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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

Accounting

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 ?

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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.    
         
 

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