Introduction
A cash flow statement is a financial statement that provides aggregate data regarding all cash inflows a company receives from its ongoing operations and external investment sources. It also includes all cash outflows that pay for business activities and investments during a given period.
Transactions must be segregated into three types of activities presented on the cash flow statement:
- Cash flow from Operating Activities
- Cash flow from Investing activities
- Cash flow from Financing activities
In our lesson today we will be focusing on the Cash flow from Operating Activities.
Task
Prepare the Cash flow from Operating Activities with the information given below:
Statement of profit and loss and other comprehensive income for the year ended 28February2019.
| Sales | 500 000 |
| Cost of sales | (200 000) |
| Gross profit | 300 000 |
| Other Income | 60 000 |
| Gross Operating income | 360 000 |
| Operating expenses | (180 000) |
| Financing costs | (30 000) |
| Net profit before taxation | 150 000 |
| Income tax | (42 000) |
| Net profit after tax | 108 000 |
Other incomes include dividends received of R50 000. Operating expenses include depreciation and a loss on the sale of equipment.
Statement of financial position.
| 2019 | 2018 | |
| Assets | ||
| Non current assets | 1160000 | 1020000 |
| Fixed assets | 880 000 | 800 000 |
| Financial assets | 280 000 | 220 000 |
| Current assets | 321 000 | 345 000 |
| Stock | 175 000 | 188 000 |
| Trade and other receivables | 45 000 | 25 000 |
| Cash and cash equivalents | 101 000 | 132 000 |
| Total assets | 1481000 | 1365000 |
| Equity and liabilities | ||
| Shareholders equity | 1138000 | 1060000 |
| Ordinary share capital | 700 000 | 600 000 |
| Retained income | 143 000 | 215 000 |
| Other components of equity | 135 000 | 45 000 |
| Ordinary shareholders equity | 978 000 | 860 000 |
| Preference share capital | 160 000 | 200 000 |
| Non current liabilities | 120 000 | 150 000 |
| Loan C-bank | 120 000 | 150 000 |
| Current Liabilities | 223 000 | 155 000 |
| Trade and other payables | 115 000 | 55 000 |
| Shareholders for dividend | 78 000 | 70 000 |
| Short term loan | 30 000 | 30 000 |
| Total equity and Liabilities | 1481000 | 1365000 |
Additional information:
Share Capital
Authorised:
1 500 000 ordinary shares
100 000 5% redeemable preference shares
Issued :
- 1 200 000 ordinary shares at the beginning of the year @R600 000
- 200 000 ordinary shares during the year @R100 000
- 1 400 000 ordinary shares at the end of the year = R700 000.
Preference shares:
- 25 000 5% redeemable preference shares at the beginning of the year @ R200 000
- (5 000) 5% redeemable preference shares redeemed during the year @ R40 000.
- 20 000 5% redeemable preference shares at the end of the year = R160 000.
Preference shares were redeemed from profits on 1 September 2018. A dividend for 6 months was paid to these shareholders. Ordinary shares were issued on 30 September 2018.
An interim dividend of 5 cent per share was declared to ordinary shareholders on 1 August 2018 and was paid on 30 August 2018.
A final dividend was declared for preferance shareholders and 5 cents per share for ordinary shareholders at the end of the financial year.
Depreciation:
Land and buildings was revaluated from R400000 to R450000 during the year.
No vehicles were bought or sold during the financial year. Depreciation on vehicles of R20000 was written off in the current financial year. The book value of vehicles was R50 000 on 28 February 2018.
The depreciation on equipment for the current financial year is R6000. New equipment was bought during the financial year, while old equipment with a book value of R30 000 was sold for R25 000 at the beginning of the financial year.
SARS:
Included in trade and other receivables was Sars (2018) R4500.
Included in trade and other payables was Sars (2019) R8000.
Process
Format:
Cash flow from Operating Activities
| Cash receipt from customers | xxx |
| - Cash paid to suppliers and employees | xxx |
| = Cash generated from Operating activities | xxx |
| Dividends received | xxx |
| Interest expense | xxx |
| Tax paid | xxx |
| Dividends paid | xxx |
| Net cash flow from Operating Activities | xxx |
Cash receipt from customers
| Revenue | xxx |
| + Opening balance Trade and other receivables | xxx |
| - Closing balance Trade and other receivables | xxx |
| Xxx |
Cash paid to suppliers and employees
| Revenue | xxx |
| - profit before taxation | xxx |
| = expenditure for the year | xxx |
| Interest paid | xxx |
| Investment income | xxx |
| Depreciation | xxx |
| Profit/loss on sale of asset | xxx |
| Increase/decrease in inventories | xxx |
| Increase/decrease in trade and other payables | xxx |
| Xxx |
Reconciliation of profit before taxation with cash generated from Operating Activities
| Profit before taxation | xxx |
| Dividends received | xxx |
| Interest expense | xxx |
| Depreciation | xxx |
| Profit/loss on sale of asset | xxx |
| Operating profit before changes in working capital | xxx |
| Increase/ decrease in inventories | xxx |
| Increase/ decrease in trade and other payables | xxx |
| Increase/ decrease in trade and other receivables | xxx |
| Cash generated from Operating Activities | xxx |
Evaluation
Rubric
| 1. | Distinguish between ordinary shares and preference shares |
| 2. | Analyze information |
| 3. | Calculate efficiently |
| 4. | Understand the difference between income and expenditure |
| 5. | Apply the information given |
Memorandum
Cash Flow from Operating Activities
| Cash receipt from customers | 475500 |
| - Cash paid to suppliers and employees | (274000) |
| = Cash generated from Operating Activities | 201500 |
| Dividends received | 50 000 |
| Interest expense | (30 000) |
| Tax paid | (29 500) |
| Dividends paid | (132000) |
| Net cash flow from Operating Activities | 60 000 |
Cash receipt from customers
| Revenue | 500000 |
| + Opening balance Trade and other receivables | 20 500 |
| - Closing balance Trade and other receivables | (45000) |
| 475500 |
Cash paid to suppliers and employees
| Revenue | 500000 |
| - Profit before tax | (150000) |
| = Expenditure for the year | 350000 |
| Interest paid | (30 000) |
| Investment income | 50 000 |
| Depreciation (20000+6000) | (26 000) |
| Profit/loss on sale of asset (30000-25000) | (5 000) |
| Increase/decrease in inventories (188000-175000) | (13 000) |
|
Increase/ decrease in trade and other payables(55000-107000) |
(52 000) |
| 201500 |
Reconciliation of profit before tax with cash generated from operations
| Profit before tax | 150000 |
| Dividends received | (50000) |
| Interest expense | 30 000 |
| Depreciation | 26 000 |
| Profit/loss on sale of asset | 5 000 |
| Operating profit before working capital changes | 161000 |
| Increase/decrease in inventories | 13 000 |
| Increase/decrease in trade and other receivables | 52 000 |
| Increase/decrease in trade and other payables | (24500) |
| Cash generated from Operating Activities | 201500 |
Conclusion
In the following lesson we will work on the investing Activities. Also complete the question 21.9 for homework. (Fundamental Accounting 7th Edition)
Credits
Fundamental Accounting (David Flynn and Carolina Koornhof), 7th Edition
Teacher Page
Learners are welcome to contact me if they have any questions.
Contact Details
Ms Damon
Cell: 0612575788
Email: 217214495damon@gamil.com