Self-test The balance sheets of Essex Ltd at 30 September 2001 and 2002 are as follows:

Balance sheets as at 30/9/01 30/9/02

£000 £000 £000 £000 Tangible fixed assets:

At cost or valuation 3,770 4,890 Depreciation to date 1,420 2,350 1,660 3,230 Current assets:

Stocks 1,760 1,860 Trade debtors 1,300 1,550 Cash at bank 990 –

4,050 3,410 Current liabilities:

Trade creditors 900 1,190 Corporation tax 720 –

Proposed dividends 1,400 –

Bank overdraft – 510 3,020 1,700 Net current assets 1,030 1,710 3,380 4,940 7% debentures – 1,000 3,380 3,940 Capital and reserves:

Ordinary shares of 50p 1,000 1,200 Share premium account 750 1,070 Revaluation reserve – 500 Profit and loss account 1,630 1,170 3,380 3,940 The following information is also available:

1. During the year to 30 September 2002, freehold land included in tangible fixed assets was revalued from its cost of £400,000 to its estimated market value of

£900,000 2. In January 2002, tangible fixed assets which had cost £600,000 in 1998 were sold for £250,000. The accumulated depreciation provided in relation to these assets at the date of disposal was £320,000.
3. The 7% debentures were issued on 1 October 2001. Interest is payable annually on 30 September and has been paid on the due date.
4. Bank overdraft interest paid during the year to 30 September 2002 was £27,000.
5. No interim dividend was paid during the year to 30 September 2002 and no final dividend is proposed. The previous year’s proposed dividend was paid in December 2001.
6. The corporation tax creditor at 30 September 2001 was underestimated by £26,000.
7. In March 2002, 400,000 ordinary shares were issued at £1.30 per share.
Requirement for question

(a) Prepare a cash flow statement for Essex Ltd for the year to 30 September 2002 in accordance with the requirements of accounting standard FRS1 (Revised)
using the indirect method. The reconciliation to movement in net debt is not required.

(b) Briefly explain why the cash position of Essex Ltd has deteriorated during the year to 30 September 2002.
(CIPFA Financial Accounting Foundation Stage December 2002)