Using a statement of Cash flow for the year ended 31st December 2019, write a report to the Managing Director of Kotoku Ltd, explaining to him the reasons for the decrease in bank balance from GHS6,000,000 to GHS300,000.
The Managing Director of Kotoku Ltd received the financial reports for year ended 31st December 2019 with the 2018 comparatives from his Accountant. He does not understand why the company started the year with a bank balance of GHS6,000,000 but ended the year with a bank balance of only GHS300,000. He feels the Accountant has misappropriated the funds because the company made profits of GHS4,425,000 during the 2019 financial year and so adding that amount to the opening bank balance should result in a closing bank balance of GHS10,425,000. He approached you as a financial analyst to do a thorough analysis of the financial statement. An extract of Profit or loss, statement of financial position and the cashflow prepared from the full financial statements are shown below:
|
Statement of Profit or Loss (extract) |
|
|
|
|
2019 |
2018 |
|
Revenue |
GH¢ 38,250,000 |
GH¢ 25,875,000 |
|
Gross Profit |
16,050,000 |
10,350,000 |
|
Net Profit after tax |
4,425,000 |
3,750,000 |
|
Statement of Financial Position (extract) |
|
|
|
|
2019 |
2018 |
|
Non-current assets |
GH¢ 23,550,000 |
GH¢ 8,100,000 |
|
Current assets |
|
|
|
Inventory |
5,400,000 |
2,700,000 |
|
Trade receivables |
3,600,000 |
2,100,000 |
|
Bank |
300,000 |
6,000,000 |
|
91 days Treasury Bills |
3,000,000 |
- |
|
Total Assets |
35,850,000 |
18,900,000 |
|
Equity |
14,250,000 |
10,875,000 |
|
Non-current liabilities
Current Liabilities |
13,500,000 |
3,000,000 |
|
Trade payables |
4,800,000 |
3,225,000 |
|
Current tax payable |
3,300,000 |
1,800,000 |
|
Total equity and liabilities |
35,850,000 |
18,900,000 |
Kotoku Ltd
Statement of Cashflow for the year ended 31st December 2019
|
GH¢ |
GH¢ |
|
Cash flows from operating activities Profit before |
7,275,000 |
|
Adjustment for items not involving a flow of cash: Interest Expenses 1,500,000 |
|
|
Profit on disposal (200,000) |
|
|
Depreciation 960,000 |
|
|
|
2,260,000 |
|
Adjusted profit |
9,535,000 |
|
Movement in Increase in inventories (2,700,000) |
|
|
Increase in trade receivables (1,500,000) |
|
|
Increase in trade payables 1,575,000 |
|
|
Decrease in cash due to working capital changes |
(3,825,000) |
|
Cash generated from operations |
6,910,000 |
|
Interest paid |
(1,500,000) |
|
Taxes paid |
(1,350,000) |
|
Net |
4,060,000 |
|
Cash flows from investing activities |
|
|
Purchase of PPE |
(7,310,000) |
|
|
Sale of PPE |
400,000 |
|
|
Investments acquired |
(9,300,000) |
|
|
Net cash used in investing activities |
|
(16,210,000) |
|
Cash flows from financing activities Proceeds from long-term borrowing |
10,500,000 |
|
|
Dividends paid |
(1,050,000) |
|
|
Net cash inflow from financing activities |
|
9,450,000 |
|
Decrease in cash and cash equivalents |
|
(2,700,000) |
|
Cash and cash equivalents at the start of the period |
|
6,000,000 |
Cash and cash equivalents at the end of the period 3,300,000
Required:
Using a statement of Cash flow for the year ended 31st December 2019, write a report to the Managing Director of Kotoku Ltd, explaining to him the reasons for the decrease in bank balance from GHS6,000,000 to GHS300,000.
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