Rory’s Newsmart owns and runs four stationery shops in Edinburgh, supplying retail and trade customers. Rory, who is the managing director of the company, has asked for your help. He is very concerned because he suspects that one of the shop managers has been stealing money from the business. He comments as follows: During the last year, the company has been thriving, with increased sales, and a new successful branch has been opened. Funds were raised from a share issue, and the company has never paid any dividends. Despite this, the business has been increasing its overdraft throughout the year, and it currently stands at £70,000. Will you look at my figures for me, please?’ You agree to help, and he supplies you with relevant extracts from the company’s financial statements (Tables 7.8, 7.9, and 7.10).

REQUIRED:

a) Prepare a statement of cash flows for the year ended 31 March 2014. (Note that no non-current assets were disposed of during the year.)

b) Comment briefly on the statement that you have prepared, and in particular, advise Rory on whether or not his concerns are justified.

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Table 7.8 Rory's Newsmart Ltd Extract from the income statement the year ended 31 March 2014 Operating profit Tax (all paid during the year) Profit for the year 69,000 21,000 48,000 Table 7.9 Rory's Newsmart Ltd Statement of changes in equity for the year ended 31 March 2014 Ordinary Share Retained share premium profits Total equity capital At 1 April 2013 250,000 150,000 120,000 520,000 Share issue 50,000 70,000 120,000 Profit for the year 48,000 48,000 At 31 March 2014 300,000 220,000 168,000 688,000