QUESTION TWO Michael Bwalya is the accountant for Trilogy Ltd which has been reporting profits for the last four years. However, over the past six months, the company has been facing serious difficulties whenever it is time to pay its creditors as it seems there is just never enough cash to settle obligations as and when they fall due. a) Explain why a company may report profits but still have no cash (3 Marks) b) Identify and explain three (3) ratios that may indicate that a company may be facing or is likely to face cash flow problems. (3 Marks) c) Using the Statement of cash flows provided below, comment on the performance of Trilogy Ltd for the year to 319 December 2014. Trilogy Ltd Statement of Cash flows as at 31 December 2014 K'000 K'000 Cash flows from operating activities Profit before interest and taxes Depreciation Loss on disposal of PPE Interest received Dividend received 169,000 26,000 12.000 (22, 000) (12.000) 173,000 (26,000) (102, 000) (40.000) 5.000 Increase in inventory Increase in trade receivables Decrease in trade payables Cash generated from operations Interest paid Taxation paid Interest received Dividend received (20,000) (50, 000) 22.000 12.000 (36,000) 3 (31,000) (125, 000) Net cash out flow from operating activities Cash flows from investing activities Acquisition of property, plant and equipment (60,000) Disposal of property, plant and equipment 4. 000 Investment in shares (69.000) Net cash out flow from investing activities Cash flows from financing activities Acquisition of 15% loan 60,000 Dividend paid (6.000) Net cash out flow from financing activities Decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 54,000 (102, 000) 100.000 (2.000) (14 Marks) Total Marks 20