Prepare a cash flow statement for Anna’s Apples Ltd using the information below.
ID: 2329457 • Letter: P
Question
Prepare a cash flow statement for Anna’s Apples Ltd using the information below. Use the indirect method for operating cash flows.
Net Profit for year ended 30 June 2017: $200,000
30 June 2017 1 July 2016
Cash ? $20,000
Inventory $30,000 $40,000
Accounts Payable $15,000 $30,000
Unearned Revenue $12,000 $15,000
Prepaid Insurance $18,000 $33,000
Goodwill $50,000 $0
Equipment $300,000 450,000
Acc Dep’n Equipment $150,000 $160,000
Loan Payable $50,000 $100,000
During the year equipment with a cost of $150,000 and accumulated depreciation of $50,000 was sold for $115,000. No other purchases or sales of equipment was made during the year.
During the year another business was purchased for cash.
Explanation / Answer
Answer
No.
Conceptual Notes
1
Cash Flow Statement reflects the Cash Inflows and Outflows during a period of time.
2
Effects of Non - Cash Transaction are adjusted from Net Income.
3
Depreciation Expense, Amortisation expenses are Added back to Net Income in Cash Flow Statement.
4
Decrease in Current Assets OR Increase in Current Liabilities are ADDED to Net Income
5
Increase in Current Assets OR Decrease in Current Liabilities are DEDUCTED from Net Income
Working #1: Change in Operating Working Capital
Beginning Balance (1 Jul 2016)
Ending Balance (30 June 2017)
Increase (Decrease)
Inventory
$ 40,000.00
$ 30,000.00
$ (10,000.00)
Accounts Payable
$ 30,000.00
$ 15,000.00
$ (15,000.00)
Unearned revenue
$ 15,000.00
$ 12,000.00
$ (3,000.00)
Prepaid Insurance
$ 33,000.00
$ 18,000.00
$ (15,000.00)
Working #2: Depreciation Expenses
A
Ending Balance - Accumulated Depreciation
$ 150,000.00
B
Accumulated Depreciation on Equipment sold
$ 50,000.00
C
Beginning Balance - Accumulated Depreciation
$ 160,000.00
D = A + B - C
Depreciation expense for the period
$ 40,000.00
Working #3: Gain on Sale of Equipment
A
Equipment sold costing
$ 150,000.00
B
Accumulated Depreciation on above
$ 50,000.00
C = A - B
Book Value
$ 100,000.00
D
Sold for
$ 115,000.00
E = D - C
Gain on sale of Equipment
$ 15,000.00
Statement of Cash Flows - Indirect Method
Cash flows from Operating Activity
Net Income
$ 200,000.00
Adjustments to reconcile Net Income to
Net Cash provided by Operating activities
Depreciation Expenses [Working #2]
$ 40,000.00
Gain on sale of Equipment [Working #3]
$ (15,000.00)
Decrease in Inventory [Working #1]
$ 10,000.00
Decrease in Accounts payable [Working #1]
$ (15,000.00)
Decrease in Unearned revenue [Working #1]
$ (3,000.00)
Decrease in Prepaid Insurance [Working #1]
$ 15,000.00
$ 32,000.00
Net Cash flows from Operating Activities
$ 232,000.00
Cash Flows from Investing activities
Cash received from sale of Equipment
$ 115,000.00
Goodwill
$ (50,000.00)
Net Cash flow from Investing activities
$ 65,000.00
Cash Flows from Financing Activities
Cash paid for repayment of Loan Payable
$ (50,000.00)
Net Cash flows from Financing activities
$ (50,000.00)
Net Increase in Cash
$ 247,000.00
Cash at the beginning [1 Jul 2016]
$ 20,000.00
Cash at the end [30 June 2017]
$ 267,000.00
No.
Conceptual Notes
1
Cash Flow Statement reflects the Cash Inflows and Outflows during a period of time.
2
Effects of Non - Cash Transaction are adjusted from Net Income.
3
Depreciation Expense, Amortisation expenses are Added back to Net Income in Cash Flow Statement.
4
Decrease in Current Assets OR Increase in Current Liabilities are ADDED to Net Income
5
Increase in Current Assets OR Decrease in Current Liabilities are DEDUCTED from Net Income