Cash Flow Statement Question:

Information Given:

Questions To Answer:

The following statement of profit or loss and the statement of cash flows of Rubber Trading Pte Ltd (RT) for the year ended 31 December 203 are presented here with some incomplete information. Question 4 (continued) Statement of Cash Flows For the year ended 31 December 203 Cash flows from operating activities Income before tax adjustments for: Add back non-cash items Depreciation expense Loss on disposal of PPE Increase in AR (Net) Increase/ decrease in AP Increase/ decrease in inventory Net cash from operating activities Cash flows from investing activities Proceeds from sale of equipment (135,000) Purchase of new equipment Net cash from investing activities Cash flows from financing activities Repayment of bank loan (150,000) Proceeds from bank loan Issue of new shares Purchase of own shares (cancelled) (10,000) Net cash from financing activities Net increase in cash and cash equivalents during the year Cash \& cash equivalents at beginning of the year 50,000 Cash \& cash equivalents at end of the year Additional information: 1. All operating expenses are paid in cash. 2. Accounts receivable and Allowance for impairment of AR. a) The opening balances of the accounts receivable and allowance for impairment of AR are $450,000 (debit) and \$45,000 (credit) respectively. b) The closing balance of the allowance for impairment of AR is $60,000. c) During the financial year RT wrote off $5.000 due from a customer that had been declared bankrupt. d) RT collected $345,000 cash from its customers. c) All sales were on credit. 3. Accounts payable and inventory a) The opening balance of the accounts payable and inventory accounts are $100,000 and $150,000 respectively. b) The closing balance of the inventory account is $250,000. c) During the year, the entity purchased $500,000 of inventory on credit from its suppliers. d) Cash paid to its suppliers during the year was $300,000. 4. Loans a) The opening balance of the loans account is $250,000, while the closing balance is $500,000. 5. Machinery and accumulated depreciation a) The entity purchased 5 machines for $10,000 each on 1 January 201. Each machine has a 5-year useful life with no residual value. b) On 31 December 203, three machines were sold for cash. c) The closing balance of the machine account is $60,000. d) New machines are purchased on 31 December 20x3 6. Share Capital a) The opening balance of the share capital account was $800,000. The return on equity for the year is 2% 7. The operating cash flows of RT have been steadily declining over the last five financial years. 8. The cashflow statement is prepared using the indirect method (i) Determine the following missing values. from the statement of profit or loss and statement of cash flows of RT. a. Revenue b. Cost of goods sold c. Depreciation d. Loss on disposal e. Impairment loss of accounts receivable f. Increase/decrease* in accounts payable g. Increase/decrease* in inventory h. Cash paid to purchase new equipment i. Proceeds from bank loans received j. Proceeds from issue of new shares * delete as necessary (ii) Determine the net cash from operating activities. (2 marks) (iii) A friend, who has no financial knowledge, is interested in purchasing the shares of RT. He has based his decision on the net cash in the entity's balance sheet on 31 December 203. Analyse each cash flow activity (operating, investing and financing) of the cashflow statement and advise your friend on the wisdom of his decision. Restrict your advice to a maximum of three points (one for each of the three cash flow activities). The following statement of profit or loss and the statement of cash flows of Rubber Trading Pte Ltd (RT) for the year ended 31 December 203 are presented here with some incomplete information. Question 4 (continued) Statement of Cash Flows For the year ended 31 December 203 Cash flows from operating activities Income before tax adjustments for: Add back non-cash items Depreciation expense Loss on disposal of PPE Increase in AR (Net) Increase/ decrease in AP Increase/ decrease in inventory Net cash from operating activities Cash flows from investing activities Proceeds from sale of equipment (135,000) Purchase of new equipment Net cash from investing activities Cash flows from financing activities Repayment of bank loan (150,000) Proceeds from bank loan Issue of new shares Purchase of own shares (cancelled) (10,000) Net cash from financing activities Net increase in cash and cash equivalents during the year Cash \& cash equivalents at beginning of the year 50,000 Cash \& cash equivalents at end of the year Additional information: 1. All operating expenses are paid in cash. 2. Accounts receivable and Allowance for impairment of AR. a) The opening balances of the accounts receivable and allowance for impairment of AR are $450,000 (debit) and \$45,000 (credit) respectively. b) The closing balance of the allowance for impairment of AR is $60,000. c) During the financial year RT wrote off $5.000 due from a customer that had been declared bankrupt. d) RT collected $345,000 cash from its customers. c) All sales were on credit. 3. Accounts payable and inventory a) The opening balance of the accounts payable and inventory accounts are $100,000 and $150,000 respectively. b) The closing balance of the inventory account is $250,000. c) During the year, the entity purchased $500,000 of inventory on credit from its suppliers. d) Cash paid to its suppliers during the year was $300,000. 4. Loans a) The opening balance of the loans account is $250,000, while the closing balance is $500,000. 5. Machinery and accumulated depreciation a) The entity purchased 5 machines for $10,000 each on 1 January 201. Each machine has a 5-year useful life with no residual value. b) On 31 December 203, three machines were sold for cash. c) The closing balance of the machine account is $60,000. d) New machines are purchased on 31 December 20x3 6. Share Capital a) The opening balance of the share capital account was $800,000. The return on equity for the year is 2% 7. The operating cash flows of RT have been steadily declining over the last five financial years. 8. The cashflow statement is prepared using the indirect method (i) Determine the following missing values. from the statement of profit or loss and statement of cash flows of RT. a. Revenue b. Cost of goods sold c. Depreciation d. Loss on disposal e. Impairment loss of accounts receivable f. Increase/decrease* in accounts payable g. Increase/decrease* in inventory h. Cash paid to purchase new equipment i. Proceeds from bank loans received j. Proceeds from issue of new shares * delete as necessary (ii) Determine the net cash from operating activities. (2 marks) (iii) A friend, who has no financial knowledge, is interested in purchasing the shares of RT. He has based his decision on the net cash in the entity's balance sheet on 31 December 203. Analyse each cash flow activity (operating, investing and financing) of the cashflow statement and advise your friend on the wisdom of his decision. Restrict your advice to a maximum of three points (one for each of the three cash flow activities)