QUESTION 5: Statement of Cash Flows (16marks) You are provided the following fin
ID: 2448552 • Letter: Q
Question
QUESTION 5: Statement of Cash Flows (16marks)
You are provided the following financial information for Madam Malkin’s Exquisite Robes, an exclusive fashion manufacturing and retailing company:
Madam Malkin’s Exquisite Robes
Comparative Balance Sheets
As at 30th June
2015 2014
$'000's
$,000's
Current Assets
Cash on Hand
48
112
Cash at Bank
-
288
Accounts Receivable (net)
240
432
Inventory
368
288
Prepaid Advertising Expense
144
800
48
1168
Non-Current Assets
Manufacturing Equipment
5088
4960
less Acc. Depreciation
1120
3968
2400
2560
Investments
672
-
. .
Total Assets
5440
3728
Current Liabilities
Overdraft
Accounts Payable
320
288
512
Accrued Rent Expense
48
16
Interest Payable
144
800
320
848
Non-Current Liabilities
Loan
2400
800
Total Liabilities
3 200
1648
Net Assets
2240
2080
Equity
M. Malkin, Capital
2240
2080
(continued .........)
Madam Malkin’s Exquisite Robes
Income Statement
For the year ended 30th June 2015
$'000's
Net Sales
11776
Less: COS
Gross Profit:
5856
5920
Other Revenue:
Gain from Sale of Assets
16
Dividend Revenue
32
Discount Received
64
112
6032
Expenses:
Selling & Admin Expense
4864
Discounts Allowed
112
Depreciation Expense
320
Interest Expense
176
5472
Profit
560
Additional Information:
Manufacturing Equipment with an historic cost of $1,760,000 was sold for $176,000 cash and made the company a profit of $16,000.
M. Malkin contributed no additional capital to the business during the year.
REQUIRED:
Answer this question on the pro forma provided below.
Prepare a statement of cash flows for the year ended 30th June 2015 in accordance with the direct method. Show all calculations on the pro forma provided. [10 marks]
Below are the summarised cash flow statements for two other fashion manufacturers. In your own words, comment on which one has a healthier cash flow situation. Justify your answer by explaining the significance of each of the three types of cash flows for each business:
Hermione Designs
Simply Luna
Cash flow from Operating Activities
915
(460)
Cash flow from Investing Activities
(785)
300
Cash flow from Financing Activities
500
420
Net increase / (decrease) in cash held
630
260
Cash at the beginning of the year
50
100
Cash at the end of the year
680
360
[Approximately 200 words expected in your answer]
Madam Malkin’s Exquisite Robes
Comparative Balance Sheets
As at 30th June
2015 2014
$'000's
$,000's
Current Assets
Cash on Hand
48
112
Cash at Bank
-
288
Accounts Receivable (net)
240
432
Inventory
368
288
Prepaid Advertising Expense
144
800
48
1168
Non-Current Assets
Manufacturing Equipment
5088
4960
less Acc. Depreciation
1120
3968
2400
2560
Investments
672
-
. .
Total Assets
5440
3728
Current Liabilities
Overdraft
Accounts Payable
320
288
512
Accrued Rent Expense
48
16
Interest Payable
144
800
320
848
Non-Current Liabilities
Loan
2400
800
Total Liabilities
3 200
1648
Net Assets
2240
2080
Equity
M. Malkin, Capital
2240
2080
Explanation / Answer
9280
Simply Luna is having the healthey cash flow since it is having lowe investment and low rist facter and it has high profit marging
1 . Cash flow from Operating Activities =
Hermione Designs 915 is very high than simply luna
2. Cash flow from Investing Activities
Hermiane designs is additional machinear purchase cost of production is ver high compared to simplyluna
3 Cash flow from Financing Activities
Hermione Designs borrowing is hegher than simply luna so it resemple high cost of production
There for the healthier cash flow situation is simply luna
Cash flow from Operating Activities 11776 Cash flow from Investing Activities -144 Cash flow from Financing Activities -2400 Net increase / (decrease) in cash held 9232 Cash at the beginning of the year 48 Cash at the end of the year9280