Problem 2: Statement of Cash-Flows

You are given the financial statements of Fiordland Corps Ltd below.

Fiordland Corps Ltd

Statement of financial position

as at 31 December 2019

2019

2018

ASSETS

$

$

Cash

33800

42900

Accounts receivable

36400

18200

Inventory

49400

32500

Plant

91000

101400

Less:Accumulated depreciation

(35100)

55900

(31200)

70200

Total assets

175500

163800

LIABILITIES AND EQUITY

Accounts payable

40300

55900

Income tax payable

33800

26000

Bonds payable

26000

13000

Contributed equity

32500

32500

Retained earnings

42900

36400

Total liabilities and equity

175500

163800

Fiordland Corps Ltd

Statement of profit or loss

for the year ended 31 December 2019

$

Sales

371800

Cost of sales

252200

Gross profit

119600

Selling expenses

36400

Administrative expenses

11700

Interest expense

9100

57200

Profit before income tax

62400

Income tax expense

9100

Profit for the period

53300

The following additional data were provided:

1. Dividends were declared and paid.
2. During the year equipment was sold for $13000 cash. This equipment cost $19500 originally and had a book value of $13000 at the time of sale.
3. All the depreciation expense is in the selling expense category.
4. All sales and purchases are on account.
5. Additional equipment was purchased for cash.
6. Accounts payable pertains to inventory creditors.
7. All operating expenses except depreciation are paid in cash.

Required

I.Prepare statement of cash flows using the direct method for operating cash flows. Use the template provided in the following pages.

(5 Marks)

II.Prepare reconciliation of profit to cash provided by operating activities.

Use the template provided in the following pages.

(3 Marks)

III.Determine the amount of free cash flow for Fiordland Corps Ltd for the year ended 31 December 2019.

( Mark)

...

IV.Analysts view that free cash flows create agency conflicts between managers and shareholders. Using the cash flow statement that you prepared, discuss whether the free cash flows of Fiordland Corps Ltd would trigger agency conflicts.