Exercise 18.

3 Cash flow from operating activities, indirect method

The simple income statement for Jack’s Blinds is shown below:

JACK’S BLINDS
Income Statement
for the year ended 30 June 2017
Sales $435 000
Less: Cost of sales
Beginning inventory $68 500
Purchases 160 000
Goods available for sale 228 500
Ending Inventory 58 500
Cost of sales 170 000
GROSS PROFIT 265 000
Expenses
Selling expenses 75 000
Administrative expenses 91 500 166 500
Profit $98 500

Additional information
1. Accounts receivable increased by $8250 during the year.
2. Accounts payable to suppliers of inventory increased by $3250 during the year.
3. Wages payable decreased by $6250 during the year (including selling expenses).
4. Administrative expenses include depreciation expense of $31 500.

Required
Prepare the net cash flows from operating activities for the year ended 30 June 2017 for Jack’s Blinds
using the indirect method.

JACK’S BLINDS
Statement of Cash Flows (Extract)
for the year ended 30 June 2017
Inflows
(Outflows)
Cash flows from operating activities:

Profit for the period $98 500

Depreciation expense 31 500
Changes in assets and liabilities
Increase in accounts receivable $(8 250)
Decrease in inventory 10 000
Increase in accounts payable 3 250
Decrease in wages payable (6 250) (1 250)

Net cash flows from operating activities $128 750

Exercise 18.4 Investing and financing activities

The following transactions were undertaken by Porschet Ltd during the financial year ended 30 June
2017. Ignore GST.
1. Issued ordinary shares for cash, $1 000 000.
2. Purchased land to be held for future expansion for $900 000 cash.
3. Paid off a long-term $360 000 loan plus interest of $32 000.
4. Sold for $480 000 used cars with a carrying amount of $200 000.
5. Paid cash dividends of $220 000.
6. Purchased machinery factory, giving $120 000 cash and signing a mortgage loan for $400 000.
7. Purchased shares in MBW Ltd to be held as an investment for $400 000 cash.
8. Sold a long-term government bond, with a carrying amount of $100 000, for $198 000, including
$12 000 accrued interest.
9. Purchased shares in Forden Ltd to be held as a long-term investment, paying $380 000 cash.
10. Issued 5% debentures for $1 400 000.

Required
A. Prepare the net cash flow used in investing activities section of the statement of cash flows using
the classification shown in Illustrative Example A of IAS 7/AASB 107.
B. Prepare the net cash used in financing activities section of the statement of cash flows using the
classification shown in Illustrative Example A of IAS 7/AASB 107.

A.
PORSCHET LTD
Cash Flow Statement (Extract)
for the year ended 30 June 2017

Cash flows from investing activities:

Purchase of investments (7, 9) $ (780 000)
Purchase of property, plant and equipment (2, 6) (1 020 000)
Proceeds from sale of equipment (4) 480 000
Proceeds from sale of investments (8) 186 000
Interest received (8) 12 000
Net cash used in investing activities $(1 122 000)

B.

Cash flows from financing activities:

Proceeds from issue of share capital (1) $1 000 000
Proceeds from issue of debentures (10) 1 400 000
Repayments of long-term borrowings (3) (360 000)
Dividends paid (5) (220 000)
Net cash from financing activities $1 820 000
Problem 18.5 Statement of cash flows, direct and indirect methods

The simplified financial statements of Titanium Ltd appear below:

TITANIUM LTD
Statement of Financial Position
as at 30 June
2017 2018
ASSETS
Cash $ 37 200 $ 15 600
Accounts receivable 33 600 16 800
Inventory 30 000 42 000
Plant and equipment 72 000 93 600
Accumulated depreciation – plant and equipment (26 400) (28 800)
$146 400 $139 200
LIABILITIES AND EQUITY
Accounts payable $ 32 400 $ 27 600
Current tax liability 6 000 9 600
Loan payable 32 400 37 200
Share capital 41 600 41 600
Retained earnings 34 000 23 200
$146 400 $139 200

TITANIUM LTD
Income Statement
as at 30 June
Sales $264 000
Cost of sales 216 000
GROSS PROFIT 48 000
Selling expenses $16 800
Administrative expenses 9 600
Interest expense 1 200 27 600
Profit before tax 20 400
Income tax expense 4 800
PROFIT $ 15 600

Additional information
1. Dividends declared and paid were $26 400.
2. During the year equipment was sold for $10 200 cash. The equipment cost $21 600 and had a
carrying amount of $10 200 at the time of sale.
3. Depreciation expense is included as a selling expense in the income statement.
4. All sales and purchases are on credit.

Required
A. Prepare a statement of cash flows using the indirect method.
B. Prepare a statement of cash flows using the direct method.

A.
 TITANIUM LTD
Statement of Cash Flows
for the year ended 30 June 2018

Cash flows from operating activities

Profit for the period $15 600

Depreciation expense 13 800
Changes in assets and liabilities
Decrease in accounts receivable 16 800
Increase in inventory (12 000)
Decrease in accounts payable (4 800)
Increase in current tax liability 3 600 3 600

Net cash flows from operating activities 33 000

Cash flows from investing activities

Sale of plant and equipment 10 200
Purchase of plant and equipment (43 200)

Net cash flows from investing activities (33 000)

Cash flows from financing activities

Proceeds from loans 4 800
Dividends paid (26 400)

Net cash flows from financing activities (21 600)

Net increase (decrease) in cash and cash equivalents (21 600)

Cash and cash equivalents at beginning of year 37 200
Cash and cash equivalents at end of year $15 600
Workings:

Purchase of plant and equipment

Plant and Equipment

Balance b/d 72 000 Depreciation 11 400
Carrying amount of equipment 10 200
sold
Purchase 43 200 Balance c/d 93 600
115 200 115 200

Accumulated Depreciation – Plant and Equipment

Depreciation of equipment sold 11 400 Balance b/d 26 400
Balance c/d 28 800 Depreciation for current 13 800
period
40 200 40 200

Dividends paid

Retained Earnings
Dividends paid 26 400 Balance b/d 34 000
Balance c/d 23 200 Profit for the period 15 600
49 600 49 600

B.

TITANIUM LTD
Statement of Cash Flows
for the year ended 30 June 2018

Cash flows from operating activities:

Cash receipts from customers $280 800
Cash paid to suppliers and employees (245 400)
Cash generated from operations 35 400
Interest paid (1 200)
Income taxes paid (1 200)
Net cash from operating activities $33 000

Cash flows from investing activities:

Sale of plant and equipment 10 200
Purchase of plant and equipment (43 200)
Net cash used in investing activities (33 000)

Cash flows from financing activities:

Proceeds from loans 4 800
Dividends paid (26 400)
Net cash used in financing activities (21 600)

Net increase (decrease) in cash and cash equivalents (21 600)

Cash and cash equivalents at beginning of year 37 200
Cash and cash equivalents at end of year $15 600
Workings:

Cash receipts from customers

Accounts Receivable
Balance b/d 33 600 Cash from customers 280 800
Sales 264 000 Balance c/d 16 800
297 600 297 600

Cash paid to suppliers

Cash payments for purchases
Inventory
Balance b/d 30 000 Cost of Goods sold 216 000
Purchases 228 000 Balance c/d 42 000
258 000 258 000

Accounts Payable
Cash paid 232 800 Balance b/d 32 400
Balance c/d 27 600 Purchases 228 000
260 400 260 400

Cash paid to suppliers and employees = $232 800 (inventory) + $16 800 (selling expense)
+ $9 600 (administrative expense)
-$13 800 (depreciation)
= $245 400

Income tax paid

Current Tax Liability

Cash paid 1 200 Balance b/d 6 000
Balance c/d 9 600 Income tax expense 4 800
10 800 10 800