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(1)
To identify:
(1)
Explanation of Solution
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M Company |
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Statement of Cash Flows |
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For the Year Ended 31 December, 2018 |
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Particulars |
Amount ($) |
Amount ($) |
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Cash flow from operating activities: |
10,500 |
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Net income |
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Add: Non cash expenses |
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7,200 |
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Less:
increase in |
(19,450) |
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Net cash flow from operating activities(A) |
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(1,750) |
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Investing activities |
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Cash flow from investing activities: |
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Cash paid for acquiring the equipment |
(8,400) |
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Net cash flow from investing activities(B) |
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(8,400) |
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Financing activities |
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Cash flow from financing activities: |
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Cash received on issue of common stock |
10,000 |
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Net cash flow from financing activities(C) |
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10,000 |
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Net decrease in cash (A)+ (B)+ (C) |
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(150) |
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Add: opening balance of cash and cash equivalents |
30,550 |
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Closing balance of cash and cash equivalents |
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30,400 |
Working note:
Calculate cash paid for acquiring the equipment
| Particulars | Amount($) |
| Equipment as on 2017 | 49,900 |
| Less: Equipment as on 2016 | (41,500) |
| Cash paid for acquiring the equipment | 8,400 |
(2)
To explain: About operating activities and cash level of the company.
(2)
Explanation of Solution
Operating activities:
By using the operating activities, quality of the company can be determined. It will be said a company have good quality of earning.
If earning of the company is less that the cash flow from operating activity of the company. In this cash, cash flow from operating activities is less than the earning of the company.
So, it is said M. Company have low earning quality.
Cash level:
- From the investor point of view, A company will be said in good position if it is using cash less than generating.
- But here, cash from investing activities is negative its mean that company is using cash more that generating. So, M company is not in the position to increase dividend and reduce debts
- Here M Company has not included the cash dividend under the cash flow from financial activities as it s not declared for year. Its mean that company is not in the position to pay the dividend to its shareholder.
Hence, the M Company has low earning cash balance.
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Chapter 12 Solutions
CONNECT PLUS-FINANCIAL & MANAGERIAL AC
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