Weekly Assignments 2

ACCG 871
Name: Sangwon Kim
Sdi: 41980212

Discussion questions.
2. How might a statement of cash flow be used?

 Evaluating an entity’s ability to generate cash and cash equivalents, and the timing and
certainty of their generation.
 Evaluating an entity’s financial structure ( including liquidity and solvency ) and its ability
to meet its obligations and to pay dividends
 Understanding the reasons for the difference between profit or loss for a period and the
net cash flow from operating activities ( the reasons for the differences are often helpful
in evaluating the quality of earnings of an entity)
 Comparing the operating performance of different entities, because net operating cash
flows are unaffected by accounting choice and judgments under accrual accounting
system used in determining the profit or loss of an entity.
 Enabling the development of models to assess and compare the present value of the
future cash flows of different entities.

6. Difference between the presentation of cash flows from operating activities under direct
method and indirect method. Which one do you prefer?

Statement of cash flow

Direct method
For the year ended 31 December

Cash flows from operating activities

Cash receipts from customers $XXX
Cash paid to suppliers and employees (XXX)
Cash generated from operations XXX
Interest received XXX
Interest paid (XXX)
Income tax paid (XXX)
Net cash from operating activities XXX

Cash flows from investing activities

Acquisition of subsidiary, net of cash required (XXX)
Purchase of property and plant (XXX)
Proceeds from sale of plant XXX
Net cash used in investing activities (XXX)

Cash flows from financing activities

Proceeds from share issue XXX
Proceeds from borrowings XXX
Payment of borrowings (XXX)
Dividends paid (XXX)
Net cash from financing activities XXX
Net increase in cash and cash equivalents XXX
Cash and cash equivalents at beginning of year XXX
Cash and cash equivalents at end of year XXX

Statement of Cash Flows

Indirect method
For the year ended 31 December

Profit before tax $XXX

Adjustments for:
Depreciation XXX
Foreign exchange loss XXX
Loss on sale of equipment XXX
Interest income (XXX)
Interest expense XXX
Increase in trade and other receivables (XXX)
Decrease in inventories XXX
Increase in accounts payable XXX
Decrease in accrued liabilities (XXX)
Cash generated from operations XXX
Interest received XXX
Interest paid (XXX)
Income taxes paid (XXX)
Net cash from operating activities XXX

Problem 19.5

Strasbourg Ltd
Statement of Cash Flows (extract)
For the year ended 31 December 2010
Cash Flows from operating activities
Cash receipts from customers $997,000
Cash paid to suppliers ($786,000)
Cash generated from operations $211,000
Interest paid *(5,000)
Income tax paid (11,000)
Net cash from operating activities $195,000

Strasbourg Ltd
Statement of Cash Flows (extract)
For the year ended 31 December 2010
Cash flows from operating activities
Profit before tax $82,000
Adjustment for:
Depreciation 0
Interest income 0
Gain on sale of Plant 0
Interest expense 7000
Increase in Accounts receivable (36,000)
 Increase in inventory (22,000)
Increase in accounts payable 3000
Cash generated from operations 34,000
Interest paid *(5,000)
Income tax paid (11,000)
Net cash from operating activities $18,000

Problems 19.6
Tovlon Ltd
Statement of cash flows (extract) (Direct method)
For the year ended 30 June 2010
Cash flows from operating activities
Cash receipts from customers $3,192,000
Cash paid to suppliers ($2,919,000)
Cash generated from operations $273,000
Interest paid *(4,000)
Income tax paid (118,000)
Net cash from operating activities $151,000

Tovlon Ltd
Statement of cash flows (extract) (Indirect method)
For the year ended 30 June 2010
Cash flows from operating activities
Profit before tax $343,000
Adjustment for:
Depreciation 0
Interest income 0
Gain on sale of Plant 16,000
Interest expense 8000
Increase in Accounts receivable (20,000)
Increase in inventory (60,000)
Increase in accounts payable 5000
Cash generated from operations 292,000
Interest paid *(4,000)
Income tax paid (118,000)
Net cash from operating activities $170,000