11.5 The balance sheets of Rapier Ltd at 30 September 1996 and 30 September 1997 are given below.

Balance sheets as at 30 September 1996 1997

£000 £000 £000 £000 Fixed assets (see note 1)

Cost 600 730 Aggregate depreciation 220 240 380 490 Current assets Stock 81 90 Debtors 90 86 Cash 4 7 175 183 Creditors: amounts falling due within one year Trade creditors 48 50 Bank overdraft 13 18 Proposed dividends 18 22 79 90 Net current assets 96 93 Total assets less current liabilities 476 583 Creditors: amounts falling due after more than one year 10% debentures (see note 2) (100) (50)
376 533 Capital Called up share capital Ordinary shares of £1 each 150 200 Share premium account 50 80 Revaluation reserve – 50 Profit and loss account 176 203 376 533

(a) Prepare a cash flow statement for the year ended 30 September 1997 using the indirect method.
Your answer should comply as far as possible with the requirements of FRS 1 as revised in October 1996 and should include the reconciliation of operating profit to net cash flow from operating activities.
The note reconciling net cash flow with movement in net debt is not required.
(16 marks)

(b) Give two examples of ways in which a cash flow statement can assist users in assessing a company’s liquidity and financial adaptability. (4 marks)
(20 marks)
(ACCA, Paper 1, The Accounting Framework, December 1997)