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  • 20 Marks

FA – May 2015 – L1 – Q6 – Financial Statements Preparation

Prepare a statement of cash flows using the direct method for the year ended 31 December 2014 with given financial data.

Financial data extracted from the books of Kandor Enterprises Limited for the year ended 31 December 2014 are shown below:

Details N’000
Revenue 6,990
Decrease in receivables 177
Cost of sales 5,128
Increase in inventories 1,483
Increase in payables 613
Selling and distribution expenses 300
Administrative expenses 343
Loss on disposal of non-current assets 6
Depreciation charges for the year 62
Ordinary shares issued for cash 400
Purchase of property, plant, and equipment 113
Income tax paid 198
Proceeds from disposal of non-current assets 3
Repayment of loan notes 10
Dividend paid 86
Interest paid on loan notes 191
Cash and cash equivalent at the beginning of the year (409)

Required:
Prepare the Statement of Cash Flows for the year ended 31 December 2014 using the direct method, showing:
a. Net cash flow from operating activities (5 Marks)
b. Net cash flow from investing activities (5 Marks)
c. Net cash flow from financing activities (5 Marks)
d. Cash and cash equivalents at the end of the year (5 Marks)

Show all workings.

KANDOR ENTERPRISES LIMITED
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2014

KANDOR ENTERPRISES LIMITED
WORKING NOTES

Wk 1: Determination of total receipts from customer

Wk 2: Determination of payment to suppliers

Wk 3: Cash paid for other expenses

  • 20 Marks

FR – May 2017 – L2 – Q3 – Preparation of Financial Statements

Prepare a statement of cash flows for Haruna Ltd for the year ended 31 March 2017.

The following information has been taken from the financial statements of Haruna Ltd, a listed company for the year ended 31 March 2017:

Statement of Profit or Loss and Other Comprehensive Income (extracts) for the year ended 31 March 2017:


Additional information:

i) During the year, Haruna Ltd issued both ordinary shares and redeemable preference shares for cash.

ii) Investments classified as current assets are held for the short term and are readily convertible into the stated amounts of cash on demand.

iii) During the year, Haruna Ltd sold plant and equipment with a carrying amount of GH¢840,500 for GH¢900,000. Total depreciation charges for the year amounted to GH¢1,100,000. Plant costing GH¢50,000 was purchased on credit, and the amount is included within trade and other payables.

iv) Trade and other payables include accrued interest of GH¢5,000 as at 31 March 2017 (2016: GH¢10,000).

v) Intangibles relate to development costs capitalised in accordance with IAS 38 Intangible Assets. Costs amounting to GH¢70,000 were capitalised during the year.

Required:
Prepare a Statement of Cash Flows for Haruna Ltd for the year to 31 March 2017 in accordance with IAS 7 Statement of Cash Flows.

Haruna Ltd – Statement of Cash Flows for the year ended 31 March 2017


  • 16 Marks

FR – Nov 2018 – L2 – Q3a – Preparation of Financial Statements

Preparation of the statement of cash flows using the indirect method based on the financial statements of Conso Bank Ghana Ltd.

The following financial statements relate to Conso Bank Ghana Limited for the year ended 31 December 2017:

Statement of Comprehensive Income for the year ended 31 December 2017

Description Note GH¢’000
Interest income (iii) 364,524
Interest expense (iv) (107,571)
Net interest income 256,953
Fees and commission income 132,374
Fees and commission expense (24,183)
Net fees and commission income 108,191
Other income (v) 9,727
Operating income 374,871
Impairment charge on loans and advances (93,492)
Operating expenses (vi) (169,317)
Profit before tax 112,062
Income tax expense (33,617)
Profit for the year 78,445

Statement of Financial Position as at 31 December 2017

Description Note 2017 (GH¢’000) 2016 (GH¢’000)
Assets
Cash and cash equivalents 577,767 752,303
Government securities 2,037,292 1,857,337
Advances to banks 214,875 107,407
Loans and advances to customers 1,190,782 1,145,133
Property and equipment (vii) 139,889 123,936
Intangible assets (viii) 18,131 12,162
Income tax asset 6,626 5,778
Total assets 4,185,362 4,004,056
Liabilities
Deposits from customers 3,368,406 3,078,071
Other liabilities and provisions 171,718 359,192
Total liabilities 3,540,124 3,437,263
Equity
Stated capital 100,000 100,000
Retained earnings 545,238 466,793
Total equity 645,238 566,793
Total liabilities and equity 4,185,362 4,004,056

Required:
Using the indirect method, prepare a statement of cash flows for the year ended 31 December 2017, in accordance with IAS 7: Statement of Cash Flows.
(16 marks)

Conso Bank Ghana Limited Statement of Cash Flows for the year ended 31 December 2017

Description GH¢’000
Cash flows from operating activities
Profit for the year 78,445
Adjustments for:
Depreciation 30,688
Amortisation 6,077
Other operating expenses (169,317-30,688-6,077) 132,552
Impairment charge on loans and advances 93,492
Net interest income (256,953)
Dividend income (9,685)
Profit on sale of property and equipment (42)
Tax expense 33,617
Operating profit before changes in working capital 108,191
Change in loans and advances to customers (45,649)
Change in advances to banks (107,468)
Change in deposits from customers 290,335
Change in other liabilities and provisions (187,474)
Change in government securities (179,955)
Cash generated from operations (230,211)
Interest received 131,292
Dividend received 8,680
Interest paid (94,578)
Income tax paid (34,465)
Net cash flow from operating activities 111,091
Cash flows from investing activities
Acquisition of property and equipment (46,641)
Proceeds from sale of property and equipment 42
Acquisition of intangible assets (12,046)
Net cash used in investing activities (58,645)
Cash flow from financing activities
Dividend paid (4,800)
Net cash used in financing activities (4,800)
Net decrease in cash and cash equivalents (174,356)
Cash and cash equivalents at 1 January 2017 752,303
Cash and cash equivalents at 31 December 2017 577,767

(50 ticks @ 0.32 marks = 16 marks)

  • 20 Marks

FR – Nov 2015 – L2 – Q3 – Preparation of Financial Statements, Financial Statement Analysis

This question requires preparing a cash flow statement for CL Ltd using IAS 7 and calculating the gross profit margin based on changes in purchase and selling prices.

(a) CL Ltd is a wholesaler and retailer of office furniture. Extracts from the company’s financial statements are set out below:

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED:

STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2015:

Description Stated Capital Capital Surplus Income Surplus Total
Balances b/f 8,500 2,500 15,800 26,800
Share issue 12,900 – – 12,900
Comprehensive income – 5,000 7,000 12,000
Dividends paid – – (4,000) (4,000)
Balances c/f 21,400 7,500 18,800 47,700

STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH:

Note:
Non-current assets
During the year, the company redesigned its display areas in all of its outlets. The previous displays had cost GHS10 million and had been written down by GHS9 million. There was an unexpected cost of GHS500,000 for the removal and disposal of the old display areas. Also, during the year, the company revalued the carrying amount of its property upwards by GHS5 million, and the accumulated depreciation on these properties of GHS2 million was reset to zero.
All depreciation is charged to operating expenses.

Required:
Prepare a statement of cash flows for CL Ltd for the year ended 31 March 2015 in accordance with IAS 7 – Statement of Cash Flows. (15 marks)

(b) The directors of CL Ltd are concerned at the deterioration in its bank balance and are surprised that the amount of gross profit has not increased for the year ended 31 March 2015. At the beginning of the current accounting period (i.e. on 1 April 2014), the company changed to importing its purchases from a foreign supplier because the trade prices quoted by the new supplier were consistently 10% below those of its previous supplier. However, the new supplier offered a shorter period of credit than the previous supplier (all purchases are on credit). In order to encourage higher sales, CL Ltd increased its credit period to its customers, and some of the cost savings (on trade purchases) were passed on to customers by reducing selling prices on both cash and credit sales by 5% across all products.

Required:
(i) Calculate the gross profit margin that you would have expected CL Ltd to achieve for the year ended 31 March 2015 based on the selling and purchase price changes described by the directors. (2 marks)

(ii) Comment on the directors’ surprise at the unchanged gross profit and suggest what other factors may have affected gross profit for the year ended 31 March 2015.

(3 marks)
(Total: 20 marks)

(a) CL Ltd
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2015

Description GHS ‘000
Cash flows from operating activities
Profit before tax 10,200
Depreciation (W2) 6,000
Loss on disposal of displays (W3) 1,500
Interest expense 600
Operating cash flow before working capital changes 18,300
Increase in warranty provision (1,000 – 300) 700
Increase in inventories (5,200 – 4,400) (800)
Increase in receivables (7,800 – 2,800) (5,000)
Decrease in trade payables (4,500 – 4,200) (300)
Cash generated from operations 12,900
Interest paid (600)
Income tax paid (W4) (5,500)
Net cash from operating activities 6,800
Cash flows from investing activities
Purchase of property, plant, and equipment (W1) (20,500)
Cost of disposal of property, plant, and equipment (500)
Net cash used in investing activities (21,000)
Cash flows from financing activities
Share issue 12,900
Loan note issue (4,000 – 3,000) 1,000
Dividends paid (4,000)
Net cash from financing activities 9,900
Net decrease in cash and cash equivalents (4,300)
Cash and cash equivalents at beginning of period 700
Cash and cash equivalents at end of period (3,600)

Workings

1) NON-CURRENT ASSETS – COST

Description GHS ‘000 GHS ‘000
Balance b/f 80,000
Write-off old displays 10,000
Revaluation (5,000 – 2,000) 3,000
Purchases (balancing figure) 20,500 Balance c/f 93,500
Total 103,500 103,500

2) NON-CURRENT ASSETS – DEPRECIATION

Description GHS ‘000 GHS ‘000
Write-off on disposal 9,000
Balance b/f 48,000
Revaluation adjustment 2,000
Balance c/f 43,000
Charge in year (balancing figure) 6,000
Total 54,000 54,000

3) NON-CURRENT ASSETS – DISPOSAL

Description GHS ‘000 GHS ‘000
Cost of disposal 10,000
Accumulated depreciation 9,000
Cost of disposal 500
Loss on disposal 1,500
Total 10,500 10,500

4) INCOME TAX PAYABLE

Description GHS ‘000 GHS ‘000
Tax paid (balancing figure) 5,500
Balance b/f 5,300
Balance c/f 3,000
Charge for the year 3,200
Total 8,500 8,500

(b) (i) Gross Profit Margin Calculation
Taking the figures for the year ended 31 March 2014 and applying the 10% reduction in purchase costs and the 5% discount to customers, the directors would have expected the gross profit to be as follows:

Description GHS ‘000
Revenue (55,000 x 95%) 52,250
Cost of sales (33,000 x 90%) (29,700)
Gross profit 22,550
Gross profit margin (22,550 / 52,250 x 100) 43.2%

The actual gross profit percentage for the year ended 31 March 2015 is:

Description Calculation
Gross profit margin (22,000 / 65,800 x 100) = 33.4%

(ii) Comment on the Directors’ Surprise
The directors should not be surprised at the unchanged gross profit as cost of sales has increased by the same amount as revenue, wiping out any possible increase in gross profit. In fact, the actual gross profit margin has fallen from 40% in 2014 to 33.4% in 2015, so despite the 10% reduction in the cost of purchases, the company was trading less profitably.

Possible reasons for this could be:

  • Shipping costs involved in importing goods may have to be borne by the recipient.
  • Import duties or currency exchange losses, perhaps exacerbated by having to pay within a shorter period.
  • Inventory losses due to uninsured damage or obsolescence.
  • Selling a larger proportion of goods with a lower gross profit percentage, possibly due to sales or special offers.
  • The foreign supplier may have increased his prices at some point during the year.
  • There may have been changes in accounting policy, possibly shifting some expenses into cost of sales.
  • 20 Marks

FA – Nov 2023 – L1 – Q4 – IAS 7: Statement of cash flows

Prepare a statement of cash flows for Oti Ltd for the year ended 31 March 2022, including a discussion on cash equivalents.

Extracts from the financial statements for Oti Ltd for the year ended 31 March 2022 are as follows:

Statement of Profit or Loss for the year ended 31 March 2022

Description Amount (GHȼ)
Profit from operations 752,960
Interest payable (60,420)
Profit before tax 692,540
Income tax (210,400)
Profit for the year 482,140

Statements of Financial Position as at 31 March

Description 2022 (GHȼ) 2021 (GHȼ)
Non-current assets
Property, plant, and equipment 1,480,000 1,297,570
Current assets
Inventories 440,000 295,000
Trade receivables 385,840 197,750
Bank – 4,120
Total assets 2,305,840 1,794,440
Equity and liabilities
Share capital 640,800 540,200
Retained earnings 641,340 301,200
Non-current liabilities
10% Loan note 604,200 604,200
Current liabilities
Trade payables 154,700 150,300
Income tax payable 204,600 198,540
Bank overdraft 60,200 –
Total equity and liabilities 2,305,840 1,794,440

Additional information:

i) The depreciation charged for the year was GHȼ200,000.
ii) Dividends of GHȼ142,000 were paid during the year.
iii) During the year, plant with an original cost of GHȼ450,000 and a carrying amount at the date of disposal of GHȼ315,000 was sold for GHȼ412,000, which was received in cash.

Required:

a) In accordance with IAS 7: Statement of Cash Flows, prepare a Statement of Cash Flows for Oti Ltd for the year ended 31 March 2022. (18 marks)
b) Explain what is meant by the term ‘cash equivalents’ in relation to cash flow statements. (2 marks)

a) Oti Ltd: Statement of Cash Flows for the year ended 31 March 2022


b) Cash Equivalents:

Cash equivalents are short-term, highly liquid investments that are readily convertible into known amounts of cash and that are subject to an insignificant amount of risk of changes in value. An investment normally qualifies as a cash equivalent only if it has a short maturity, say, three months or less, from the date of acquisition.

  • 20 Marks

FA – Aug 2022 – L1 – Q4 – IAS 7: Statement of cash flows | Interpretation of financial statements (Financial Ratios)

Preparation of a Statement of Cash Flows using IAS 7, including cash flows from operating, investing, and financing activities, with an analysis of the benefits of preparing cash flow statements.

a) The following information relates to the activities of Chemu Ltd:

Statement of Financial Position as at 31 December

Account 2021 (GHȼ’000) 2020 (GHȼ’000)
Assets
Non-current assets 1,295 810
Current assets
Inventory 1,500 500
Receivables 2,680 890
Bank – 740
Total assets 5,475 2,940
Equity and liabilities
Equity
Share capital 600 400
Retained earnings 1,625 600
Total equity 2,225 1,000
Non-current liabilities
10% Debentures 160 360
Current liabilities
Bank overdraft 1,810 –
Payables 1,000 680
Taxation 280 900
Total liabilities 3,250 1,940
Total equity and liabilities 5,475 2,940

Additional information:

i) The Statement of Profit or Loss for the year ended 31 December 2021 shows the following:

Account Amount (GHȼ’000)
Operating profit 1,531
Interest payable (26)
Profit before taxation 1,505
Taxation (480)
Profit for the period 1,025

ii) Payables consist of trade payables and accrued interest. The accrued interest as at 31 December 2021 was GHȼ45,000 and as at 2020 was GHȼ80,000.

iii) Profit before taxation had been arrived at after charging GHȼ395,000 for depreciation on non-current assets.

iv) During the year, non-current assets with a carrying amount of GHȼ200,000 were sold for GHȼ190,000.

Required:
Prepare a Statement of Cash Flows for Chemu Ltd for the year ended 31 December 2021, in accordance with IAS 7: Statement of Cash Flows.
(16 marks)

b) Identify FOUR (4) benefits Chemu Ltd may derive from preparing a Statement of Cash Flows.
(4 marks)


b)
Benefits of Preparing a Statement of Cash Flows:

  1. Assessment of Liquidity:
    Helps in assessing the company’s ability to generate cash from operations, meet its short-term obligations, and manage its liquidity effectively.
  2. Performance Analysis:
    Provides insight into how well the company’s operations are generating cash, which is crucial for evaluating overall business performance.
  3. Investment and Financing Decisions:
    Assists in determining how much cash is being used for investments in non-current assets and how financing activities are being managed, supporting better decision-making.
  4. Transparency and Compliance:
    Ensures that the company complies with IAS 7, providing a clear, standardized view of cash flows that is useful to investors, creditors, and other stakeholders.

(4 marks evenly spread)

 

  • 20 Marks

FA – May 2016 – L1 – Q4 -Preparation of financial statements of a sole trader | IAS 7: Statement of cash flows

Prepare an adjusted cash book, a bank reconciliation statement, and discuss the benefits of reconciling cash book and bank statement balances.

The Statements of Financial Position for the last two years for AO Ltd are shown below. AO Ltd implemented an expansion programme during the year ended 31st May 2015.

Additional information:
i) The total depreciation provision incorporated in the statements of financial position was GH¢48,000 at 31st May 2014 and GH¢122,000 at 31st May 2015.
ii) During the year ended 31st May 2015, a non-current asset costing GH¢22,000 with a carrying amount of GH¢6,000 was sold for GH¢1,000. No other disposals took place.
iii) The revaluation surplus represents a revaluation of premises during the year ended 31st May 2015.

Required:
a) Prepare a Statement of Cash Flows for AO Ltd for the year ended 31st May 2015 in accordance with IAS 7. (Use the indirect method). (12 marks)
b) State the effects of the expansion policy on AO Ltd. (8 marks)

a) Statement of Cash Flows for AO Ltd for the year ended 31 May 2015

b) Effects of the Expansion Policy on AO Ltd

  1. Liquidity Position: The liquidity position has fallen, as evidenced by the decrease in cash. The current ratio has fallen from 1.85:1 to 1.68:1, indicating a slight decline in the company’s ability to cover its short-term liabilities.
  2. Investment in Non-Current Assets: The company has significantly increased its investment in non-current assets, with a total investment cost of GH¢218,000. This increased investment may enhance future profitability and improve the return on capital employed, thereby benefiting shareholders.
  3. Risk: The company’s large investment in non-current assets carries risk. If the anticipated increase in income does not materialize, it could result in a lower return for shareholders.
  4. Equity Share Capital: The equity share capital increased due to the issuance of GH¢140,000 worth of shares. This provides more shares available for trading on the stock market, but it could also alter the control dynamics due to the increased voting power of ordinary shareholders.

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