12.7 The following information relates to the affairs of General Engineering plc:

Balance sheets at 31 December 20X7 20X8

£000 £000 £000 £000 Fixed assets Plant at cost less depreciation 2,600 2,760 Property at cost less depreciation 800 700 Investment at cost 300 250 3,700 3,710 Current assets Stocks and work in progress 900 2,120 Debtors 660 700 Deposits at bank 290 620 1,850 3,440 Less: Creditors due within one year Creditors − 520 − 720 Proposed final dividend − 400 − 400 − 920 − 1,120 Working capital 930 2,320 4,630 6,030 Less: Creditors due after more than one year Long term loan (12%) – −300 4,630 5,730 Financed by:
Issued share capital 2,000 2,500 Share premium account – 200 Retained profit 2,630 3,030 4,630 5,730 Extracts from the profit and loss account for 20X8 £000 Trading profit for the year after charging all costs, including depreciation of plant, £250,000, and depreciation of property, £100,000 700 Interest and dividends received, less interest paid 20 Net profit from ordinary activities 720 Add: Profit from the sale of an investment 80 800 Less: Proposed dividend − 400 Retained profit for the year 400 Retained profit at 1 January 20X8 2,630 Retained profit carried forward 3,030 During 20X8 investments that had cost £50,000 some years earlier were sold for £130,000.

(a) A cash flow statement for the year to 31 December 20X8.

(b) A discussion of the change in the financial position of General Engineering between the end of 20X7 and the end of 20X8. You are not required to examine the profitability of the firm, but should use the working capital and liquidity ratios to help assess financial developments.