Batfish Limited is incorporated in Hong Kong with limited liability and is principally engaged in the manufacture of electronic products including q-phone. The draft financial statements for the year ended December 31, 2020 are as below: Statement of profit or loss and other comprehensive income for the year ended December 31, 2020 Revenue Cost of sales Gross profits Administration expense Distribution expense Profits before tax Taxation Profits for the year (Note 1) Other comprehensive income Gain on revaluation of property, plant and equipment $000 8,500 (3,000) 5,500 (600) (780) 4,120 (750) 3,370 3,500 Total comprehensive income for the year 6,870 Statement of financial position as at December 31, 2020 2020 $000 2019 $000 Non-current assets Property, plant and equipment Prepaid land lease payment Intangibles assets Investment properties Certificate of deposit 17,500 1,400 2,800 6,500 4,200 32,400 10,000 2,100 2,600 5,200 3,800 23,700 Current assets Inventories Trade receivables Marketable securities Interest receivables Cash and bank Total assets 6,000 5,500 5,800 480 1,400 51,580 4,500 3,500 4,800 350 1,200 38,050 Equity and reserves Share capital Retained profits Other reserves 18,200 6,170 6,000 11,000 3,500 2,500 30,370 17,000 Current liabilities Trade payables Other payables Interest payables Tax payables Bank overdraft 2,500 1,110 3,100 2,200 300 3,800 3,200 2,800 1,750 500 Non-current liabilities Bank loans Total equity and liabilities 12,000 51,580 9,000 38,050 The following information is available: 1. Profit for the year has been arrived at after charging (crediting): Auditor's remuneration Depreciation charge Directors' remuneration Advertising expenses Impairment loss on accounts receivables Inventories write down Impairment loss on intangible assets Gain on sale of investment properties Gain on sale of property, plant and equipment Finance cost Interest income Release of prepaid lease rental payments Rental expense Change in fair value of investment properties $000 400 1,100 1,600 700 100 200 700 (700) (200) 400 (150) 700 900 (600) 2. The certificate of deposit was a 5-year certificate of deposit that paid 5% compounded semi-annually with a maturity date of 31 December 2023. 3. 800,000 ordinary shares were issued during the year at $9 per share. 4. During the year, Batfish Limited sold a delivery truck for $1,600,000. In the books of Batfish Limited, the information about the truck is: Cost $2,500,000 Accumulated depreciation $1,100,000 5. The marketable securities, acquired in November 2020, were highly liquid and were due to mature on February 1, 2021. 6. One of the investment properties with a carrying amount of $4,200,000 was sold for $4,900,000. The investment properties fair value had increased by $600,000 at year end. 7. It was Batfish Limited's policy to perform impairment loss test on its assets at year end. Impairment losses, if any, were written off immediately as expenses. After years of research, Batfish Limited had a great progress in the development of smartphone. Batfish Limited was ready to launch a new smartphone model called Z- phone. However, there was a need for an additional investment in the research and development. Batfish Limited planned to invite Horsefish Hi-Tech Limited to become its investor. In considering this investment project in Batfish Limited, Horsefish Hi- Tech Limited requested Batfish Limited to provide a set of financial statements (the statement of financial position, statement of profit or loss and other comprehensive income and statement of cash flow) for the year ended December 31, 2020 for a review. Required: (a) Prepare the statement of cash flows for the year ended December 31, 2020, using the indirect method to determine the cash flows from operating activities, for Batfish Limited, beginning with profit before tax. All figures should be rounded to the nearest thousand dollars. (80 marks) (b) Advise whether Horsefish Hi-Tech Limited should agree to become an investor of Batfish Limited. (20 marks) Batfish Limited is incorporated in Hong Kong with limited liability and is principally engaged in the manufacture of electronic products including q-phone. The draft financial statements for the year ended December 31, 2020 are as below: Statement of profit or loss and other comprehensive income for the year ended December 31, 2020 Revenue Cost of sales Gross profits Administration expense Distribution expense Profits before tax Taxation Profits for the year (Note 1) Other comprehensive income Gain on revaluation of property, plant and equipment $000 8,500 (3,000) 5,500 (600) (780) 4,120 (750) 3,370 3,500 Total comprehensive income for the year 6,870 Statement of financial position as at December 31, 2020 2020 $000 2019 $000 Non-current assets Property, plant and equipment Prepaid land lease payment Intangibles assets Investment properties Certificate of deposit 17,500 1,400 2,800 6,500 4,200 32,400 10,000 2,100 2,600 5,200 3,800 23,700 Current assets Inventories Trade receivables Marketable securities Interest receivables Cash and bank Total assets 6,000 5,500 5,800 480 1,400 51,580 4,500 3,500 4,800 350 1,200 38,050 Equity and reserves Share capital Retained profits Other reserves 18,200 6,170 6,000 11,000 3,500 2,500 30,370 17,000 Current liabilities Trade payables Other payables Interest payables Tax payables Bank overdraft 2,500 1,110 3,100 2,200 300 3,800 3,200 2,800 1,750 500 Non-current liabilities Bank loans Total equity and liabilities 12,000 51,580 9,000 38,050 The following information is available: 1. Profit for the year has been arrived at after charging (crediting): Auditor's remuneration Depreciation charge Directors' remuneration Advertising expenses Impairment loss on accounts receivables Inventories write down Impairment loss on intangible assets Gain on sale of investment properties Gain on sale of property, plant and equipment Finance cost Interest income Release of prepaid lease rental payments Rental expense Change in fair value of investment properties $000 400 1,100 1,600 700 100 200 700 (700) (200) 400 (150) 700 900 (600) 2. The certificate of deposit was a 5-year certificate of deposit that paid 5% compounded semi-annually with a maturity date of 31 December 2023. 3. 800,000 ordinary shares were issued during the year at $9 per share. 4. During the year, Batfish Limited sold a delivery truck for $1,600,000. In the books of Batfish Limited, the information about the truck is: Cost $2,500,000 Accumulated depreciation $1,100,000 5. The marketable securities, acquired in November 2020, were highly liquid and were due to mature on February 1, 2021. 6. One of the investment properties with a carrying amount of $4,200,000 was sold for $4,900,000. The investment properties fair value had increased by $600,000 at year end. 7. It was Batfish Limited's policy to perform impairment loss test on its assets at year end. Impairment losses, if any, were written off immediately as expenses. After years of research, Batfish Limited had a great progress in the development of smartphone. Batfish Limited was ready to launch a new smartphone model called Z- phone. However, there was a need for an additional investment in the research and development. Batfish Limited planned to invite Horsefish Hi-Tech Limited to become its investor. In considering this investment project in Batfish Limited, Horsefish Hi- Tech Limited requested Batfish Limited to provide a set of financial statements (the statement of financial position, statement of profit or loss and other comprehensive income and statement of cash flow) for the year ended December 31, 2020 for a review. Required: (a) Prepare the statement of cash flows for the year ended December 31, 2020, using the indirect method to determine the cash flows from operating activities, for Batfish Limited, beginning with profit before tax. All figures should be rounded to the nearest thousand dollars. (80 marks) (b) Advise whether Horsefish Hi-Tech Limited should agree to become an investor of Batfish Limited. (20 marks)