1.

PRACTICAL PROBLEMS (CFS)

The income statement of the year and the balance sheets of last year and this year have been given below:
Income Statement for the year ended December 31, 2007
Sales revenue
$800,000
Less cost of goods sold:
Purchasing
300,000
Add: opening inventory
50,000
Less: closing inventory
80,000
$270,000
Wages
210,000
Cost of goods sold
$480,000
Gross profit
$320,000
Less operating expenses:
Office salaries and other expenses
$120,000
Depreciation
50,000
Interest on debenture
30,000
Provision for taxation
40,000
Provision for dividend
20,000
Premium on debenture redemption
10,000
Total operating expenses
$270,000
Net income
$50,000
Profit on sale of plant
20000
Retained earnings
$70,000
Comparative Balance Sheet
Cash at bank
Accounts receivable
Inventory
Prepaid expenses
Total current assets
Land and building at cost
Plant and machinery at cost
Accumulated depreciation
Investment
Total fixed assets
Total assets
Accounts payable
Provision for tax
Provision for dividend
Provision for doubtful debt
Total current liabilities
Bank loan
15% Debenture
Total liabilities
Share capital
Share premium
Retained earnings
Total shareholders equity
Total liabilities and equity

31/12/2006
$20,000
40,000
50,000
10,000
$120,000
$240,000
500,000
(200,000)
160,000
$700,000
$820,000
$38,000
20,000
10,000
2,000
70,000
200,000
$270,000
500,000
50,000
$550,000
$820,000

31/12/2007
$40,000
56,000
80,000
14,000
$190,000
$300,000
650,000
(210,000)
200,000
$940,000
$1,130,000
$76,000
40,000
20,000
4,000
140,000
50,000
100,000
$290,000
700,000
70,000
70,000
$840,000
$1130,000

Additional information:
1. Long-term investments were purchased for $40,000.
2. Land was purchased for $60,000.
3. Machinery with an original cost of $100,000 and accumulated depreciation of $40,000 was sold.
4. 15% Debenture with a face value of $100,000 were retired by paying $110,000 in cash.
5. Capital stock was issued for cash.
Required:
Cash flow statement using direct method and indirect method.
1.

Raghavendra Rao set up the Antariksh Material Company in 20x3. The company supplies specialized materials to the Indian
Space Research Organization (ISRO) for use in the latters space program. Rao is considering proposals for investment totaling
$100 million during 20x9. He hopes to meet the financing need by a combination of internal cash generation and bank loans.
The profit and loss account for the year ended June 30, 20x8, and the balance sheet as at June 30, 20x7 and 20x8 are as follows
(amount in thousands):
Antariksh Material Company, Income statement

For the year ended June 30, 20x8

Sales revenue
Gain on sale of plant
Cost of goods sold
Selling and Administrative Expenses
Interest expenses
Amortization of Patents
Income before taxes
Income tax expenses
Net income
Antariksh Material Company, Balance Sheet, June 30
Assets
Cash and Cash equivalents
Accounts receivable
Inventories
Prepayments
Total current assets
Long term investments
Plant and equipment
Accumulated depreciation
Patents
Total long term assets
Total assets
Liabilities and shareholders equity:
Accounts payable
Income taxes payable
Total current liabilities
Secured loans
Unsecured loans
Total liabilities
Shareholders equity:
Common stock
Retained earnings
Total stockholders equity
Total liabilities and stockholders equity

20x8

20x7

7,000
95,425
153,000
1,100
256525
10,000
191,000
(44,300)
8,000
164,700
$421,225

$ 29,000
54,000
85,000
8,000
176,000
10,000
174,000
(36,000)
9,000
157,000
$333,000

$12,000
4,000
16,000
128,000
12,000
156,000

$18,000
5,000
23,000
79,000
14,000
116,000

125,100
140,125
265,225
$421,225

103,100
113,900
217,000
$333,000

$290,000
800
167,800
20,500
2,000
1,000
99,500
42,000
57,500

Additional information:
a. During the period, unsecured loans of $2,000,000 were repaid.
b. Depreciation of $9,000,000 was included in Cost of Goods Sold.
c. Plant costing $2,000,000 and having an accumulated depreciation of $700,000 was sold for 2,100,000.
d. Equity shares of $3,000,000 were issued during the period.
e. Dividend of $31,275,000 were paid.
f. Secured debentures of $49,000,000 were issued.
g. Plant costing $19,000,000 was exchanged for equity shares.
h. Investments are in the form of equity shares in an associate.
Required:
i.
Prepare a cash flows statement using the direct method for the Antariksh Material Company for the year ended June
30, 20x8.
ii.
How much cash did the company generate internally during the year ended June 30, 20x8?
iii.
Antariksh Material Company approaches your bank for a loan of $60 million. As a lending officer in the bank, will
you recommend the loan?