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

	$000
Revenue	8,500
Cost of sales	(3,000)
Gross Profit	5,500
Admin expense	(600)
Distribution expense	(780)
Profits before tax	4,120
Taxation	(750)
Profits for the year	3,370
Other comprehensive income
Gain on revaluation of property, plant and equipment	3,500
Total comprehensive income for the year	6,870

Statement of financial position as at December 31, 2020

	2020	2019
	$000	$000
Non current assets
Property, plant and equipment	17,500	10,000
Prepaid land lease payment	1,400	2,100
Intangibles assets	2,800	2,600
Investment properties	6,500	5,200
Certificate of deposit	32,400	23,700
Current assets
Inventories	6,000	4,500
Trade receivables	5,500	3,500
Marketable securities	5,800	4,800
Interest receivables	480	350
Cash and bank	1,400	1,200
Total assets	51,580	38,050
Equity and reserves
Share capital	18,200	11,000
Retained profits	6,170	3,500
Other reserves	6,000	2,500
	30,370	17,000
Current liabilities
Trade payables	2,500	3,800
Other payables	1,110	3,200
Interest payables	3,100	2,800
Tax payables	2,200	1,750
Bank overdraft	300	500
Non current liabilites
Bank loans	12,000	9,000
Total equity and liabilities	51,580	38,050

The following information is available:

1. Profit for the year has been arrived at after charging (crediting):

	$000
Auditors remuneration	400
Depreciation charge	1,100
Directors remuneration	1,600
Advertising expensess	700
Impairment loss on accounts receivables	100
Inventories write down	200
Impairment loss on intangible assets	700
Gain on sale of investment properties	(700)
Gain on sale of property, plant and equipment	(200)
Finance cost	400
Interest income	(150)
Release of prepaid lease rental payments	700
Rental expense	900
Change in fair value of investment properties	(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)