Splash plc has a number of subsidiaries, one of which, Muck Ltd, was acquired during the year ended 31 December 2009.
The draft consolidated financial statements for the year ended 31 December 2009 are as follows:
Consolidated statement of comprehensive income of Splash plc for the year ended 31 December 2009
..............................................................................€000
Profit from operations....................................................1,210
Interest.........................................................................(100)
.......................................................................................1,110
Share of profits of associates.............................................240
Profit before taxation...................................................1,350
Taxation........................................................................(482)
........................................................................................868
Non-controlling interest................................................(104)
Group profit...................................................................764
Statements of financial position

Additional information:
1. Splash plc issued 400,000 €1 ordinary shares at a premium of 25 cents and paid a cash consideration of €197,500 to acquire 75% of Muck Ltd. At the date of acquisition, Muck Ltd's assets and liabilities were recorded at their fair value with the exception of some plant which had a fair value of €90,000 in excess of its carrying value. Goodwill on acquisition was €120,000.
2. The property, plant and equipment during the year to 31 December 2009 shows plant with a carrying value of €800,000 which was sold for €680,000. Total depreciation for the year was €782,000.
Required:
(a) Prepare a consolidated statement of cash flows in accordance with IAS 7 Statement of Cash Flows for the year ended 31 December 2009.
(b) The Managing Director of Splash plc has asked you to draft a memorandum, briefly explaining the following:
(i) Why is it important to remove unrealised profits arising from transactions between companies in a group?
(ii) Is it possible for a business to make losses year after year but still increase its bank balance?
(iii) Explain the difference between the direct method and indirect methods of calculating the net cash flow from operating activities.