Cigalles Ltd. has carried on business for a number of years as a retailer of a wide variety of consumer products. The entity operates from a number of stores around the country. In recent years the entity has found it necessary to provide credit facilities to its customers in order to maintain growth in revenue. As a result of this decision the liability to its bankers has increased substantially. The stautory financial statements for the year ended 30 June 2016 have recently been published and extracts are provided below, together with comparative figures for the previous two years.

STATEMENTS OF PROFIT OR LOSS

FOR THE YEARS ENDED 30 JUNE

2014 2015 2016

m m m

Sales revenue 1,850 2,200 2,500

Cost of sales (1,250) (1,500) (1,750)

Gross profit 600 700 750

Other operating costs (550) (640) (700)

Operating profit 50 60 50

Interest revenue from credit sales 45 60 90

Profit before interest and tax 95 120 140

Interest expense (25) (60) (110)

Profit before taxation 70 60 30

Taxation (23) (20) (10)

Profit for the year 47 40 20

STATEMENTS OF FINANCIAL POSITION AT 30 JUNE

2014 2015 2016

m m m

Property, plant and equipment 278 290 322

Inventories 400 540 620

Trade receivables 492 550 633

Cash 12 12 15

Total assets 1,182 1,392 1,590

Share capital 90 90 90

Reserves 282 292 282

Total equity 372 382 372

Bank loans 320 520 610

Other interest bearing borrowings 200 200 320

Trade payables 270 270 280

Tax payable 20 20 8

Total liabilities and equity 1,182 1,392 1,590

Other information

(a) Depreciation charged for the three years in question was:

Year ended 30 June 2014 2015 2016

m m m

55 60 70

(b) The other interest bearing borrowings include 50m of 6% convertible loan stock. This stock is convertible into a total of 15 million ordinary shares in 2018.

The repayment of the non-convertible interest bearing borrowings other than the convertible loan stock is due on 30 June 2020.

(c) Dividends of 30m were paid in 2014 and 2015. A dividend of 20m has been proposed.

Issued capital consisted of 90 million ordinary shares at the nominal value of 1 at 1 July 2013. No shares have been issued or reacquired after that.

(d) The bank loans are unsecured. The maximum lending facility the bank will provide is 630m.

(e) Over the past three years the level of credit sales has been:

Year ended 30 June 2014 2015 2016

m m m

300 400 600

(f) The income tax rate is 33%.

The entity offers extended credit terms for certain products to maintain market share in a highly competitive environment.

Given the steady increase in the level of bank loans which has taken place in recent years, the entity has recently written to its bankers to request an increase in the lending facility. The request was received by the bank on 15 October 2016, two weeks after the financial statements were published. The bank is concerned at the steep escalation in the level of the loans and has asked for a report on the financial performance of Cigalles Ltd. for the last three years.

Required:

1. Prepare the operating activities section of the statements of cash flows using the indirect method for the years ended 30 June 2015 and 30 June 2016