20.3 The following information is extracted from the financial statements of Kerr and Bush Ltd on 31 October 20X6.

Profit and loss account for the year ended 31 October 20X6

£000

£000 Sales 2,000 Operating expenses 820 Depreciation 200 Goodwill amortised 100 1,120 Operating profit 880 Debenture interest 40 Net profit before tax 840 Taxation 170 Profit after tax 670 Dividends 130 Retained profit 540 Balance sheets As at As at 31.10.X5 31.10.X6

£000

£000 Fixed assets Goodwill 100 Tangible Plant and machinery 2,000 2,900 Less: Depreciation 400 1,600 600 1,700 2,300 Current assets Stock 480 1,150 Debtors 400 980 Bank 100 120 980 2,250 Current liabilities Taxation 150 180 Creditors 200 500 Dividends 130 480 130 810 Net current assets 500 1,440 c/f 2,200 3,740 b/f 2,200 ■
3,740 8% Debentures -
500 Share capital and reserves 2,200 3,240 Ordinary share capital 2,000 2,400 Share premium account -
100 Profit and loss account 200 740 2,200 3,240 Required:

(a) Prepare a cash flow statement for Kerr and Bush Ltd for the year ended 31 October 20X6.

(b) Comment on the purpose and usefulness of cash flow statements in the interpretation of financial statements.