ACCOUNTING 2 (ACC221E) /

GENERAL ACCOUNTING 2 (ACG221E)

STATEMENT OF CASH FLOWS

Lecturer: Ntombi Mnconywa

LEARNING GUIDE
Unit 8 Statement of cash flows
After studying this topic, you should be able to:
• Discuss the objective and scope of IAS 7 (Statement of cash flows):
Outcomes • Discuss the following concepts:
for this unit o cash
o cash equivalents
o cash flow
o operating activities
o investing activities
o financing activities
• Calculate and disclose cash generated from operations in the statement of
cash flows according to the direct method or indirect method.
• Prepare a detailed statement of cash flows taking into account share all
transactions and events involving cash flows encountered in Accounting II.

Students should be able to prepare a statement of cash flows.

Prior
learning

You have already studied statements of cash flow in your first year, but without
referring to the standard of GAAP, IAS 7 (Statement of cash flows). The
Overview of principles that you have applied are however in full compliance with the
the study requirements of the standard. In Accounting 2, we will be emphasizing IAS 7.
topic You should be able to account for all cash flows that you encounter in your
second year in the statement of cash flows.

You should already know the format of a statement of cash flows from your
Accounting I studies. You should start by reading Gripping GAAP, thoroughly.
Guidelines GAAP: Graded Questions contains a number of questions of questions that you
for studying should work through, after which you have to do the questions attached to this
this topic learning guide.
 Gripping GAAP – 2024/25 edition
Chapter 27
Literature
GAAP Graded questions – 2024/2025 edition

Additional material
Notes, lecture slides and class example (attached)

The best way to assess a student’s ability to prepare a statement of cash flows is
Manner of practical application. You therefore have to concentrate on preparing a statement
assessment of cash flows. Even though the underlying theory is important, it is rarely
assessed. All the standards of GAAP that are covered by Accounting II which
have cash implications may be included in an assessment.
ADDITIONAL NOTES

1 SHARE TRANSACTIONS

1.1 Rights issues

Subject to the conditions that apply to the right or an option granted, the shareholder would
obtain the shares in exactly the same way as shares issued, if that right or option were to
be exercised.

1.2 Capitalisation issues

No funds flow from the entity and no operating capital is lost.

Capitalisation issues do not affect the statements of cash flow.

1.3 Redemption of redeemable preference shares

The redemption of shares implies an outflow of funds from the entity.

When there is a redemption by means of the issue of new shares, there is a inflow of funds,
from the new shareholders to the entity.

2 CONVERSION OF THE FINANCING SOURCE

Items in the statement of cash flows are always shown as gross amounts. The proceeds on the
disposal of property, plant and equipment must be shown separately to the acquisition of
property, plant and equipment. We do not show the net effect of such transactions.

3 RECLASSIFICATION OF LIABILITIES

In order to maintain the classification of long-term liabilities the portion of a long-term loan payable
within the next accounting period is transferred to current liabilities. Such a transfer is only shown
in the statement of financial position and the notes to the financial statements, and is not
reflected on the statement of cash flows.

4 CALCULATION OF PROFIT BEFORE TAXATION

In some cases an analyst may have only the company’s statement of financial position at his
disposal. As the statement of comprehensive income reflects the profit before taxation, the latter
must be calculated. The starting point for reconstructing profit before taxation, is retained
earnings per the statement of financial position or the statement of changes in equity.

Page 3
EXAMPLE 1

Seemee Limited (with an increased operating capacity) presents the following information as at 30 June:

financial position
20x2 20x1
R R
ASSETS
Non-current assets 530 000 200 000
Current assets 670 000 940 000
Inventories (20x0 R180 000) 150 000 180 000
Trade and other receivables 500 000 410 000
Cash and cash equivalents 20 000 350 000

Total assets 1 200 000 1 140 000

EQUITY AND LIABILITIES

Capital and reserves
Issued ordinary share capital 200 000 200 000
Retained earnings 150 000 500 000
Non-current liabilities
Long-term borrowings 300 000 50 000
Current liabilities 550 000 390 000
Trade and other payables 420 000 310 000
Taxation 130 000 80 000
Total equity and liabilities 1 200 000 1 140 000

Statement of comprehensive income

20x2 20x1
Revenue 2 100 000 1 600 000
Cost of sales 1 500 000 1 300 000
Gross profit 600 000 300 000
Expenditure including 500 000 220 000
Depreciation 50 000 10 000
Interest paid 20 000 2 000
Profit before taxation 100 000 80 000
Taxation 50 000 40 000
Profit for the period 50 000 40 000
Other comprehensive income 0
Comprehensive income for the year 50 000 40 000

Page 4
EXAMPLE 1 (CONTINUED)

EXTRACT FROM STATEMENT OF CHANGES IN EQUITY

Retained earnings
20x2 20x1
Balance at beginning of year 500 000 460 000

Profit for the period 50 000 40 0000

Dividends declared and paid (400 000) -
Balance at end of year 150 000 500 000

The market price of Seemee Limited’s shares was R4 per share on 30 June 20x2 (20x1 R3,50).

REQUIRED:

Prepare the statement of cash flows for Seemee Limited for the year ended 30 June 20x2 in compliance with
Statements of General Accepted Accounting Practice.

Page 5
EXAMPLE 1 (SUGGESTED SOLUTION - CONTINUED)

SEEMEE LIMITED
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 20x2
R R

Cash flow from operating activities

Cash receipts from customers (calc. 1) 2 010 000
Cash paid to suppliers and employees (calc. 2) (1790 000)
Cash generated from operations 220 000
Interest received
Interest paid -20 000
Dividends received
Dividend paid -400 000
Income tax paid 0
Net cash flows from operating activities (200 000)

Cash flows from investing activities -380 000

Purchase of equipment (assumption) -380 000

Additions to equipment -380 000

Replacement of equipment

Proceeds from sale of equipment

Net cash flows used in investing activities

Cash flows from financing activities

Proceeds from long term borrowings 250 000
Net cash flows from financing activities

Net decrease in cash (330 000)

Cash at beginning of period 350 000
Cash at end of period 20 000

If the indirect method were applied, cash generated from operations would have been presented as follows:

Page 6
EXAMPLE 1 (SUGGESTED SOLUTION - CONTINUED)

CALCULATIONS

1. CASH RECEIPTS FROM CUSTOMERS

Revenue 2 100 000
Elimination of effects from accruals concepts
Increase in debtors (90 000)
2 010 000

2. CASH PAID TO SUPPLIERS AND EMPLOYEES

Revenue 2 100 000
Profit before taxation (100 000)
Net expenses for the year (2 000 000)
Elimination of items disclosed separately on face of CFS
Dividends received
Interest received
Interest paid 20 000
Profit on disposal of equipment
Elimination of non cash flow items
Depreciation 50 000
Elimination of the effects from accruals concept
Increase in creditors 110 000
Decrease in inventories 30 000
(1 790 000)

If cost of sales and total expenses are not available from the given information, the calculation will be
as follows:

CASH PAID TO SUPPLIERS AND EMPLOYEES

Cost of sales 1 500 000
Operating expenses paid cash 450 000

Per statement of comprehensive income 500 000

Elimination of non cash flow items
Depreciation -50 000

Elimination of items disclosed separately on the CFS

Interest paid -20 000
Profit on disposal of equipment
Elimination of the effects from the accruals concept
Decrease in inventories -30 000
Increase in creditors -110 000
1 790 000

Page 7
QUESTION 1 FROM STATEMENT OF FINANCIAL POSITION AND ADDITIONAL INFORMATION

The statement of financial position below applies to Elixer Limited and was prepared on 30 June 20x2 (and 30
June 20x3).

20x3 20x2
R R
Property, plant and equipment 300 000 210 000
Financial assets 150 000 120 000
Debtors 90 000 81 000
Inventories 50 000 40 000
Bank 30 000 27 000
620 000 478 000

Ordinary share capital (20.3 150 000 sh; 20.2 100 000 shares) 160 000 105 000
Replacement reserve 70 000 60 000
Retained earnings - end of the year 180 000 140 000
Reserve on revaluation of land and buildings 50 000 -
9% Debentures 70 000 80 000
Creditors 50 000 60 000
Taxation 30 000 25 000
Dividends payable 10 000 8 000
620 000 478 000

ADDITIONAL INFORMATION:

1. On 1 January 20x3 50 000 ordinary shares were issued at R1,10.

2. The 9% debentures are redeemable from 30 June 20x1 in annual payments of R10 000.

3. On 1 January 20x2 and 1 January 20x3, provisional tax of R10 000 and R15 000 were paid respectively
to SARS. Tax due on 30 June 20x2 was paid too.

4. On 31 December 20x2 an interim dividend of 10 cents per share was declared and paid.

5. Property, plant and equipment comprise:

Accumulated Carrying
Cost depreciation amount
20x2
Land and buildings 100 000 - 100 000
Machinery 90 000 30 000 60 000
Vehicles 70 000 20 000 50 000
260 000 50 000 210 000

20x3
Land and buildings 170 000 - 170 000
Machinery 94 000 24 000 70 000
Vehicles 90 000 30 000 60 000
354 000 54 000 300 000

5.1 No land and buildings were disposed of during the year. The fixed property acquired was for expansion
of activities.

Page 8
QUESTION 1 (CONTINUED)

5.2 Machinery with a cost of R20 000 and accumulated depreciation of R16 500 (disposal date) were sold
on 31 March 20x3 at R5 000 (50% of machinery acquired were acquired for expansion purposes).

5.3 Depreciation on machinery and vehicles for the financial year ended on 30 June 20x3, were R10 500
and R16 000 respectively.

5.4 On 1 March 20x3 a vehicles was acquired at a cost of R30 000.

(The vehicle was acquired to maintain present activities).

5.5 On 30 June 20x3 a vehicle was sold for R6 000 cash.

5.6 Depreciation on machinery is supplied at 10% per annum on cost and at 20% of the purchase price for
vehicles.

6. On 1 April 20x3 a trade investment (financial asset) with a book value of R10 000 was sold at R12 500.
The investment acquired during the year is kept as a trade investment and was purchased to expand
activities. The acquisition and disposal of trade investments form part of Elixer Limited's normal trade
activities.

7. A provision for uncollectible debt is maintained at 10% of the debtors.

8. Finance costs paid for the current year was R7 000, dividends received R15 000.

9. Revenue for the year ended 30 June 20x3 amounted to R700 000.

REQUIRED:

Prepare a statement of cash flows for Elixer Limited for the year ended 30 June 20x3 according to Statements
of General Accepted Accounting Practice.

Page 9
QUESTION 1 (SUGGESTED SOLUTION)

ELIXER LIMITED
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 20x3
R R
Cash flow from operating activities
Cash receipts from customers (calc. 1) 690 000
Cash paid to suppliers and employees (calc. 2) (591 500)
Cash generated from operations 98 500
Dividends received 15 000
Interest paid (7 000)
Normal tax paid (40 000)
Dividends paid (18 000)
Net cash flows from operating activities 48 500

Cash flows from investing activities

Purchase of machinery (24 000)
Additions to equipment (12 000)
Replacement of equipment (12 000)
Replacement of vehicles (30 000)
Additions to land and buildings (20 000)
Proceeds from sale of machinery 5 000
Proceeds from sale of vehicles 6 000
Additions to investment (40 000)
Proceeds from sale of financial asset 12 500
Net cash flows used in investing activities (90 500)

Cash flows from financing activities

Long term loan redeemed (10 000)
Proceeds from ordinary shares issue 55 000
Net cash flows from financing activities 45 000

Net increase in cash 3 000

Cash at beginning of period 27 000
Cash at end of period 30 000

If the indirect method were used, the following would be presented on the face of the statement of cash flows:

Profit before taxation 115 000

Adjustments for:
Interest paid 7 000
Dividends received (15 000)
Profit on disposal of investment (2 500)
Profit on disposal of fixed assets (1 500 + 2 000) (3 500)
Depreciation 26 500
Provision for bad debts 1 000
Increase in inventories (10 000)
Increase in debtors (100 000 - 90 000) (10 000)
Decrease in creditors (10 000)
98 500

Page 10
QUESTION 1 (SUGGESTED SOLUTION - CONTINUED)

CALCULATIONS

1. CASH RECEIPTS FROM CUSTOMERS

Revenue 700 000
Elimination of effects from accruals concepts
Increase in debtors (10 000)
690 000

2. CASH PAID SUPPLIERS AND EMPLOYEES

Revenue 700 000
Profit before taxation 115 000
Net expenses for the year (585 000)
Elimination of items disclosed separately on the CFS
Dividends received (15 000)
Interest paid 7 000
Elimination of non-cash flow items
Profit on disposal of fixed assets (3 500)
Profit on disposal of investment (2 500)
Provision for bad debts 1 000
Depreciation 26 500
Elimination of the effects of the accrual concept
Increase in inventories (10 000)
Decrease in creditors (10 000)
(591 500)

3. PROFIT BEFORE TAXATION

Profit (balancing) 115 000
Less: Taxation (45 000)
Less: Transfer to reserve (10 000)
Less: Ordinary dividend (20 000)
Retained earnings - for the year 40 000
Retained earnings - beginning of the year 140 000
Retained earnings - end of the year 180 000

4. Machinery
Balance c/f 90 000 Sales 20 000
∴ Purchases 24 000 Balance c/f 94 000
114 000 114 000
Balance c/f 94 000

Accumulated depreciation: machinery

Sales 16 500 Balance c/f 30 000
Balance c/f 24 000 Depreciation 10 500
40 500 40 500
Balance c/f 24 000

Vehicles
Balance c/f 70 000 ∴ Sales 10 000
Purchases 30 000 Balance c/f 90 000
100 000 100 000
Balance c/f 90 000

Page 11
QUESTION 1 (SUGGESTED SOLUTION - CONTINUED)

Accumulated depreciation: vehicles

∴ Sales 6 000 Balance c/f 20 000
Balance c/f 30 000 Depreciation 16 000
36 000 36 000
Balance c/f 30 000

5. Profit on disposal of machinery 20 000 - 16 500 = 3 500

5 000 - 3 500 = 1 500

Profit on disposal of vehicles 10 000 - 6 000 = 4 000

6 000 - 4 000 = 2 000

Page 12
QUESTION 2

The following is the Liqui Limited statement of financial position as at 30 June 20x3:

20x3 20x2
ASSETS
Non-current assets
Land and buildings 280 000 300 000
Equipment 155 000 160 000
Cost 210 000 200 000
Accumulated depreciation (55 000) (40 000)

Current assets 465 000 293 000

Inventories 320 000 198 000
Debtors 150 000 83 000
Less: Provision for bad debts (5 000) (3 000)
Bank - 15 000
Total assets 900 000 753 000
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital (x2 350 000 shares x3 440 000 shares) 457 000 358 000
15% Preference share capital - 100 000
Retained earnings 82 000 80 000
Non-current liabilities
12% Debentures 220 000 120 000
Current liabilities 141 000 95 000
Creditors 60 000 70 000
Taxation payable - 10 000
Dividends payable 40 000 15 000
Bank overdraft 41 000 -
Total equity and liabilities 900 000 753 000

ADDITIONAL INFORMATION:

1. SHARE CAPITAL, RESERVES AND DIVIDENDS

1.1 The 15% redeemable preference shares were redeemed on 1 January 20x3 at a premium of 10%. The
redemption was funded partially from the issue of 90 000 ordinary shares at a premium of 10 cents per
share.

1.2 Normal dividend rights were maintained until 31 December 20x2 with regard to the preference shares.
The Annual General Meeting also approved an ordinary dividend of R40 000 for the year ended
30 June 20x3.

Page 13
QUESTION 2 (CONTINUED)

2. LIABILITIES

2.1 There was a second debenture issue on 1 January 20x3. The first and second debenture issues are
redeemable in 2x13. The issue and redemption of debentures will be made at par.

3. FIXED ASSETS

3.1 A storage room with a cost of R20 000 was destroyed in a fire during the year. Liqui Limited received an
amount of R15 000 in full and final settlement from the insurance company.

3.2 Equipment with a cost of R30 000 and accumulated depreciation of R10 000 was disposed of during the
year at a profit of R4 000.

4. TAX

The tax provided for the year ended 30 June 20x3 was R73 000.

5. REVENUE

Revenue for the year amounted to R1 036 000.

REQUIRED:

1. Prepare the ledger accounts for retained earnings of Liqui Limited for the year ended 30 June 20x3; and

2. Prepare the statement of cash flows for Liqui Limited for the year ended 30 June 20x3 according to
Statements of Generally Accepted Accounting Practice.

Page 14
QUESTION 2 (SUGGESTED SOLUTION)

1 Retained earnings

(1) Taxation 73 000 Balance 80 000

(1) Bank 10 000 ∴ Profit before taxation 132 500
(1) Ordinary dividend 40 000
Preference dividend 7 500
Balance 82 000
212 500 212 500

LIQUI LIMITED
STATEMENT OF CASH FLOW FOR THE YEAR ENDED 30 JUNE 20x3
R R
Cash flow from operating activities
Cash receipts from customers (calc. 1) 969 000
Cash paid to suppliers and employees (calc. 2) (987 100)
Cash (utilized) generated from operations (18 100)
Interest paid (20 400 ) (20 400)
Taxation paid (83 000)
Dividends paid (15000+7500) (22 500)
Net cash flows from operating activities (144 000)

Cash flows from investing activities

Replacement of equipment (40 000)
Proceeds from insurance claim after fire damage to buildings 15 000
Proceeds from disposal of equipment 24 000
Net cash flows used in investing activities (1 000)

Cash flows from financing activities

Proceeds from ordinary shares issue 99 000
Redemption of preference shares (110 000)
Proceeds from debentures issue 100 000
Net cash flows from financing activities 89 000

Net decrease in cash (56 000)

Cash at beginning of period 15 000
Cash at end of period (41 000)

If the statement of cash flows were prepared using the indirect method, the following would be presented on
the face:

Profit before taxation 132 500

Adjustments for:
Interest paid 20 400
Loss resulting from fire damage to buildings 5 000
Profit on disposal of equipment (4 000)
Depreciation 25 000
Provision for bad debts 2 000
Increase in inventories (122 000)
Increase in debtors (67 000)
Decrease in creditors (10 000)
(18 100)

Page 15
QUESTION 2 (SUGGESTED SOLUTION - CONTINUED)

CALCULATIONS

1. CASH RECEIPTS FROM CUSTOMERS

Revenue 1 036 000
Elimination of effects from accruals concepts
Increase in debtors (67 000)
969 000

2. CASH PAID TO SUPPLIERS AND EMPLOYEES

Revenue 1 036 000
Profit before taxation 132 500
Net expenses for the year (903 500)
Elimination of items disclosed separately on the CFS
Interest paid 20 400
Elimination of non cash flow items
Profit on disposal of equipment (4 000)
Loss with fire damage to buildings 5 000
Provision for bad debts 2 000
Depreciation 25 000
Elimination of the effects from accruals concept
Increase in inventories (122 000)
Decrease in creditors (10 000
(987 100)

Equipment
Balance 200 000 Sales 30 000
Purchases 40 000 Balance 210 000
240 000 240 000

Accumulated depreciation
Sales 10 000 Balance 40 000
Balance 55 000 Depreciation 25 000
65 000 65 000

Page 16
QUESTION 3

You have recently been appointed as accountant of FUNKY LIZARD Limited, a company that specializes in
teenager fashions. The statement of financial positions on 31 December 20.1 and 20.0 are presented to
you:

FUNKY LIZARD LIMITED

STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 20.1 AND 31 DECEMBER 20.1
20.1 20.0

ASSETS
Non-current assets
Land and buildings 250 000 150 000
Machinery 225 000 160 000
Cost 300 000 200 000
Accumulated depreciation (75 000) (40 000)

Current assets
Inventories 65 000 45 000
Debtors 70 000 55 000
Investment 75 000 75 000
Bank 55 000 15 000

Total assets 740 000 500 000

EQUITY AND LIABILITIES

Capital and reserves
Ordinary shares (20.0 : 150 000 shares) 336 250 150 000
Revaluation reserve 45 000 -
Replacement reserve 25 000 15 000
Retained earnings 90 000 25 000

Non-current liabilities
10% Interest bearing loan: PABSA-bank 150 000 110 000
15% Convertible preference shares 75 000 175 000

Current liabilities
Creditors 6 250 9 500
Dividends payable 7 500 12 000
Taxation payable 5 000 3 500
Total equity and liabilities 740 000 500 000

Page 17
QUESTION 3 (CONTINUED)

ADDITIONAL INFORMATION:

1. On 1 January 20.1 Funky Lizard issued 75 000 ordinary shares at R1,15. 25 000 of these shares were
issued in return for a new machine with a cost price of R28 750 (on 1 January 20.1). This new machine
is included in the balance of machinery for 20.1 and the depreciation for the year on this machine has
also been taken into account correctly.

2. On 30 June 20.1 Funky Lizard Limited converted R100 000 15% convertible preference shares to
ordinary shares. Each preference shares was converted into one ordinary shares, in accordance with
the issue regulations of the convertible preference shares.

3. PABSA Limited granted an increased loan facility to Funky Lizard Limited on 31 March 20.1. Funky
Lizard Limited immediately borrowed an addition R40 000.

4. During the year Funky Lizard Limited sold a machine which was used to manufacture buttons, since
zips are currently more fashionable. This machine was sold at a R15 000 profit and had a cost price
of R45 000 and accumulated depreciation of R30 000 on the date of the sale.

5. Another machine had to be written off during the year when a model did irreparable damage to it in a
rage. This machine had a cost price of R12 000 and accumulated depreciation of R10 500 when it
was written off. Funky Lizard Limited sold the machine as scrap to a scrapyard for R650. All new
machinery was purchase to replace these two machines.

6. The acquisition of land and buildings was done to open a new show room in Cape Town.

7. During 20.1 Funky Lizard Ltd paid provisional tax for the 20.1 year amounting to R3 900.

8. An interim dividend of 10c per shares was declared and paid by Funky Lizard Limited on 31 May 20.1.

9. A provision for bad debt is maintained at 12% of debtors.

10. Dividends received during the year amounted to R11 500.

11. Revenue for 20.1 amounted to R300 000.

12. The preference shares are regarded as part of Funky Lizard Limited's debt.

REQUIRED:

Prepare the statement of cash flows of Funky Lizard Limited for the year ended 31 December 20.1 in
accordance with the statements of Generally Accepted Accounting Practice and the requirements of the
Companies Act. No comparative figures are required.

Please note: Round off all figures to the nearest Rand.

Page 18
QUESTION 3 (SUGGESTED SOLUTION)

FUNKY LIZARD LIMITED

STATEMENT OF CASH FLOW FOR THE YEAR ENDED 30 JUNE 20.1
R R

Net cash flows from operating activities

Cash receipts from customers (calc. 1) 282 955
Cash paid to suppliers and employees (calc. 2) (124 705)
Cash generated from operations 158 250
Dividends received 11 500
Interest paid (32 750)
Taxation paid (7 400)
Dividends paid (34 500)
Net cash flows from operating activities 95 100

Cash flows from investing activities

Replacement of machinery (calc. 7) (128 250)
Additions to land and buildings (calc. 7) (55 000)
Proceeds from sale of machinery (calc. 7) 30 000
Proceeds from scrapping of machinery 650
Net cash flows used in investing activities (152 600)

Cash flows from financing activities

Interest-bearing loans acquired 40 000
Proceeds from ordinary shares issue
(50 000 x 1,15 = 57 500) 57 500
Conversion of preference shares - no cash flow implications -
Net cash flows from financing activities 97 500

Net increase in cash 40 000

Cash at beginning of the year 15 000
Cash at end of the year 55 000

If the statement of cash flows were prepared using the indirect method, the following would be presented on
the face of the statement of cash flows:

Profit before taxation (calc. 3) 113 900

Adjustments for:
Interest paid (calc. 6) 32 750
Dividends received (11 500)
Loss on scrapping of machinery (calc. 7) 850
Profit on disposal of machinery (15 000)
Depreciation 75 500
Provision for bad debts 2 045
Increase in inventories (20 000)
Increase in debtors (calc. 4) (17 045)
Decrease in creditors (3 250)
158 250

Page 19
QUESTION 3 (SUGGESTED SOLUTION - CONTINUED)

CALCULATIONS

1. CASH RECEIPTS FROM CUSTOMERS

R
Revenue 300 000
Elimination of effect of the accruals concepts
Increase in inventories (calc. 4) (17 045)
282 955

2. CASH PAID TO SUPPLIERS AND EMPLOYEES

Revenue 300 000
Profit before taxation (calc. 3) (113 900)
Net expenses for the year (186 100)
Elimination of items presented separately on the CFS
Dividends received (11 500)
Interest paid (calc. 6) 32 750
Elimination on non cash flow items
Profit on disposal of machinery (15 000)
Loss on scrapping of machinery (calc. 7) 850
Provision for bad debts (9 545 - 7 500) (calc. 4) 2 045
Depreciation (calc. 7) 75 500
Elimination of the effect of the accruals concepts
Increase in inventories (65 000 - 45 000) (20 000)
Decrease in creditors (9 500 - 6 250) (3 250)
(124 705)

3. PROFIT BEFORE TAXATION

Profit (balancing) ∴ 113 900

Less: Taxation (5 000 + 3 900) (8 900)
Less: Transfer to Replacement reserve (25 000 - 15 000) (10 000)
Less: Ordinary dividend (calc. 5) (30 000)
Retained earnings - for the year ∴ 65 000
Retained earnings - beginning of the year 25 000
Retained earnings - end of the year 90 000

Calculation 4:
Increase/decrease in debtors
R
20.1: 70 000 x 100/88 = 79 545 (before provision for bad debts of 12%)
20.0: 55 000 x 100/88 = (62 500) (before provision for bad debts of 12%)
Increase in debtors 17 045

Calculation 5: Ordinary dividend

Interim dividend:

- Number of ordinary shares on 31 May 20.1 = 150 000 + 75 000

= 225 000
- Interim dividend on 31 May 20.1 = 10c x 225 000 = R22 500
Finale dividend (from statement of financial position) R7 500
Total dividend R30 000

Page 20
QUESTION 3 (SUGGESTED SOLUTION - CONTINUED)

Calculation 6: Interest paid

Loan PABSA - bank: 3/

12 x 110 000 x 10% = 2 750
9/ x 150 000 x 10% = 11 250
12
14 000

Preference dividend: 6/
12 x 175 000 x 15% = 13 125
6/
12 x 75 000 x 15% = 5 625
18 750
Total interest 32 750

Calculation 7:

Machinery

Opening balance 200 000 Write-down 12 000

Share capital 28 750 Sale 45 000
∴ Purchases 128 250

Closing balance 300 000

357 000 357 000

Accumulated depreciation: machinery

Write-down 10 500 Opening balance 40 000
Sale 30 000 ∴ Depreciation 75 500

Closing balance 75 000

115 500 115 500

Land and buildings

Opening balance 150 000
Revaluations 45 000
∴ Purchases 55 000

Closing balance 250 000

250 000 250 000

Loss on scrapping of machinery

R
CP 12 000
Accumulated depreciation (10 500)
Carrying value 1 500
Sales price 650
Loss 850

Proceeds from sale of machinery

CP 45 000
Accumulated depreciation (30 000)
Carrying value 15 000
Profit 15 000
Proceeds 30 000

Page 21
Competency
checklist Check Date

I can discuss the objective and scope of the IAS 7

I can discuss the following concepts:

• cash
• cash equivalents
• cash flow
• operating activities
• investing activities
• financing activities

I can calculate and disclose cash generated from

operations in the statement of cash flows
according to the direct method or indirect method

I can prepare a detailed statement of cash flows

taking into account share all transactions and
events involving cash flows encountered in
Accounting II

Page 22