Sparklers plc have completed the preparation of their income statement for the year ended 31 October 2010 and their balance sheet as at 31 October 2010. During the year Sparklers sold some non-current assets for £2m that had originally cost £11m. The cumulative depreciation on those assets at 31 October 2009 was £7.6m.

You have been asked to prepare a statement of cash fl ows for the year ended 31 October 2010 in compliance with IAS 7. The directors are concerned about the large bank overdraft at 31 October 2010, which they believe is due mainly to the increase in trade receivables as a result of apparently poor credit control. What is your assessment of the reasons for the increased short-term borrowings?

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Operating profit Interest paid Interest received Profit before tax Income tax expense Sparklers plc Income statement for the year ended 31 October 2010 Profit for the year Dividends: Preference paid Ordinary: interim paid final proposed Retained profit for the year m m 2010 2009 41.28 18.80 (0.56) - 0.08 0.20 40.80 19.00 (10.40) (6.40) 30.40 12.60 (0.20) (0.20) (4.00) (2.00) (12.00) (6.00) 14.20 4.40