The management of Locale Ltd is worried because the bank overdraft has increased by a substantial amount

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The management of Locale Ltd is worried because the bank overdraft has increased by a substantial amount over the financial year ended 30 June 2021 despite a large profit and the introduction of additional capital. The internal comparative statements of financial position at 30 June 2020 and 2021 were as follows.

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The statement of profit or loss and other comprehensive income for the year ended 30 June 2021 for Locale Ltd, prepared for management purposes, is shown below.

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Additional information 

1. The land was revalued upwards during the year by $22 500.

2. During the year, a dividend of $33 750 had been paid.

3. Plant and equipment which had originally cost $82 500 and had been depreciated by $15 000 was sold during the year for $71 250.

4. The company pays income tax in four instalments and the first three instalments have been paid. For the year ended 30 June 2020, the ATO issued an amended assessment of $12 750 resulting in an underprovision of $3750 being recorded in 2021.

Required

(a) Prepare a statement of cash flows as per current accounting standards using the direct method.

(b) Prepare a note reconciling cash flows from operating activities to profit.

(c) Prepare a brief report to management explaining the flow of cash and cash equivalents.

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Financial Accounting

ISBN: 9780730363217

10th Edition

Authors: John Hoggett, John Medlin, Keryn Chalmers, Claire Beattie, Andreas Hellmann, Jodie Maxfield

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