The chief executive of Constitutional Referendum Ultimatum

The chief executive of Constitutional Referendum Ultimatum (CRU) Limited, a manufacturing company has received the following draft annual financial statements for the current year and is unable to determine from a reading of the statements of financial position and accompanying income statement the reasons for the changes in cash during the year. He asks you for assistance and presents the following balance sheets of the CRU Ltd.

March 31 2019

March 31 2020

Increase

(Decrease)

Ksh’000’

Ksh’000’

Ksh’000’

Assets

Land

75,000

70,000

(5,000)

Buildings

280,000

405,000

125,000

Machinery

100,000

165,000

65,000

Tools

35,000

20,000

(15,000)

Trade Investments

7,500

9,000

1,500

Goodwill

100,000

Nil

(100,000)

Inventories

109,000

105,000

(4,000)

Accounts receivable

44,850

87,750

42,900

Bills receivable

13,500

10,500

(3,000)

Unexpired insurance

1,950

1650

(300)

Cash on hand

4,500

1,000

(3,500)

771,300

874,900

103,600

Equity and Liabilities

Share capital

200,000

350,000

150,000

Accumulated profit

391,900

268,550

(123,350)

Debentures

50,000

75,000

25,000

Accounts payable

26,000

29,000

3,000

Bank overdraft

4,000

4,000

Bills payable

5,000

4,500

(500)

Short term loan

3,400

750

(2,650)

Tax payable

1,500

2,500

1000

Interest payable

3,000

5,000

2,000

Accumulated depreciation

90,500

135,600

45,100

771,300

874,900

103,600

Additional information:

(i)        There were no purchases or sales of tools during the year.

(ii)       The accounts receivable balances are net of an allowance for uncollectible debts of Ksh.1,150,000 and Ksh. 2,250,000        as at 31st March 2019 and 31st March 2020             respectively.

(iii)      An old piece of machinery that had cost Ksh.2, 250,000 on the date of acquisition was scrapped and written off the books of account. Accumulated depreciation on the machinery was Ksh.1, 650,000.

(iv)      CRU Limited issued shares during the year at a discount of 10%

(v)       The income statement for the current year ended 31st March 2020 is as presented below:

Sh’000.

            Sales (net)                                                                                           625,000

           

            Operating charges:

            Materials and supplies                        125,000

            Direct labour                                       105,000

            Manufacturing overhead                       90,750

            Depreciation                                          61,750

            Selling expenses                                 122,500

            General expenses                                115,000

            Interest expenses                                     3,750

            Impairment of goodwill                      100,000

            Decrease in the value of land                5,000

            Loss on machinery                                    600

            Discount on issue of equity
shares                                                              15,000                                 (744,350)

            Net loss                                                                                            (119,350)

Required:

Prepare a statement of cash flows for CRU Limited for the year ended March 31 2020, in compliance with International Accounting Standard (IAS) number 7. Use the indirect method to determine the cash flows from operating activities.                    

 

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