You are presented with the following information:

Ukunda Ltd.

Income Statement for the Year

To 31 December 2013

	Sh.	Sh.
Sales		1,000
Less: cost of goods sold
Opening stock	200
Purchases	700
	900
Less: closing stock	300	600
Gross profit		400
Operating expenses		(240)
Operating profit		160
Debenture interest		(10)
Net profit before taxation		150
Taxation		(150)
Net profit after taxation		100
Dividends		(60)
Retained profit for the year		40

Ukunda Ltd.

Statement of Financial Position

At 31 December 2013

	2012		2013
	Sh.	Sh.	Sh.	Sh.
Fixed assets at cost	900		1,050
Less: Accumulated depreciation	150	750	255	795
Current assets
Stocks	200		300
Trade debtors	120		150
Cash	20		45
	340		495
Less: current liabilities
Trade creditors	70		90
Taxation	40		50
Proposed dividend	30		60
	140	200	200	295
		950		1,090
Capital and reserves
Ordinary shared at Sh. 1 each		750		750
Profit and loss account		200		240
		950		990
Loans
Debentures stock (10% issued 1st)
January 2013				100
		950		1,090

Required:

(a) Using either the direct or the indirect method, prepare a statement of cash flows for Ukunda Ltd. for the year ended 31 Dec. 2013.

[16 marks]

(b) Briefly explain why change in cash and cash equivalents during an accounting period is not equal to profits earned by a company during the same period. [4 marks]

show your working