The Statements of Financial Position of Castrol Ltd as at 30 June 2018 and 30 June 2019 are provided below:

QUESTION 1 The Statements of Financial Position of Castrol Ltd as at 30 June 2018 and 30 June 2019 are provided below: 2018 37,200 33,600 9,000 30,000 200,000 72,000 (26,400) 355,400 Castrol Ltd Statements of Financial Position as at 30 June 2019 Assets Cash at Bank 15,600 Accounts Receivable 16,800 Prepaid Rent 3,000 Inventory 42,000 Land 260,000 Plant & Equipment - Cost 93,600 Accumulated Depreciation (28,800) Total Assets 402,200 Liabilities Accounts Payable 27,600 Dividend Payable 9,600 Interest Payable 8,000 Loan 45,600 Total Liabilities 90,800 Owners' Equity Share Capital 260,000 Retained Earnings 51,400 Total Owners' Equity 311,400 Total Liabilities and 402,200 Owners' Equity 28,000 6,000 6,000 32,400 72,400 240,000 43,000 283,000 355,400 O The Income Statement of Castrol Ltd for the financial year ended 30 June 2019 is provided below: Castrol Ltd Income Statement for the year ended 30 June 2019 Sales Revenue $ 269,000 Cost of Goods Sold 216,000 Gross Profit 53,000 Profit on Sale of Equipment 8,000 61,000 Rent Expense 10,000 Interest Expense 5,000 Depreciation Expense 14,400 Other Expenses 1,700 31,100 Net Profit 29,900 Additional Information: During the financial year ended 30 June 2019 the following transactions occurred: 1) Interim dividends were declared and paid during the year ended 30 June 2019. Retained earnings has only been used to pay dividends. 2) During the year equipment was sold. The original cost of the equipment sold during the year was $25,000. 3) Ordinary shares were issued for cash during the financial year ending 30 June 2019. 4) All sales and purchases are on credit throughout the year ending 30 June 2019. 5) Accounts payable reflects inventory purchased on credit from suppliers REQUIRED: a) Prepare a fully classified Statement of Cash Flows for Castrol Ltd for the year ended 30 June 2019, using the direct method to present cash flows in accordance with Australian Accounting Standards. b) Explain why it is possible for a company to report high level of net profit while reporting a little cash generation from cash flow from operating activities in the same financial year. In your answer provide two possible reasons. (word limit 150) [11 + 3 = 14 marks]