Question 1

The income statement and additional data of Bayleaf Travel Products Pty Ltd are as follows:

Income statement for the year ended 31 December 2016

Revenue: R231 300

Service revenue R225 000

Dividend revenue R6 300

Expenses: R184 700

Cost of goods sold R100 000

Salary expense R52 000

Depreciation expense R23 000

Advertising expense R2 300

Interest expense R2 400

Income tax expense R5 000

Net income R46 600

Additional data

- Acquisition of PPE was R170 000. Of this amount, R140 000 was paid in cash and R30 000 by signing a note payable.

- Proceeds from sale of land totaled R48 000.

- Proceeds from issuance of shares totaled R31 000.

- Payment of long-term note payable was R16 000.

- Payment of dividends was R10 000

From the balance sheet:

Balance sheet as at 31 December

2016		2015
Current assets
Cash	R32 000		R13 300
Accounts receivable	R41 000		R57 000
Inventory	R48 000		R87 000
Prepaid expenses	R9 100		R8 200
Current liabilities
Accounts payable	R32 000		R17 000
Accrued liabilities	R14 000		R43 000

Requirements

a) Prepare Bayleafs statement of cash flow for the year ended 31 December 2016, using the indirect method.

b) Evaluate Bayleafs cash flows for the year ended 31 December 2016, including its free cash flow and cash realisation ratio. In your evaluation, review all three categories of cash flows and give the reason for your evaluation

c) When analysing the cash flow patterns of a company, what other three important indicators of the health of a companys cash flows do you look at?