IAS 7 - Consolidated Cash Flow Statement The following are the consolidated fina
ID: 2526053 • Letter: I
Question
IAS 7 - Consolidated Cash Flow Statement
The following are the consolidated financial statement from the records of MT Bhd (MTB) for 2011 incorporating its subsidiary JK Bhd (JKB).
Consolidated Statement of Comprehensive Income for the year ended 31 December 2011
(RM)’000
(RM)’000
Sales
6,220
Cost of Goods Sold
(2,700)
Gross Profit
3,520
Less Expenses:
Depreciation
180
Insurance Expenses
24
Other Expenses
1,076
(1,280)
Operating Income
2,240
Gain on sale of Plant
20
Total Comprehensive Income
2,260
Profit after tax attributable to:
Shareholders of MTB
2,160
Non-Controlling Interest
100
Total Comprehensive Income
2,260
Consolidated Statement of Financial Position as at 31 December 2011
(RM)’000
(RM)’000
2011
2010
Cash
1,680
150
Accounts Receivable
225
250
Inventories
285
205
Land
1,700
1,000
PPE
2,790
2,700
Accumulated Dep.
(790)
(680)
Goodwill
100
100
5,990
3,725
Shareholders’ Fund:
Share Capital
2,400
2,400
Retained Earnings
2,590
750
4,990
3,150
Non-Controlling Interest
220
150
Accounts Payable
260
175
Notes Payable
270
200
Asset Revaluation Reserve
250
50
5,990
3,725
Additional Information:
1). MTB had acquired 80% interest in JKB on 1 January 2001. On that date the shareholders’ funds of JKB totaled RM800K. Before the purchase, an item of long term asset which was undervalued by RM50K was subsequently revalued. MTB had paid RM830K for JKB shares. The payment consisted of 200K shares (RM1 par) and RM230K cash. The market value of MTB shares on the acquisition date was RM3 per share.
2). There is no impairment of goodwill for the current year.
3). During the year 2011, MTB paid RM320K dividend. JKB earned net income of RM500K and paid RM150K dividend.
4) During the year an additional piece of land was purchased for RM500K. The existing land was revalued to RM1,200K.
5) During the last quarter, a piece of machinery which had originally cost RM180K and had been depreciated RM70K was sold by MTB for RM130K. Another machine was immediately purchased for RM270K paying by a promissory note of RM70K and the balance by cash.
You are required to prepare:
a). The worksheet for the preparation of a consolidated cash flow statement.
b). The consolidated statement of cash flows for the year ended 31 December 2011.
(RM)’000
(RM)’000
Sales
6,220
Cost of Goods Sold
(2,700)
Gross Profit
3,520
Less Expenses:
Depreciation
180
Insurance Expenses
24
Other Expenses
1,076
(1,280)
Operating Income
2,240
Gain on sale of Plant
20
Total Comprehensive Income
2,260
Profit after tax attributable to:
Shareholders of MTB
2,160
Non-Controlling Interest
100
Total Comprehensive Income
2,260
Explanation / Answer
_____________
Important Information:
1) Depreciaton and amortization expense ($140,000) will be reduced by the amount of amortization ($7,000) to arrive at the depreciation expense ($133,000).
2) Any increase in current assets (except cash) and decrease in current liabililties will be reduced from net income while calculating cash flow from operating activities. Similarly, any decrease in current assets and increase in current liabililties will be added to net income while calculating cash flow from operating activities.
3) Proceeds from sale of building will comprise of book value and gain on sale of building.
4) Purchase of equipment is arrived at by calculating the amount of gross value of building and equipment. To arrive at gross value, we add depreciation of $133,000 to the net value of buildings and equipment after adjustment of book value of building sold (966,000 - ($896,000 - $42,000)).
5) Payment of cash dividends will comprise of value of dividend as provided in the income statement ($140,000) + 20% of dividend paid by subsidary ($14,000*20% = $2,800) as 80% is held by the parent company only.
6) Issuance of common stock will comprise of difference between the value of common stock and additional paid-in capital of the 2 years.
Statement of Cash Flows Indirect Method for the Year Ending 31st December 2011 Cash Flow from Operating Activities Consolidated Net Income (306,600 + 15,400) 322,000 Adjustments to Reconcile Net Income to Cash Provided by Operating Activities Depreciation Expense (140,000 - 7,000) 133,000 Amortization of Database 7,000 Gain on Sale of Building -28,000 Decrease in Accounts Receivable (210,000 - 196,000) 14,000 Increase in Inventory (476,000 - 280,000) -196,000 Decrease in Accounts Payable (196,000 - 140,000) -56,000 -126,000 Net Cash Provided by Operating Activities (A) $196,000 Cash Flow from Investing Activities Proceeds from Sale of Building (42,000 + 28,000) 70,000 Purchase of Equipment (140,000 - 7,000 + 966,000 - 854,000) -245,000 Net Cash Used by Investing Activities (B) -$175,000 Cash Flow from Financing Activities Payment of Cash Dividends (140,000 + 20%*14,000) -142,800 Issuance of Bonds (720,000 - 560,000) 160,000 Issuance of Common Stock (168,000 - 140,000 + 265,600 - 247,800) 45,800 Net Cash Provided by Financing Activities (C) $63,000 Net Increase in Cash (A + B + C) $84,000 Add Opening Balance of Cash (Jan 1st 2011) $112,000 Closing Balance of Cash (Dec 31st 2011) $196,000