The directors of Fruit Sales plc produced the following income statement (profit and loss account) for Year 2 and balance sheet at the end of Year 2.

Income statement for Year 2

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

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

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

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

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

Gain on disposal of equipment.................................................................................................. 7

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

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

Operating profit before interest.............................................................................................. 137

Interest expense ...................................................................................................................... (20)

Profit after deducting interest .............................................................................................. 117

Taxation ....................................................................................................................................  (35)

Profit after tax ..............................................................................................................................82

Further information

1. The dividend paid during Year 2 was £31m. The retained earnings increased by £82m profit of the period and decreased by the amount of the dividend £31m.

2. During Year 2 the company acquired vehicles costing £90m.

3. During Year 2 the company sold vehicles that had an original cost of £25m and accumulated depreciation of £12m. The proceeds of sale were £20m.

4. Cost of sales consists entirely of purchases of fruit on credit from suppliers. Wages are included in administrative and selling expenses and are paid when incurred.

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.

Transcribed Image Text:

Statements of financial position (balance sheets) at 31 December Year 1 Year 2 £m £m Non-current assets Vehicles at cost 195 130 Accumulated depreciation (79) (52) 116 78 Investments 100 80 Total non-current assets 216 158 Current assets Inventory (stock) Trade receivables (debtors) Cash and cash equivalents 26 20 23 21 43 6. Total current assets 92 308 Total assets 205 Current liabilities Trade payables (creditors) Interest payable Taxes payable (18) (8) (10) (36) (13) (7) (7) (27) Total current liabilities Non-current liabilities Long-term loans (26) (62) 246 (18) (45) Total liabilities Net assets 160 Capital and reserves Share capital Share premium Retained earnings 152 120 26 23 68 17 246 160