Camani Corp. (CC) is involved in the production, distribution, and marketing of consumer products that encompass a broad range of items, from hair care products, to cosmetics and perfume, to vitamins and supplements. CC has been hard hit by the recent economic downturn, during which consumer spending has been curtailed. The financial results of the current. year, 20X3, are critical for all stakeholders and will reflect on the viability of the existing strategic model. The executive team will receive a healthy ?return to profitability? bonus if 20X3 earnings are positive, after two years of losses. You are a member of the board of directors of CC and sit on the audit committee. You have a fair understanding of financial statements and take some pride in your technical proficiency. You have just left an audit committee meeting, where a 20X3 summarized draft SFP and a summarized draft statement of earnings has been presented (Exhibit 1). Earnings are positive. However, you are concerned that no SCF has yet been prepared. You also are concerned that some of the estimates and policy decisions made might have been affected by management?s desire to show positive 20X3 earnings (Exhibit 2).

Therefore, you have decided to do some analysis of your own. First, you want to calculate cash flow from operating activities for the draft set of financial statements that have been presented. Second, you feel you could learn about the sensitivity of the results if you adjust the financial statements for estimates and policies that you believe are aggressive. Finally, you plan to recalculate cash from operating activities based on your revised financial statements. You know you will need to write a brief report around your analysis so that you can refer it on to the chair of the audit committee for discussion at your next meeting.

Required:Prepare the suggested analysis and report. Note that CC includes dividend payments to its shareholders as an operating cash flow. There is no income tax.

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EXHIBIT 1 Summarized At 31 December (in thousands) Assets CAMANI CORPORATION Draft 20X3 Statement of Financial Position Cash Accounts receivable Inventory Prepaids Land Plant and equipment (net) Other assets Total assets 20X3 $ 2,340 16,780 61,920 542 5,860 19,720 650 $107,812 20X2 $ 1,680 13,040 54,970 455 5,860 18,650 290 $94.945