question archive The statement of comprehensive income of kolad plc, a publicly listed company, is as follows: Statement of comprehensive income for the year ended 31 March 2020 £000 Revenue 33,600 Cost of sales (22,500) Gross profit 11,100 Distribution costs (3,600) Administrative expenses (3,450) Finance costs (300) Profit before tax 3,750 Income tax expense (150) Profit for the year 3,600 Gain on revaluation 250 Total comprehensive income 3,850 The following supporting information is available: Depreciation of £965,000 was charged (to cost of sales) for property, plant and equipment in the year ended 31 March 2020
The statement of comprehensive income of kolad plc, a publicly listed company, is as follows: Statement of comprehensive income for the year ended 31 March 2020 £000 Revenue 33,600 Cost of sales (22,500) Gross profit 11,100 Distribution costs (3,600) Administrative expenses (3,450) Finance costs (300) Profit before tax 3,750 Income tax expense (150) Profit for the year 3,600 Gain on revaluation 250 Total comprehensive income 3,850 The following supporting information is available: Depreciation of £965,000 was charged (to cost of sales) for property, plant and equipment in the year ended 31 March 2020
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The statement of comprehensive income of kolad plc, a publicly listed company, is as follows:
Statement of comprehensive income for the year ended 31 March 2020
|
£000 |
|||
|
Revenue |
33,600 |
||
|
Cost of sales |
(22,500) |
||
|
Gross profit |
11,100 |
||
|
Distribution costs |
(3,600) |
||
|
Administrative expenses |
(3,450) |
||
|
Finance costs |
(300) |
||
|
Profit before tax |
3,750 |
||
|
Income tax expense |
(150) |
||
|
Profit for the year |
3,600 |
||
|
Gain on revaluation |
250 |
||
|
Total comprehensive income |
3,850 |
The following supporting information is available:
- Depreciation of £965,000 was charged (to cost of sales) for property, plant and equipment in the year ended 31 March 2020. An item of plant with a carrying value of £750,000 was sold at a profit of £65,000 during the year.
- The following extracts from the statements of financial position for the years ended 31 March 2020 and 31 March 2019 are relevant:
|
2020 |
2019 |
|
|
£000 |
£000 |
|
|
Inventory |
4,350 |
4,050 |
|
Trade receivables |
1,800 |
900 |
|
Trade payables |
850 |
2,625 |
|
Current tax payable |
825 |
1,800 |
YOU ARE REQUIRED TO:
- Calculate the net cash flow from operating activities for kolad plc for the year to 31 March 2020 in accordance with IAS 7 Statement of cash flows using the indirect method.
- Explain the characteristics of an item to be considered as a cash equivalent and give three examples of items that could be included as cash and cash equivalents in a statement of cash flows.
- Profit is not a good indicator of performance as it can be changed to suit management’s needs.
Discuss whether, in your opinion, the statement of profit or loss or the statement of cash flows is a better indicator of a company’s performance.
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Answer:
a)
| Kolad Plc Company | |
| Statement of Cash Flows | |
| For Year Ended March 31 2020 | |
| Particulars | Amount |
| Cash Flow from Operating Activities | |
| Net Income | 3750000 |
| Add: Depreciation Expense | 965000 |
| Profit on disposal of equipment | -65000 |
| Increase in Accounts Receivables | -900000 |
| Increase in Inventory | -300000 |
| Decrease in Accounts Payables | -1775000 |
| Decrease in Current Tax Payable | -975000 |
| Cash Provided by Operating Activities | 700000 |
b)
Cash and cash equivalents refers to the line item on the balance sheet that reports the value of a company's assets that are cash or can be converted into cash immediately. Cash equivalents include bank accounts and marketable securities, which are debt securities with maturities of less than 90 days. However, oftentimes cash equivalents do not include equity or stock holdings because they can fluctuate in value.
Examples of cash equivalents include commercial paper, Treasury bills, and short-term government bonds with a maturity date of three months or less. Marketable securities and money market holdings are considered cash equivalents because they are liquid and not subject to material fluctuations in value.
c)
The cash flow statement and the income statement are integral parts of a corporate balance sheet. The cash flow statement or statement of cash flows measures the sources of a company's cash and its uses of cash over a specific time period. The income statement measures a company's financial performance, such as revenues, expenses, profits, or losses over a specific time period. This financial document is sometimes called a statement of financial performance. An income statement shows whether a company made a profit, and a cash flow statement shows whether a company generated cash. A cash flow statement shows the exact amount of a company's cash inflows and outflows, traditionally over a one-month period. It captures the current operating results and changes on the balance sheet, such as increases or decreases in accounts receivable or accounts payable, and does not include noncash accounting items such as depreciation and amortization. The cash flow generally comes from revenue received as a result of business activity, but it may be augmented by funds available as a result of the credit. A cash flow statement is used to determine the short-term viability and liquidity of a company, specifically how well it is positioned to pay its bills to vendors.
