The management of Locale Ltd is worried because the bank overdraft has increased by a substantial amount over the financial year ended 30 June 2021 despite a large profit and the introduction of additional capital. The internal comparative statements of financial position at 30 June 2020 and 2021 were as follows.

The statement of profit or loss and other comprehensive income for the year ended 30 June 2021 for Locale Ltd, prepared for management purposes, is shown below.

Additional information 

1. The land was revalued upwards during the year by $22 500.

2. During the year, a dividend of $33 750 had been paid.

3. Plant and equipment which had originally cost $82 500 and had been depreciated by $15 000 was sold during the year for $71 250.

4. The company pays income tax in four instalments and the first three instalments have been paid. For the year ended 30 June 2020, the ATO issued an amended assessment of $12 750 resulting in an underprovision of $3750 being recorded in 2021.

Required

(a) Prepare a statement of cash flows as per current accounting standards using the direct method.

(b) Prepare a note reconciling cash flows from operating activities to profit.

(c) Prepare a brief report to management explaining the flow of cash and cash equivalents.

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EQUITY Share capital Revaluation surplus General reserve Retained earnings LOCALE LTD Comparative Statements of Financial Position as at 30 June 2020 2021 $450 000 $577 500 22 500 75000 73 500 $598 500 127 500 117 750 $845 250 NON-CURRENT ASSETS Land 15000 Buildings 90 000 37 500 90 000 Accumulated depreciation - buildings (45 000) (52 500) Plant and equipment 310 500 450 000 Accumulated depreciation plant and equipment (40 500) (83 250) 330 000 441 750 CURRENT ASSETS Petty cash Accounts receivable Allowance for doubtful debts Inventory LESS: CURRENT LIABILITIES Accounts payable Current tax liability Bank overdraft Working capital TOTAL NET ASSETS 300 550 161 250 300 000 (15 000) (30 000) 273 750 458 250 420 300 728 800 54 300 44 500 9000 22 050 88 500 258 750 151 800 325 300 268 500 403 500 $598 500 $845 250