BCD Co Financial Statements Income Statement for the year ended 31 December 2020 RM (mil.) RM (mil.) Sales 100 Less cost of goods sold Opening inventory 15 Purchases 104 Goods available for sales 119 Closing inventory 46 (73) Gross profit 27 Less other expenses General expenses 8 Depreciation 8 Property taxes 4 Interest expenses 3 23 Net income 4 Retained earnings, Dec 31. 2015 7 Total 11 Dividend (1) Retained earnings, Dec 31, 2016 10 Balance Sheet as at December 31, 2016 RM (mil.) RM (mil.) RM (mil.) Category 2016 2015 +ve/-ve Assets Cash 1 20 Accounts receivable 20 5 Inventory 46 15 Prepaid general expenses 4 2 Fixed assets 91 50 163 92 Equities & Liabilities Accounts payable 39 14 Accrued property tax payable 3 1 Long-term debt 40 0 Share capital 70 70 Retained earnings 10 7 162 92 The BCD Co has prepared the data as per above. In December 2016, BCD paid RM54 million cash for the new building acquired to accommodate an expansion of operations. This was financed partly by a new issue of long term debt for RM40 million. During 2016, the company also sold fixed asset for RM5.0 million cash, which was equal to their book value. All sales and purchases of merchandise were on credit. As the net income of RM4 million was the highest in the company’s history, Mr Bakar, the chairman of the board, was perplexed by the company’s extremely low cash balance. Questions: Prepare a statement of cash flows, ignore tax. Use the indirect method for reporting cash flows from operating activities. What is revealed by the statement of cash flows? Does it help you to reduce Mr Bakar’s puzzlement? Why?
BCD Co Financial Statements
Income Statement for the year ended 31 December 2020
|
|
RM (mil.) |
RM (mil.) |
|
Sales |
|
100 |
|
Less cost of goods sold |
|
|
|
Opening inventory |
15 |
|
|
Purchases |
104 |
|
|
Goods available for sales |
119 |
|
|
Closing inventory |
46 |
(73) |
|
Gross profit |
|
27 |
|
Less other expenses |
|
|
|
General expenses |
8 |
|
|
|
8 |
|
|
Property taxes |
4 |
|
|
Interest expenses |
3 |
23 |
|
Net income |
|
4 |
|
|
|
7 |
|
Total |
|
11 |
|
Dividend |
|
(1) |
|
Retained earnings, Dec 31, 2016 |
|
10 |
|
|
RM (mil.) |
RM (mil.) |
RM (mil.) |
Category |
|
|
2016 |
2015 |
+ve/-ve |
|
|
Assets |
|
|
|
|
|
Cash |
1 |
20 |
|
|
|
|
20 |
5 |
|
|
|
Inventory |
46 |
15 |
|
|
|
Prepaid general expenses |
4 |
2 |
|
|
|
Fixed assets |
91 |
50 |
|
|
|
|
163 |
92 |
|
|
|
Equities & Liabilities |
|
|
|
|
|
Accounts payable |
39 |
14 |
|
|
|
Accrued property tax payable |
3 |
1 |
|
|
|
Long-term debt |
40 |
0 |
|
|
|
Share capital |
70 |
70 |
|
|
|
Retained earnings |
10 |
7 |
|
|
|
|
162 |
92 |
|
|
The BCD Co has prepared the data as per above. In December 2016, BCD paid RM54 million cash for the new building acquired to accommodate an expansion of operations. This was financed partly by a new issue of long term debt for RM40 million. During 2016, the company also sold fixed asset for RM5.0 million cash, which was equal to their book value. All sales and purchases of merchandise were on credit.
As the net income of RM4 million was the highest in the company’s history, Mr Bakar, the chairman of the board, was perplexed by the company’s extremely low cash balance.
Questions:
- Prepare a statement of
cash flows , ignore tax. Use the indirect method for reporting cash flows from operating activities. - What is revealed by the statement of cash flows? Does it help you to reduce Mr Bakar’s puzzlement? Why?
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