Explanation Cash Flow Statement: It is a financial statement which gives information about company’s cash inflows and outflows during an accounting year. It tells the cash position of the company and shows from where company generates its cash and how they used in the business. Indirect Method: This method is easy as it starts with net profit and makes necessary adjustment by converting accrual basis into cash basis. Firm make adjustment by adding back all the non cash expenses like depreciation , provision for losses on accounts receivable and similarly reduce non cash revenues and gains from the net profit. Operating Activities: It is the first part of cash flow statement It focus on inflow and outflow of cash from enterprise main.business operation like purchasing and selling of goods and services. It excludes longterm capital or investment costs. Investing Activities: It is the second part of cash flow statement It focus on cash flow related to purchasing and selling of long term assets of the firm like plant, building, machinery and so on Financing Activities : It is the third part of cash flow statement It focus on cash flow related to change in size and composition of equity and debt capital of the company like issue of share and debenture, payment of dividend and so on. Following is the cash flow statement under indirect method: Cash flow statement of Super view Company For the year ended 31 December Cash flow from operating activities Amounts($) Net loss (389,660) Adjustment to reconcile net loss to net cash provided by operating activities Add: Depreciation expenses 200,000 Add: Amortization expenses 30,000 Add: Bad debt expenses 65,500 Less: Increased in deferred tax assets (200,000) Net changes in operating working capital Less: Increase in accounts receivable (76,250) Less: Increase in inventory (150,000) Add: Increase in accounts payable 196750 Less: Decrease in tax payable (80,000) Net cash used in operating activities (403,660) Cash flow from investing activities Purchase equipments (885,000) Purchase franchise (66,250) Net cash used in investing activities (951,250) Cash flow from financing activities Issued long term debt 225,675 Purchase treasury stock (438,315) Issued common stock 1,230,000 Additional paid up capital 360,500 Net cash used in financing activities 1,377,860 Increase in cash for the year 22,950 Opening cash balance 75,890 Closing cash balance 98,840 Table (1) So, the cash flow from operating activities after adjusting noncash items and net changes in operating working capital is ($403,660) The cash flow from investing activities is ($951,250) and from financing activities is 1,377860. The addition of all these three reflects net increase or decrease in cash. Therefore, net increase in cash is $22,950 which is to be added in opening balance of cash of $75,890. Thus, the net closing balance of cash is $98,840 as on 31 December which is given in the balance sheet. Working Note: Calculation of net purchase of plant during the period: Tangible assets (PPE) Date Item Post ref. Debit ($) Credit ($) Balance ($) Opening balance 1,500,000 Depreciation 200,000 1,300,000 Purchase (885,000) 415,000 Closing balance 2,185,000 Table (2) So, the net purchase of plant during the period is ($885,000). Calculation of net purchase during the year: Intangible assets (PPE) Date Item Post ref. Debit ($) Credit ($) Balance ($) Opening balance 168,750 Amortization 30,000 138,750 Purchase (66,250) 205,000 Closing balance 205,000 Table (3) So, the net purchase of intangible assets (franchise) during the period is ($66,250). Calculation of amount of tax expenses: Tax expenses Date Item Post ref...

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Author: GORDON

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Chapter 22, Problem 22.5E

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Cash flow statement for the current year of SC under indirect method.

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Chapter 22 Solutions

INTERMEDIATE ACCOUNTING-MYACCOUNTINGLAB

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Cash flow statement for the current year of SC under indirect method.

Solution Summary: The author explains the indirect method of cash flow statement for the current year of Super view Company.

Cash flow statement for the current year of SC under indirect method.

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Chapter 22 Solutions