Question 1

The financial statements of Home Ltd at 31 December were as follows.

		2019		2020
	m	m	m	m
Non-current assets
Land and Buildings		60		60
Property, plant and equipment		48		62
Total		108		122
Current assets
Inventories	26		36
Receivables	5.4		19.9
Cash	2.6		0
Total		34		55.9
Current liabilities
Trade payables	-46		-40
Bank overdraft	0		-24.5
Accrual on interest	-0.4		-1.4
Tax	-2		-3.6
		-48.4		-69.5
Non-current liabilities
Long term bank loan		-20		-10
		73.6		98.4
Equity
1 ordinary shares		66		66
Share premium		0		0
Reserves		7.6		32.4
		73.6		98.4

Profit or Loss
Particulrs	2019	2020
	m	m
Operating profit	11.8	30.8
Interest receivable	0	0
Interest payable	-2.8	-2
Profit before tax	9	28.8
Tax	-1.5	-2
Profit after tax	7.5	26.8
Dividends	0	-2
Retained profit	7.5	24.8

1. Machinery with a net book value of 500,000 was sold at the beginning of 2020 for 700,000.
2. A dividend of 2m has been declared and paid in 2020.

4. The depreciation charge for the year ended 31 December 2020 was 8m.

Required:

1. Prepare a statement of cash flows for the year ended 31 December 2020.
   2. Using the statement of cash flows prepared in respect of (a) above, prepare briefing notes explaining why cash has decreased despite Home Ltd making a profit.