Batfish Limited is incorporated in Hong Kong with limited liability and is principally engaged in the manufacture of electronic products including 4-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 9000 8.500 (3.000) 5.500 (600) (780) 4,120 (750) 3.370 The following information is available: 1. Profit for the year has been arrived at after charging (crediting): S000 Auditor's remuneration 400 Depreciation charge 1,100 Directors' remuneration 1,600 Advertising expenses 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. 3,500 Total comprehensive income for the year 6,870 3. 4. 800,000 ordinary shares were issued during the year at $9 per share. 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 Statement of financial position as at December 31, 2020 2020 2019 S000 9000 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 4,200 3,800 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 Retained profits Other reserves 18,200 6,170 6,000 11,000 3,500 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. 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 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) Non-current liabilities Bank loans Total equity and liabilities 12,000 51,580 9,000 38,050 Batfish Limited is incorporated in Hong Kong with limited liability and is principally engaged in the manufacture of electronic products including 4-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 9000 8.500 (3.000) 5.500 (600) (780) 4,120 (750) 3.370 The following information is available: 1. Profit for the year has been arrived at after charging (crediting): S000 Auditor's remuneration 400 Depreciation charge 1,100 Directors' remuneration 1,600 Advertising expenses 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. 3,500 Total comprehensive income for the year 6,870 3. 4. 800,000 ordinary shares were issued during the year at $9 per share. 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 Statement of financial position as at December 31, 2020 2020 2019 S000 9000 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 4,200 3,800 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 Retained profits Other reserves 18,200 6,170 6,000 11,000 3,500 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. 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 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) Non-current liabilities Bank loans Total equity and liabilities 12,000 51,580 9,000 38,050