CASH FLOW TUTORIAL & REVIEW QUESTIONS

DISCUSSION QUESTIONS
1. How do investors, creditors and others typically use the information in the statement of
cash flows?
2. How is a statement of cash flows different from an income statement?
3. What are the three categories into which inflows and outflows of cash are divided? Be
sure to describe what is included in each of these three categories.
4. Why are direct exchanges of long term debt for items of property, plant, and equipment
included in supplementary information for the statement of cash flows even though the
exchanges do not affect cash?
5. Describe the relationship between changes in cash and changes in noncash assets,
liabilities, and stockholders’ equity.
6. What balance sheet account changes might you expect to find for a company that must
rely on sources other than operations to fund its cash outflows?

PROBLEMS
QUESTION ONE

The financial statements of Blue Sea Company Ltd for the financial year ended 31st December,
2010 are given below: Statement of Financial Position

2009 2010

Non-Current Assets TZS TZS TZS TZS

Buildings 142,000 100,000

Plant-Cost 99,000 121,800

-Depreciation (48,300) 50,700 (47,500) 74,300

Preliminary Expenses 2,000 1,000

194,700 175,300

Current Assets

Bank 52,300

Debtors 12,000 23,100

Stocks 12,100 13,000

Total Current Assets 24,100 88,400

Less: Current Liabilities

Trade Creditors 8,600 13,400

Tax Payable 700 900

Bank Overdraft 4,000

Dividends 6,000 7,700

Total Current liabilities 19,300 22,000

Net Current Assets 4,800 66,400

Total Net Assets 199,500 241,700

EQUITY & LIABILITIES

Ordinary Share Capital 100,000 115,000

Share Premium 10,000 15,000

Profit or Loss 45,000 60,700

8% Debenture 40,000 51,000

10% Unsecured Loan 4,500

Total Liabilities & Equity 199,500 241,700

Income Statement for the year ended December 31st, 2010:

Revenue TZS 191,100

Cost of sales (48,700)

Gross Profit 142,400

Gain (Machinery) 7,700

Operating Expenses (74,835)

Asset revaluation losses (42,000)

Preliminary Expenses (1,000)

Profit before Interest and Tax 32,265

Less: Interest on long-term borrowing (3,865)

Profit before Tax 28,400

Less: Tax (2,000)

Profit available for distribution 26,400

 Less: Dividends (10,700)

Retained Profit for the Year 15,700

Add: Retained Profit b/f 45,000

Retained profit C/F 60,700

The following additional information is also relevant:

1. During the financial year ended 2010, the building in the company were revalued
by a firm of professional valuers.
2. Operating expenses include audit fees and depreciation but do not include an
interim dividend that was paid in July.
3. Machinery originally costing TZS 14,000 was sold during the year for TZS 8,200.
Company’s policy is to charge full year’s depreciation on all non-current assets
held at the year end and non depreciation in the year of disposal.

4. On 1st April 2010 Blue Sea Ltd acquired 100% of the ordinary shares of Pembeni
Ltd. The purchase consideration given to the holders of the Pembeni Ltd shares
acquired comprised of cash and Blue sea Ltd shares and was determined to be;
Shs. ‘000

Cash 1,480

Himaya Ltd Shares 2,000

Total Consideration 3,480

The fair values of Pembeni Ltd assets and liabilities on 1st April 2010 were:

Shs. ‘000

Cash and Bank Balance 300

Inventories 1,100

Trade Receivables 200

Land & Buildings 2,000

Plant & Equipment 1,500

Trade Payables (100)

Long Term Liabilities (1,250)

Required: Prepare cash flow statement of Blue Sea Company Ltd in accordance to IAS #7
QUESTION TWO

The following are the financial statements of Easy life Co. ltd:

Statement of Comprehensive Income for the year ended December 31st, 2013.

TZS ’000’
Revenue 2,400,000
Cost of Sales -1,400,000
Gross Profit 1,000,000
Other Income 420,000

Administrative Expenses -320,000

Distribution Cost -240,000
Other Costs -250,000
Finance Costs -160,000

Profit before Tax 450,000

Corporate Tax -220,000
Profit for the year 230,000

Statement of Financial Position as at 31st Dec 2013

Figures in TZS
ASSETS 2012 2013
Non Current Assets
Plant Property Equipment (Net) 1,860,000 2,680,000
Investment in C.H.M Real Estate 600,000 840,000
Goodwill 56,000 216,000
Total Non-Current Assets 2,516,000 3,736,000

Current Assets
Inventory 340,000 420,000
Trade debtors 440,000 560,000
Treasury bills 948,000 146,000
Total Current Assets 1,728,000 1,126,000
TOTAL ASSETS 4,244,000 4,862,000

Equity
Ordinary Shares 1,200,000 1,600,000
Share Premium 50,000 80,000
Preference Shares 800,000 550,000
Reserves 360,000 420,000
Retaining Earnings 440,000 520,000
Total Equity 2,850,000 3,170,000

Non-Current Liabilities
Bonds 400,000 300,000
Debenture 250,000 462,000
Bank Loan 270,000 430,000
Total Non Current Liabilities 920,000 1,192,000

Current Liabilities
Trade Payables 244,000 268,000
Accrued Rent 64,000 80,000
Dividend Payable 166,000 152,000
Total Current Liabilities 474,000 500,000

TOTAL LIABILITIES & EQUITY 4,244,000 4,862,000

Additional Information:

1. Other Income comprise of:

 Discount received TZS 200,000,000
 Dividend Income TZS 220,000,000
2. Other costs are made up of loss on disposal of motor vehicle and loss on exchange
gain: The loss on exchange gain solely relates to a credit sale that originated during the
period and was paid before the year end.
3. Included in the administrative expenses are Depreciation for the year of TZS
120,000,000 and other exps.
4. At the early months of the year the company acquired a business unit by taking over the
following assets:
Building TZS 230,000,000

Trade debtors TZS 40,000,000

Bank loan TZS 60,000,000

Cash at bank TZS 80,000,000

The purchase consideration was TZS 450,000,000 which satisfied as follows

By Preference Shares TZS 250,000,000

By Cash TZS 200,000,000

 5. Motor vehicle with a carrying amount of TZS 340,000,000 was sold for a cash of TZS
210,000,000 during the year
6. During a year ending 2013, the company declare a dividend for the year to ordinary
shareholders. .
Required:

Prepare the cash flow statement for the year ended 31st Dec 2013. Use Direct Method to report
Cash flow from operating activities. (25 Marks)

QUESTION THREE
The following are the statement of Financial Position Vanilla sky for the years ending 2008 and
2009 which were as follows

VANILLA SKY LINE BALANCE SHEET AS AT 31st DEC

Figures in TZS “000”
Non Current Assets 2008 2009
Goodwill 35,000 40,000
Property Plant & Equipment (Net) 325,000 350,000
Investment Property (Fair value) 200,000 225,000
Portfolio Investment 60,000 10,000
Total Non current Assets 620,000 625,000

Current Assets
Inventory 35,000 25,000
Trade debtors 90,000 100,000
Dividends receivable 20,000 14,000
Treasury bills 50,000 180,000
Cash in hand & at Bank 80,000 202,000
Total Current Assets 275,000 621,000
Total Assets 895,000 1146,000
Current Liabilities
Trade Payables 50,000 75,000
Accrued wages 35,000 30,000
Interest Payable 12,000 8,000
Tax Payable 2,000 7,000
Total Current Liabilities 99,000 120,000
Non Current Liabilities
10% Debentures 200,000 103,000
Bank Loan 100,000 72,000
Total Non Current Liabilities 300,000 175,000
 Equity
Ordinary Share @1,000.00 420,000 625,000
Share premium 1,000 6,000
Retained Earnings 50,000 35,000
Reserve 25,000 185,000
Total Equity 496,000 951,000
Total Liabilities and Equity 895,000 1,146,000

The Company’s Statement of Income for the year 2009 was as follows

Vanilla Sky Statement of Income for the year ended 31st Dec 09
Figure in TZS “000”
Revenue 950,000
Cost of Sales (500,000)
Gross Profit 450,000
Other Income 45,000
Administrative expenses (138,000)
Distribution Costs (100,000)
Other Costs (37,000)
Finance costs (20,000)
Profit Before Tax 200,000
Corporate Tax (60,000)
Profit for the year 140,000

The following information relating to the period is also relevant:

1. Other income comprise of ;

Discount received TZS. 4,000,000
Gain on exchange rate TZS. 25,000,000
Dividend Income TZS. 15,000,000
Rise in fair value of investment property TZS. 1,000,000

Gain on exchange rate is solely related to sales made to British customer, Sir William.

2. Included in the administrative expenses are; Depreciation for the year of TZS.
44,000,000 & other exps.

3. Other costs are made up of Discount allowed TZS. 20,000,000, Bad debts TZS.
2,000,000, Loss on disposal of a motor vehicle TZS. 10,000,000 And Miscellaneous
costs TZS. 5,000,000.
4. The only Non current asset disposed during the year was a motor vehicle which had a
carrying value of TZS. 40,000,000 at the time of disposal
Required: Prepare Cash flow statements for the year to 31st Dec 2009 using both methods to
report operating cash flow activities

QUESTION FOUR

The managing director of CHC Sea Line, Mr. Collin, authorized for issue, the company’s
statement of Financial Position for the years ending 2012 and 2011 comparative were as follows

CHC Sea Line, Statement of Financial Position as at 31st Dec 2012

Figures in TAS “000”

Non- current Assets 2011 2012
Goodwil 60,000 172,000
Property Plant & Equipment (net) 500,000 800,000
Investment Property (Fair Value) 400,000 450,000
Portfolio Investments (cost) 180,000 60,000
Total Non Current Assets 1,140,000 1,482,000

Current Assets
Inventory 50,000 90,000
Trade Debtors 160,000 220,000
Advance 30,000 20,000
Interest Receivable 60,000 28,000
Cash Equivalent 80,000 300,000
Cash in hand & at bank 180,000
Total Current Assets 560,000 658,000

Total Assets 1,700,000 2,140,000

Current liabilities
Trade Payables 70,000 150,000
Accrued wages 60,000 90,000
Bank overdraft 132,000
Interest Payable 8,000 2,000
Dividends Payable 8,000 14,000
Tax Payables 14,000 18,000
Total Current Liabilities 160,000 406,000
Non Current Liabiliaties
10% Debentures 300,000 100,000
Bank Loan 200,000 145,000
Total Non Current liabilities 500,000 245,000

Equity
Ordinary Shares @ 1,000 850,000 1,150,000
Share Premium 10,000 25,000
Retained Earnings 100,000 160,000
Reserve 80,000 154,000
Total Equity 1,040,000 1,489,000
Total Liabilities and Equity 1,700,000 2,080,000

The company’s Statement of Comprehensive Income for the year 2012 was as follows

CHC Sea Line, Statement of Comprehensive Income For the year ended 31 Dec 2012
TAS “000”
Revenue 1,800,000
Cost of Sales -1,100,000
Gross Profit 700,000
Other Income 80,000
Administrative Expenses -240,000
Distribution Costs -200,000
Other costs -60,000
Finance costs -40,000
Profit Before Tax 240,000
Corporate Tax -60,000
Profit for the year 180,000
Dividend for the period -120,000
Retain Profit for the period 60,000
Retain Profit for the previous period 100,000
Retaing earnings carried forward 160,000

The following information relating to the period is also relevant

1. Purchase on credit, was the only item of expenditure in the cost of sales.
2. Other income comprise of:
Discount Received TAS 16,000,000
 Gain on exchange rate TAS 40,000,000
Interest Income TAS 24,000,000
Rise in fair value of investment property TAS 2,000,000
3. Included in the administrative expenses are;
Depreciation for the year TAS 60,000,000
An Impairment Loss of TAS 10,000,000
4. Other costs are made up of;
Discount allowed TAS 26,000,000
Bad debts TAS 4,000,000
Loss on realization of motor vehicle TAS 20,000,000
Miscellaneous costs of TAS 10,000,000
5. Distribution costs are made up of wages & other distr costs of TAS 140,000,000 and
TAS 60,000,000 respectively.
6. At the early months of the year the company acquired a business unit by taking over the
following assets:
Security deposit TAS 40,000,000
Treasury bills TAS 60,000,000
Cash at bank TAS 20,000,000
The purchase consideration was TAS 160,000,000 which was all satisfied by Cash.
7. The only Plant, Property and Equipment derecognized during the year was a motor
vehicle which had a carrying value of TAS 60,000,000 at the time of derecognizing

REQUIRED
Prepare;
 Cash flow statement for the year to 31st Dec 2012

QUESTION FIVE

The following are the statement of Financial Position of Easy Line Ltd as at December 31st
2009 and 20010:

2010 2009

NON-CURRENT ASSETS

Property, Plant and equipment(net) 236,000 196,000

Investment property (fair value) 140,000 100,000

Investment in OMEGA Ltd (cost) 120,000 75,000

496,000 371,000

CURRENT ASSETS

Inventories 22,000 20,000

Trade receivables 60,000 50,000

Dividends receivable 4,000 4,800

Cash and Bank 204,000 65,200

290,000 140,000

TOTAL ASSETS 786,000 511,000

EQUITY

Ordinary Share Capital 325,000 250,000

Share Premium 25,000 0

Retained Earnings 150,000 80,000

500,000 330,000

NON-CURRENT LIABILITIES

Debentures 135,000 135,000

Bank Loan 100,000 0

235,000 135,000

CURRENT LIABILITIES

Trade Payables 15,000 11,000

Dividends Payable 16,000 18,000

Interest Payable 4,500 4,500

Income tax payable 15,500 12,500

51,000 46,000

TOTAL LIABILITIES AND EQUITY 786,000 511,000

The entity’s statement of comprehensive Income for the year ended December 31st 2010 is
provided below

Statement of Comprehensive Income for the year ended 31st December, 2010.

Revenue 800,000

Cost of sales (370,000)

Gross Profit 430,000

Other Income 70,000

Distribution costs (90,000)

Administrative Expenses (180,000)

Other expenses (50,000)

Profit before Interest and Tax 180,000

Finance costs (30,000)

Profit before Tax 150,000

Income tax expense (45,000)

Profit for the period 105,000

Dividends for the period (35,000)

Retained profit for the year 70,000

Retained profit for the previous year 80,000

Retained earnings carried forward 150,000

The following information is available:

1. Inventory was written down during the period by TZS 15,000.

2. Selling expenses, included in cost of sales are as follows:

Employee benefits expenses TZS 37,000

Rent of showroom 32,500

Advertisement expenses 25,000

Depreciation of plant, property and equipment 7,500

3. Other expenses are made up of the following:

Stock written down TZS 15,000
 Discounts allowed 14,000

Loss on disposal of property, plant and equipment 21,000

4. Administrative expenses for the period comprise:

Employee benefit expense TZS 120,000

Depreciation of property, plant and equipment 29,000

Impairment of property, plant and equipment 5,000

Other 26,000

5. Distribution costs have been analyzed as follows:

Employee benefit expense TZS 54,000

Depreciation of property, plant and equipment 16,000

Other 20,000

6. The reported finance costs are:

Debenture interest paid TZS 13,500

Debenture interest payable 4,500

Interest paid on bank loan 12,000

7. During the period, equipment which had cost TZS 60,000 with accumulated depreciation
of TZS 10,000 and accumulated impairment loss of TZS 7,000 was sold. It was the only item
of property, plant and equipment derecognized during the period.

8. Other income is made up of the following items:

Discounts received TZS 12,000

Increase in fair value of investment property 40,000

Foreign exchange gain 8,000

Dividends receivable 4,000

Dividends received 6,000

The foreign exchange gain solely relates to a credit sale that originated during the period
and was paid before the year-end.

Required: Present the cash flow statement of Easy Line Ltd for the year ended December 31st,
2010, in accordance with IAS 7