The management of Locale Ltd is worried because the bank overdraft has increased by a substantial amount over the financial year ended 30 June 2018 despite a large profit and the introduction of additional capital. The internal comparative statements of financial position at 30 June 2017 and 2018 were as follows:

	LOCALE LTD Comparative Statements of Financial Position as at 30 June
		2017		2018
	EQUITY Share capital Revaluation surplus General reserve Retained earnings	$450 000 — 75 000    73 500		$577 500 22 500 127 500 117 750
		$598 500		$845 250
	NON-CURRENT ASSETS Land Buildings Accumulated depreciation – buildings Plant and equipment Accumulated depreciation – plant and equipment	$   15 000 90 000 (45 000) 310 500  (40 500)		$  37 500 90 000 (52 500) 450 000  (83 250)
		330 000		441 750
	CURRENT ASSETS Petty cash Accounts receivable Allowance for doubtful debts Inventory	300 161 250 (15 000) 273 750		450 300 000 (30 000) 458 250
		420 300		728 700
	LESS: CURRENT LIABILITIES Accounts payable Current tax liability Bank overdraft	54 300 9 000   88 500		44 500 22 050 258 750
		151 800		325 200
	Working capital	268 500		403 500
	TOTAL NET ASSETS	$598 500		$845 250

The statement of profit or loss and other comprehensive income for the year ended 30 June 2018 for Locale Ltd, prepared for management purposes, is shown overleaf.

	LOCALE LTD Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2018
	INCOME Sales revenue (net) Cost of sales Less: Discount received	$415 500       (1 125)	$825 000 414 375
	GROSS PROFIT Gain from sale of plant and equipment		410 625   3 750
			414 375
	EXPENSES Salaries and wages expense Depreciation on buildings Depreciation on plant and equipment Electricity expense Bad debts expense	$  90 375 7 500 57 750 4 500   45 000	205 125
	Profit before tax Income tax expense Underprovision for income tax	75 000    3 750	209 250   78 750
	PROFIT FOR THE PERIOD		130 500
	Other comprehensive income: Gain on revaluation of land		22 500
	TOTAL COMPREHENSIVE INCOME FOR THE YEAR		$153 000

Additional information

(a) The land was revalued upwards during the year by $22 500.

(b) During the year, a dividend of $33 750 had been paid.

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

(d) The company pays income tax in four instalments and the first three instalments have been paid. For the year ended 30 June 2017, the ATO issued an amended assessment of $12 750 resulting in an underprovision of $3750 being recorded in 2018.

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.