Study the Cash Flow Statement given below and answer the following questions:

1.2 Identify two items from this cash flow statement that improves cash flow but does not increase the profit.

1.3 Explain why depreciation is added to operating profit in computing the cash flow from operating activities.

1.4 There is a combination of a positive cash flow from operating activities of R752 000 and a negative cash flow from investing activities of R4 192 000. Is this favourable for Billabong Ltd? Provide three (3) reasons for your answer.

1.5 Comment on each the following:

1.5.1 Decrease in inventory

1.5.2 Increase in receivables

Billabong Ltd Cash Flow Statement for the year ended 30 June 2016 R 752 000 5 068 000 Cash flows from operating activities Profit before interest and tax/Operating profit Adjustments to convert to cash from operations Non-cash flow adjustments Depreciation Loss on disposal of equipment Profit before working capital changes Working capital changes Decrease in inventory Increase in receivables 3 088 000 3 000 000 88 000 8 156 000 (2 056 000) 132 000 (1 856 000) (332 000) 6 100 000 (1 872 000) Decrease in payables Cash generated from operations Interest paid Dividends paid Income tax paid (1 440 000) Cash flows from investing activities Non-current assets purchased Proceeds from sale of equipment (4 192 000) (5 288 000) 1 096 000 Cash flows from financing activities Proceeds from issue of ordinary shares Increase in long-term borrowings 4 320 000 1 440 000 2 880 000 Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 720 000