Juskatla Ltd. (Juskatla) is in the process of finalizing its cash flow statement for 2015. The statement
Question:
Juskatla Ltd. (Juskatla) is in the process of finalizing its cash flow statement for 2015.
The statement has been completely prepared except for some costs that the controller isn’t sure whether to classify as repairs or betterments. Normally relatively minor, this year these costs were significant and the classification will have an impact on the financial statements. The preliminary net loss, before accounting for the repairs/betterments, is $125,000. The repair/betterment costs for the year are $225,000. The nature of the costs is ambiguous so the controller will likely be able to classify them as either repairs or betterments. The costs aren’t reflected in the preliminary cash flow statement shown below:
Required:
a. Complete the cash flow statement (shaded boxes) assuming that i. the costs are treated as betterments ii. the costs are treated as repairs Assume that if the costs are treated as betterments, it will be necessary to depreciate $30,000 in 2015.
b. Compare the two cash flow statements. How is your evaluation of Juskatla influenced by them?
c. How are the balance sheet and income statement affected by the different accounting treatments for the repairs/betterments?
d. Assuming that the controller is correct in her belief that the costs can be reasonably classified as either repairs or betterments, what factors would you advise the controller to consider in making her decision? Explain.
Transcribed Image Text:
Juskatla Ltd. Cash Flow Statement for the Year Ended April 30, 2015 Cash from operations Net loss Add: Depreciation Less: Gain on sale of capital assets Less: Net increase in non-cash working capital 330,000 47,500 110,000 Cash from operations Investing activities Proceeds from the sale of capital assets 202,000 Purchase of capital assets (862,000) Cash from (used for) investing activities Financing activities Increase in long-term debt 650,000 (487,000) Repayment of long-term loan Sale of common stock Cash from (used for) financing activities Change in cash during 2015 Cash and equivalents, beginning of the year Cash and equivalents, end of the year 682,000 200,000
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