You are the accountant of Blatter Protective Wear (PTY) Limited, a company with a national presence in the manufacturing and distribution of protective gear for construction workers. The statement of profit or loss and the statement of changes in equity for the year ended 30 September 2020, and the statement of financial position at 30 September 2020 and 2019 are provided. The chief executive officer (CEO) is concerned that while the statement of profit or loss reflects a profit, there has been a decline in the cash balances. The CEO maintains that profitable companies should have positive cash balances to limit borrowing. Blatter Protective Wear (PTY) Limited Statement of financial position on 30 September ASSETS Non-current assets Land and buildings, carrying amount Equipment and furniture, carrying amount Current assets Merchandise inventory Trade and other receivables Bank balances Total assets EQUITY AND LIABILITIES Equity Ordinary share capital Retained Earnings Non-current liabilities Long-term loan (non-interest bearing) Current liabilities Trade and other payables Current tax payable Bank overdraft Shareholders for dividends 2020 R Balance at 1 October Profit for the period Issue of shares Dividends 1 882 500 1 170 000 712 500 188 440 200 93 95 240 2 070 940 1 472 230 1 200 000 272 230 280 000 318 710 49 640 219 070 50 000 2.070 940 Share Capital R900 000 300 000 2019 R 1.543 120 Blatter Protective Wear (PTY) Limited Statement of changes in equity for the year ended 30 September 2020. 1.200.000 1 301 000 1 200 000 101 000 242 120 112 000 76 020 54 100 1.543 120 1 077 330 900 000 177 330 280 000 185 790 35 790 150 000 Retained Earnings R177 330. 144 100 (50 000) 271 430 Blatter Protective Wear (PTY) Limited Statement of profit or loss for the year ended 30 September 2020. R1 200 000 (889 800) 310 200 (145 120) 165 080 124 000 289 080 (144 980) 144 100 Sales Cost of goods sold Gross profit Operating expenses Profits from operations Other income-gain on sale of equipment Profit before taxation Taxation Profit for the period The following additional information is relevant: (i) On during June 2020, 200 000 ordinary shares were issued at a price of R1.50 each. (ii) The company gained beneficial ownership and use of land and buildings on 30 September 2019. The buildings are depreciated using an annual depreciation rate of 3% on cost. (iii) During March 2020 all the equipment used by the company was sold for R200 550. It had been originally purchased for R505 000. The equipment was replaced on 1 April 2020 with new equipment at a cost of R750 000. The company depreciates equipment at 10% per annum on the straight-line basis with zero residual value. (iv) Included in the trade and other receivables balance on 30 September 2020 is an amount of R2 750 relating to prepaid insurance. The amount included in the trade and other payables balance for 2019 was R190. (v) Included in the trade and other payables balance on 30 September 2020 is an amount owing for electricity expenses. The electricity expense amounts to R15 000 per year. However, no amount has been paid for the last three months' usage. (vi) Operating expenses comprise: Operating expenses Electricity Insurance Buildings: depreciation. Equipment: Depreciation Credit losses Other R145 120 15 000 6 750 30 000 62 750 30 320 300 (vii) An ordinary dividend of R0,05 per share was declared on 25 September 2020. It will be paid to shareholders on 25 November 2020. You are required to: a) Prepare the statement of cash flows for Blatter Protective Wear (PTY) Limited for financial reporting period ended 30 September 2020 using the direct method. [22 marks] b) Determine cash generated from or used in the operations using the indirect method and use your answer to agree or disagree with the concerns raised by the chief executive officer. [10 marks] c) Calculate two liquidity ratios and two solvency ratios. Use the ratios and your answer in (b) to explain whether the board of directors made an informed decision to declare a dividend to ordinary shareholders. [8 marks]