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Homework answers / question archive / Study the Cash Flow Statement given below and answer the following questions: 1
Study the Cash Flow Statement given below and answer the following questions: 1.2. Calculate the following: 1.1.1 Dividends paid (2) 1.1.2 Carrying value (Book value) of the equipment sold (2) 1.1.3 Cash and cash equivalents at the end of the year (2) Identify two items from this cash flow statement that improves cash flow but does not increase the profit (2) Explain why depreciation is added to operating profit in computing the cash flow from operating activities (2) There is a combination of a positive cash flow from operating activities of R752 000 and a negative cash flow from investing activities of R4 192 000. Is this favourable for Billabong Ltd? Provide three (3) reasons for your answer (6) Comment on the following: Decrease in inventory (2) 1.5.2 Increase in receivables 1.5
alge ven Billabong Ltd Cash Flow Statement for the year ended 30 June 2020 R 752 000 5 068 000 3 088 000 3 000 000 88 000 8 156 000 Cash flows from operating activities Profit before interest and tax/Operating profit Adjustments to convert to cash from operations Non-cash flow adjustments Depreciation Loss on disposal of equipment Profit before working capital changes Working capital changes Decrease in inventory Increase in receivables Decrease in payables Cash generated from operations Interest paid Dividends paid I (2 056 000) 132 000 (1 856 000) (332 000) 6 100 000 (1 872 000)
Income tax paid (1 440 000) (4 192 000) Cash flows from investing activities Non-current assets purchased Proceeds from sale of equipment (5 288 000) 1 096 000 4 320 000 Cash flows from financing activities Proceeds from issue of ordinary shares Increase in long-term borrowings 1 440 000 2 880 000 2 Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 720 000 ?
Cashflow statement for the year ended 30 June, 2020 | ||||
R | ||||
Cash flow from operating activities | 7,52,000 | |||
Profit before interest and tax/operating profit | 50,68,000 | |||
Adjustment to convert to cash from operations | ||||
Non cashflow adjustment | 30,88,000 | |||
Depreciation | 30,00,000 | |||
Loss on disposal of equipment | 88,000 | |||
Profit before working capital changes | 81,56,000 | |||
Working capital changes | -20,56,000 | |||
Decrease in inventory | 1,32,000 | |||
Increase in receivables | -18,56,000 | |||
Decrease in payable | -3,32,000 | |||
Cash generated from operations | 61,00,000 | |||
Interest paid | -18,72,000 | |||
Dividend paid | -34,76,000 | (6100000-1872000-752000)= 3476000 | ||
Cash flow from Investing activities | -41,92,000 | |||
Non current assets purchased | -52,88,000 | |||
Proceeds from sale of equipment | 10,96,000 | |||
Cash flow from Financing activities | 43,20,000 | |||
Proceeds from issue of ordinary shares | 14,40,000 | |||
Increase in long term borrowing | 28,80,000 | |||
Net increase in cash and cash equivalents | 8,80,000 | 752000-4192000+4320000=880000 | ||
cash and cash equivalents at beginning of year | 7,20,000 | |||
cash and cash equivalents at closing of year | 16,00,000 | 880000+720000=1600000 | ||
1.1) | 1.1.1.) Dividend paid as calculated above (6100000-1872000-752000)= R 34,76,000 | |||
1.1.2.) Carrying value (book value) of the equipment sold: | ||||
Proceeds from sale of equipment | 10,96,000 | |||
Loss on disposal of equipment | 88,000 | |||
Carrying value (book value) of the equipment sold | 11,84,000 | |||
1.1.3.) | ||||
cash and cash equivalents at the end of the year | 16,00,000 | |||
(as computed above) (880000+720000) | ||||
1.2) | Two items that imrove cashflow but does not increase profit: | |||
i) Proceeds from issue of ordinary shares | 14,40,000 | |||
ii) Increase in long term borrowing | 28,80,000 | |||
1.3) | Depreciation is a capital loss such as non cash item, which reduce profit but cashflow does not | |||
effected by non cash item. As depreciation is charged to compute operating profit, so the same | ||||
is added back to reach at cash flow from operating activities. | ||||
1.4) | As there is positive cashflow from operating activity of R 7,52,000 and negative cashflow from | |||
investing activies R 41,92,000 is favourable for Billabong Ltd. With the following reasons: | ||||
(i) Cashflow from operation is net cashflow as generated from cash received from customers, | ||||
reduction of cash paid to suppliers, which means main operation of company is going good | ||||
with positive cashflow that is business operation have adequate liquidity to manage it's | ||||
expenses and does not depend on other activities. | ||||
(ii) Cashflow from investing activity is mostly become negative as capital investment is more | ||||
than sale of non current assets. | ||||
(iii) New assets (property) is created by negative cashflow from investing activity is not bad | ||||
financial impact. | ||||
1.5) | Decrease in inventory is a change in working capital, which has positive cashflow movement. | |||
So the same is added to cashflow from operation. Decrease in inventory means cash generated | ||||
by reduction in working capital. | ||||
Increase in receivable is change in working capital, which means cashflow from operating | ||||
activity decreased as revenue earned but not yet collected compaired to opening receivable. | ||||