cash flows from investing activities:

Purchase of property, plant and equipment (7 200)
Sale of property, plant and equipment* 18 240
Net cash from investing activities 11 040

Cash flows from financing activities:

Drawings** (5 520)
Net cash used in financing activities (5 520)

Net increase (decrease) in cash and cash 11 640

equivalents
Cash and cash equivalents at beginning of year*** (6 000)
Cash and cash equivalents at end of year $5 640

*Sale of property, plant, and equipment = $16 800 (land) + $1 440 (plant)
= $18 240

**Drawings = ($60  52 weeks) + $2 400 = $5 520

***Bank overdraft is a part of the entity’s cash management function.

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Workings:

Cash flows from operating activities:

Cash receipts from customers:

Accounts Receivable
Balance b/d 8 400 Cash from customers 34 200
Sales 36 000 Balance c/d 10 200
44 400 44 400

Cash paid to suppliers:

Cash payments for purchases:

Inventory
Balance b/d 28 800 Cost of Goods sold 19 200
Purchases 24 000 Balance c/d 33 600
52 800 52 800

Accounts Payable
Cash paid 22 800 Balance b/d 14 400
Balance c/d 15 600 Purchases 24 000
38 400 38 400

Cash paid to suppliers and employees = $22 800 (inventory) + $5 280 (other expenses)
= $28 080

Cash flows from investing activities:

Purchase of property and equipment

Plant and Equipment

Balance b/d 18 000 Cost of plant sold* 3 600
Cash paid for purchase 7 200 Balance c/d 21 600
25 200 25 200

Purchase of property, plant, and equipment = $7 200 (plant)

* Tip: Instead of crediting the “Write-down” of the plant of $1,800 (cost $3,600 – carrying
amount $1,800) and crediting the “Carrying amount of plant sold” of $1,800 separately in
this T-account for “Plant and Equipment”, you can simply just credit “Cost of plant sold” for
$3,600 in this T-account.

You must do this when there is a sale of a non-current asset to calculate the cash paid for
purchasing property, plant and equipment.

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