Question

Question 1

The income statement and additional data of Bayleaf Travel Products Pty Ltd are as follows:

Income statement for the year ended 31 December 2016

Revenue:                                                                  R231 300

Service revenue                   R225 000

Dividend revenue                R6 300                     

Expenses:                                                                            R184 700

Cost of goods sold               R100 000

Salary expense                    R52 000

Depreciation expense         R23 000

Advertising expense           R2 300

Interest expense                  R2 400

Income tax expense                        R5 000

Net income                                                                           R46 600

Additional data

- Acquisition of PPE was R170 000. Of this amount, R140 000 was paid in cash and R30 000 by signing a note payable.

- Proceeds from sale of land totaled R48 000.

- Proceeds from issuance of shares totaled R31 000.

- Payment of long-term note payable was R16 000.

- Payment of dividends was R10 000

From the balance sheet:

Balance sheet as at 31 December

2016		2015
Current assets
Cash	R32 000		R13 300
Accounts receivable	R41 000		R57 000
Inventory	R48 000		R87 000
Prepaid expenses	R9 100		R8 200
Current liabilities
Accounts payable	R32 000		R17 000
Accrued liabilities	R14 000		R43 000

Requirements

a) Prepare Bayleaf’s statement of cash flow for the year ended 31 December 2016, using the indirect method.

b) Evaluate Bayleaf’s cash flows for the year ended 31 December 2016, including its free cash flow and cash realisation ratio. In your evaluation, review all three categories of cash flows and give the reason for your evaluation

c) When analysing the cash flow patterns of a company, what other three important indicators of the health of a company’s cash flows do you look at?

Answer 1

Cash Flow Statement of Bay Leaf - Indirect Method
Profit after Tax	46,600
Add: Provision for Tax	5,000
Add Non Cash/\non operating expenses
Depreciation Expense	23,000
Interest Expense	2,400
Less Non Cash/Non Operating Income
Dividend Revenue	(6,300)
Net Cash Operating Profit	70,700
Changes in Working Capital
Decrease in Accounts receivable	16,000
Decrease in Inventory	39,000
Increase in Prepaid Expenses	(900)
Increase in Accounts Payable	15,000
Decrease in Accrued Liablities	(40,000)
	29,100
Net Cash Flow from Operating Activity	99,800
Dividends Received	6,300
Proceeds from Sale of Land	48,000
Acquisation of PPE	(170,000)
Net Cash flow from Investing Activity	(115,700)
Proceeds from Issuance of Shares	31,000
Dividend Payment	(10,000)
Interest expense	(2,400)
Net cash flow for Notes Payable	16,000
Net Cash flow from Financing Activity	34,600
Total Cash flows	18,700
Add : Opening Cash flow	13,300
Net Closing Cash	32,000
Closing Cash and Cash Equivalents	32,000

B)

During the year Net Cash flows from Operating activity - R 70,700

During the year Net Cash flows from Investing activity - (R 115,700)

During the year Net Cash flows from Financing activity - R 34,600

There was investments during the year, also all funds from financing are not fully utilised

C) Other Three Important indicators are

Debt Equity Ratio

Interest Coverage Ratio

Capital Gearing Ratio