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XYZ Inc., as part of its cash management activities, invested $10 million in redeemable preference shares (within three months from the date of their redemption). To do so, XYZ instructed its bank to use a maturing time deposit (a two-month fixed deposit) with the bank. Required Determine how XYZ Inc. would treat in its cash flow statement the cash outflows resulting from the investment of funds in redeemable preferred shares and the cash inflows resulting from the withdrawal of funds from the bank by using a maturing time deposit.
Required For the purposes of the cash flow statement under the direct method, you are required to compute the cash collections from customers, payments to suppliers, and cash paid for operating expenses.
2004
$ 1,500 3,750 2,250 2,250 28,500 33,750 (9,000) 24,750 $63,000 $18,750 1,500 3,000 23,250 9,750 30,000 39,750 $63,000
Sales Cost of sales Gross operating income Administrative and selling expenses Interest expenses Depreciation of property, plant, and equipment Amortization of intangible asset Investment income Net income before taxation Taxes on income Net income
$45,000 (15,000) 30,000 (3,000) (3,000) (3,000) (750) 4,500 24,750 (6,000) $18,750
Additional Information This additional information is relevant to the preparation of the statement of cash flows: 1. All sales made by Tremendous Enterprises Inc. (company) are credit sales. All purchases are on account. 2. Interest expense for the year 2005 was $3,000, which was fully paid during the year. 3. The company pays salaries and other employee dues before the end of each month. All administration and selling expenses incurred were paid before December 31, 2005. 4. Investment income comprised dividends income from investments in shares of blue chip companies. This was received before December 31, 2005. 5. Equipment with a net book value of $11,250 and original cost of $15,750 was sold for $11,250. 6. The company declared and paid dividends of $18,000 to its shareholders during 2005. 7. Income tax expense for the year 2005 was $6,000, against which the company paid $3,000 during 2005 as an estimate. Required Using the following financial information for Tremendous Enterprises Inc., prepare the cash flow statement according to the requirements of IAS 7 under both the direct and the indirect methods.