QUESTION FIVE [10] The following statement of cash flows was prepared for Kiching (Pty) Ltd: for year ended 30 June 2021 R'000 R'000 752 5 068 Cash flows from operating activities Profit before interest and tax Adjustments: Depreciation Loss on disposal of equipment 3 000 88 8 156 (2 056) 132 (1 856) (332) Working capital changes: Decrease in inventories Increase in receivables Decrease in payables Cash generated from operations Interest paid Dividends paid Income tax paid 6 100 (1 872) (2 036) (1 440) (4 192) Cash flows from investing activities Non-current assets purchased Proceeds from sale of equipment (5 288) 1 096 Cash flows from financing activities 4 320 Proceeds from issue of shares 1 440 REGENT BUSINESS SCHOOL (RBS) - JULY 2021 37 BACHELOR OF COMMERCE YEAR 1 - ACADEMIC AND ASSESSMENT CALENDAR - DISTANCE Increase in long term borrowings 2 880 880 Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year 720 Cash and cash equivalents at end of year 1 600 Required: Examine the statement of cash flows for Kitching (Pty) Ltd provided above and answer the following questions: 5.1 Is depreciation expense shown as a positive cash flow or a negative cash flow on the statement of cash flows? Once you have written down your choice, explain why it is shown as a positive or a negative. (1) 5.2 Identify two items from the above statement of cash flows that improves the cash flows but does not increase the profits. (2) 5.3 Explain the following regarding the working capital changes: 5.3.1 Why is the decrease in inventories positive, 5.3.2 Why is the decrease in payables negative. (2) (2) 5.4 Operating activities has a positive cash flow of R752 000; while the Investing activities total shows a negative cash flow of R(4 192 000). Discuss whether these results are favourable or unfavourable for Kitching (Pty) Ltd. (3) END OF ACCOUNTING 1: ASSIGNMENT 2