Consider the following:

...................................................................................................................................     £m

Revenue ..................................................................................................................      320

Cost of sales............................................................................................................     (143)

Gross profit...............................................................................................................    177

Investment income – interest received...................................................................     5

Loss on disposal of equipment ...............................................................................    (8)

Depreciation .............................................................................................................    (39)

Administrative and selling expenses ......................................................................  (13)

Operating profit before interest ..............................................................................  122

Interest expense .........................................................................................................  (6)

Profit after deducting interest ..................................................................................  116

Taxation ........................................................................................................................  (39)

Profit after tax...............................................................................................................  77

Further information:-

1. The dividend paid during Year 2 was £25m. The retained earnings increased by £77m profit of the period and decreased by the amount of the dividend, £25m.

2. During Year 2 the company acquired property, plant and equipment costing £94m.

3. During Year 2 the company sold for scrap property, plant and equipment that had an original cost of £19m and accumulated depreciation of £9m. The proceeds of disposal were £2m.

4. Investments were sold during the year for cash proceeds of £30m. There were no purchases of investments.

Required:-

1. Prepare a statement of cash flows using (a) the direct method and (b) the indirect method of calculating operating cash flow.

2. Write a comment on the cash flow of the period.

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Statements of financial position (balance sheets) at 31 December Year 2 Year 1 £m £m Property, plant and equipment at cost Accumulated depreciation 225 150 (90) 135 (60) 90 Investment 70 100 Total non-current assets 205 190 Inventory (stock) Trade receivables (debtors) Cash and cash equivalents 30 22 27 24 48 8 105 54 244 (20) (11) (9) (40) (15) (55) 189 140 Total current assets Total assets 310 Trade payables (creditors) Interest payable Taxes payable (21) (9) (12) (42) (20) (62) 248 144 Total current liabilities Long-term loans Total liabilities Net assets Share capital Share premium Retained earnings 26 23 78 26 248 189