Question

The income statement for Strait Horn Inc., a publicly traded company following IFRS, is presented here

Strait Horn Inc.

Income Statement

Year Ended December 31, 2019

Sales $5,200,000

Cost of Goods Sold $3,155,000

Gross Profit $2,045,000

Operating Expenses $1,025,000

Profit from Operations $1,020,000

Interest Expense $120,000

Profit before Income Taxes $900,000

Income Taxes $230,000

Profit $670,000

Additional Information:

1. Operating expenses include $50,000 of depreciation expense and a $45,000 impairment loss on property, plant and equipment.

2. Accounts Receivable increased by $100,000

3. Merchandise Inventory increased by $45,000

4. Prepaid expenses related to operating expenses increased by $35,000

5. Accounts Payable to suppliers of merchandise decreased by $90,000

6. Accrued liabilities related to operating expenses decreased by $55,000

7. Interest Payable increased by $55,000

8. Income tax payable increased by $35,000

Required:

Prepare the operating activities section of the statement of cash flows using the Indirect Method.

Answer 1

Answer-

STRAIT HORN INC.
STATEMENT OF CASH FLOWS PARTIAL (USING INDIRECT METHOD)
FOR THE YEAR ENDED
Particulars		Amount
		$
Cash flow from operating activities
Net Income		670000
Adjustments to reconcile net income to net cash provided by operating activities
Adjustment for non cash effects
Depreciation expense		50000
Impairment loss on property, plant and equipment		45000
Change in operating assets & liabilities
Increase in income tax payable		35000
Increase in accounts receivable		-100000
Incresae in inventories		-45000
Decrease in accounts payable		-90000
Increase in prepaid expenses		-35000
Decrease in accrued liabilities		-55000
Increase in interest payable		55000
Net cash flow from operating activities		530000