Harbour Trading Ltd: statement of cash flows

Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• Start with profit before tax of $450,000.
• Add back finance costs of $30,000.
• Add back depreciation of $110,000.
• Deduct the profit on disposal of $15,000, because the cash is in investing activities.
• Deduct the increase in inventories of $40,000 and the increase in receivables of $60,000.
• Add the increase in payables of $25,000, to reach cash generated from operations of $500,000.

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Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• Cash generated from operations $500,000.
• Interest paid of $30,000 and tax paid of $85,000 are deducted, giving net cash from operating activities of $385,000.
• Investing: purchase of property, plant and equipment (260,000).
• Investing: proceeds of the disposal of equipment 65,000.
• Net cash used in investing activities (195,000).
• Financing: proceeds of the share issue 100,000.
• Financing: repayment of the loan (50,000) and dividends paid (70,000).
• Net cash used in financing activities (20,000).
• Net increase in cash 385,000 - 195,000 - 20,000 = 170,000.
• Opening cash 45,000, so the closing cash is 215,000. The statement has headings and a clear layout.

Marks counted: 0 of 10

Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• Profit before tax of $450,000 is much more than the increase in cash of $170,000, because cash was used for working capital, tax, interest, dividends and the purchase of assets.
• Inventories and receivables grew by $100,000, which is more than the increase in payables, so working capital absorbed $75,000.
• Operating cash flow of $385,000 more than covered the investment of $195,000, so the company funded its expansion without borrowing, and it also repaid a loan and paid a dividend.
• The closing cash of $215,000 is a healthy position, but the growth in inventories and receivables should be watched in case the company is not collecting cash quickly enough.

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