Bright Ltd is a retailer of electrical products. The CEO of the company had two concerns: the company's worsening cash position ($50 000 cash and no bank loan at the end of 2015, and no cash and a $ 100 000 bank loan at the end of 2016) and an inadequate level of net profit (according to the CEO).
1. The CEO was confused because the company had a $90000 profit, yet seemed, as noted above, $150000 worse off in its cash position. Explain briefly how, in general, this difference between profit and cash change can happen.
2. For each of the proposed changes below, considered separately and independently, calculate the effect on 2016 net profit and total assets as at 31 December 2016. Assume a 30 percent income tax rate.

a. The CEO suggested recognising revenue at an earlier point. If this were done, net accounts receivable would be increased by $1 20000 at 31 December 2015 and by $230000 at 31 December 2016. 

b. The CEO suggested changing the inventory cost policy to FIFO (which would still produce costs less than net realisable value). Doing this would increase 31 December 2015 inventories by $40000 and 31 December 2016 inventories by $10000.

c. The CEO suggested capitalising more of the company's product development costs and amortising additional capitalised amounts over five years, using the straight-line method. If this were done, $40000 of 2015 expenses would be capitalised at 31 December 2015 and $60000 of 2016 expenses would be capitalised at 31 December 2016.