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DEPARTAMENTO DE CONTABILI DAD Y ECONOMÍA FINANCIERA ESCUELA UNIVERSITARIA DE ESTUDIOS EMPRESARIALES FINANCIAL ACCOUNTING (DIPLOMATURA EN

DEPARTAMENTO DE CONTABILIDAD Y ECONOMÍA FINANCIERA

ESCUELA UNIVERSITARIA DE ESTUDIOS EMPRESARIALES

FINANCIAL ACCOUNTING

(DIPLOMATURA EN CIENCIAS EMPRESARIALES, 2º CURSO, GRUPO 5)

2008-2009

EXERCISES LESSON 7 CASH FLOW STATEMENT

CASH FLOW STATEMENT: LESSON 7

EXERCISE 1 LESSON 7

Company ABC, created at the beginning of 2007, had at the beginning of 2008 a working capital composed exclusively by cash. The cash account had a balance of 4.000 €. During 2008 the operations of the company have been the following:

The services rendered during the year amount 600 € received in cash. Personnel expenses

and other operating expenses of 400 € have been paid in cash during the year. The fixed assets depreciation expense for the year amounts 110 €.

The 1 st of October the company obtained a long-term loan of 4.000 € from the CHASE

MANHATTAN BANK, which will be paid back at the end of 2012. The annual interest rate is 3% on the total amount, payable at the beginning of each quarter. At the end of the year the company has bought new fixed assets with a cost of 12.000 €:

8.000 paid in cash and the other 4.000 € will be paid in 24 months. The tax rate is 30%.

REQUIRED: Prepare the Cash Flow Statement for year 2008.

EXERCISE 2 LESSON 7

Company ABC, created at the beginning of 2007, published the following financial statements at the end of 2008:

ASSETS

2008

2007

LIABILITIES

2008

2007

  • A) NON-CURRENT ASSETS

     
  • A) EQUITY

   

II. Tangible fixed assets.

21,890

10,000

A-1) Shareholders' equity.

   
  • B) CURRENT ASSETS

   

I.

Capital.

14,000

14,000

III. Trade accounts receivables and other r.

   

VII. Income for the year.

42

0

  • 1. Trade accounts receivables for sale and services.

348

0

  • B) NON-CURRENT LIABILITIES

   
  • 6. Other receivables from Public Authorities

1,824

0

II. Long-term debt.

   

VII. Cash and cash equivalents.

   
  • 2. Long-term debt payable to credit institutions.

4,000

0

  • 1. Cash.

(1,872)

4,000

  • 5. Other financial liabilities

4,000

0

TOTAL ASSETS

22,190

14,000

  • C) CURRENT LIABILITIES

   
     

III. Short-term debt.

   
     
  • 2. Short-term debt payable to credit institutions.

30

0

     

V. Trade accounts payables and other p.

   
     
  • 4. Salary payable

100

0

     
  • 5. Liability for current tax.

18

0

     

TOTAL LIABILITIES

22,190

14,000

 

2008

A) CONTINUING OPERATIONS

 
  • 1. Net turnover.

600

  • 6. Personnel expenses.

(400)

  • 8. Fixed assets depreciation expense.

(110)

A.1) OPERATING INCOME (1+2+3+4+5+6+7+8+9+10+11)

90

  • 13. Financial expenses.

(30)

A.2) FINANCIAL INCOME (12+13+14+15+16)

(30)

A.3) INCOME BEFORE TAXES (A.1+A.2)

60

  • 17. Income tax.

(18)

A.4) INCOME FROM CONTINUING OPERATIONS (A.3+17)

42

A.5) INCOME FOR THE YEAR

42

During 2008 the operations of the company have been the following:

The services rendered during the year amount 600 € (50% of these revenues have been collected in

cash during 2008). Personnel expenses were 400 € (75% of these expenses have been paid in cash during 2008). The fixed assets depreciation expense for the year amounts 110 €.

The 1 st of October the company obtained a long-term loan of 4.000 € from the CHASE

MANHATTAN BANK, which will be paid back at the end of 2012. The annual interest rate is 3% on the total amount, payable at the end of each semester. At the end of the year the company has bought new fixed assets with a cost of 12.000 €: 8.000 and the

V.A.T. paid in cash and the other 4.000 € will be paid in 24 months. The tax rate is 30%, payable in June of the next year.

V.A.T. is 16%.

REQUIRED: Prepare the Cash Flow Statement for year 2008.

SOLUTION

JOURNAL 2008

348

Cash

to

Services rendered

 

600

348

Accounts receivables

 

V.A.T. collected

96

400

Wages and salaries

 

to

Cash

300

100

110

Tangible

fixed

assets

depreciation

to

Salary payable Accumulated depreciation of

110

expense

4000

Cash

to

tangible fixed assets Long-term loan payable to financial institutions

4000

30

Interest expense

 

to

 

30

12000

Tangible fixed assets

 

to

Interest payable Cash

9920

1920

V.A.T. paid

Long-term debt with suppliers of fixed assets

4000

         
 
  • 600 Services rendered

 

to

Operating income

 

600

 
  • 510 Operating income

 

to

Wages and salaries

 

400

 

Tangible

fixed

assets

110

depreciation expense

30

Financial income

 

to

   

30

90

Operating income

 

to

Interest expense Financial income

 

30

Income before taxes

60

18

Income tax expense

 

to

Payable

to

public

authorities

18

         

60

Income before taxes

 

to

(Income tax) Income tax expense

18

 

INCOME FOR THE YEAR

42

96

V.A.T. collected

 

to

V.A.T. paid

1920

1824

Receivable

from

public

authorities

(V.A.T.)

A)

CASH FLOWS FROM OPERATING ACTIVITIES

200X

  • 1. Income before taxes

60

  • 2. Adjustments to income

 
 
  • a) Depreciation of fixed assets (+).

110

 
  • b) Value corrections for impairment (+/-).

 
 
  • c) Change in provisions (+/-).

 
 
  • d) Transfer of grants (-).

 
 
  • e) Income from disposal of non-current assets (+/-).

 
 
  • f) Income from disposal of financial instruments (+/-).

 
 
  • g) Financial revenues (-).

 
 
  • h) Financial expenses (+).

30

   
 
  • i) Exchange differences (+/-). j) Change in fair value of financial instruments (+/-).

 
 
  • k) Other revenues and expenses (-/+).

 
  • 3. Changes in working capital

 
 
  • a) Inventory (+/-).

 
 
  • b) Accounts receivables and other receivables (+/-).

-2172

 
  • c) Other current assets (+/-).

 
 
  • d) Accounts payables and other payables (+/-).

100

 
  • e) Other current liabilities (+/-).

 
 
  • f) Other non-current assets and liabilities (+/-).

 
  • 4. Other cash flows from operating activities

 
 
  • a) Cash payments of interests (-).

 
 
  • b) Cash receipts of dividends (+).

 
 
  • c) Cash receipts of interests (+).

 
 
  • d) Cash receipts (payments) for income taxes (+/-).

 
 
  • e) Other cash payments (receipts) (-/+)

 
  • 5. Cash flows from operating activities (+/-1+/-2+/-3+/-4)

-1872

B)

CASH FLOWS FROM INVESTMENT ACTIVITIES

 
  • 6. Cash payments for investments (-)

 
 
  • a) Subsidiaries and associated companies.

 
 
  • b) Intangible assets.

 
 
  • c) Tangible fixed assets.

-8000

 
  • d) Investment property.

 
 
  • e) Other financial assets.

 
 
  • f) Non-current assets held for sale.

 
 
  • g) Other assets.

 
  • 7. Cash receipts from disinvestments (+)

 
 
  • a) Subsidiaries and associated companies.

 
 
  • b) Intangible assets.

 
 
  • c) Tangible fixed assets.

 
 
  • d) Investment property.

 
 
  • e) Other financial assets.

 
 
  • f) Non-current assets held for sale.

 
 
  • g) Other assets.

 

8.

Cash flows from investment activities (7-6)

-8000

C)

CASH FLOWS FROM FINANCING ACTIVITIES

 

9.

Cash receipts and payments for equity instruments

 
 

a) Issuing of equity instruments (+).

 
 
  • b) Amortization of equity instruments (-).

 
 
  • c) Acquisition of the own equity instruments (-).

 
 
  • d) Disposal of the own equity instruments (+).

 
 
  • e) Grants, donations and legacies received (+).

 
  • 10. Cash receipts and payments for debt instruments

 
 
  • a) Issuing of

 
 
  • 1. Debentures and other negotiable securities (+).

 
 
  • 2. Long term debt payable to credit institutions (+).

4000

 
  • 3. Long term debt payable to subsidiaries and associated companies (+).

 
 
  • 4. Other debt (+).

 
 
  • b) Refunds and amortization of

 
 
  • 1. Debentures and other negotiable securities (-).

 
 
  • 2. Long term debt payable to credit institutions (-).

 
 
  • 3. Long term debt payable to subsidiaries and associated companies (-).

 
 
  • 4. Other debt (-).

 
  • 11. Cash payments of dividends and remuneration of other equity instruments.

 
 
  • a) Dividends (-).

 
 
  • b) Remuneration of other equity instruments (-).

 
  • 12. Cash flows from financing activities (+/-9+/-10-11)

4000

  • D) Effect of changes in exchange rates

 
  • E) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS

-5872

Cash and equivalents at the beginning of the period

4000

Cash and equivalents at the end of the period

-1872

EXERCISE 3 LESSON 7

Classify the following operations by type of activity according to the model of the Cash Flow Statement established in the P.G.C. Indicate also the amount of the cash collection or payment.

 

Operations

Investing

Financing

No effect

Cash payment to a supplier

for

a

purchase

of

       

inventory made in the previous year: 1,000 Cash receipt from the shareholders to compensate

       

losses accumulated in previous years: 20,000 Cash receipt of a loan received from a financial institution: 100,000

       

Cash payment of interests generated by a debt with financial institutions: 3,400

       

Cash receipt from customers for sales made this year and in the previous year: 8,000

       
Cash payment to the City Council for the local taxes: 500 Cash payment of the wages
Cash payment to the City Council for the local taxes:
500
Cash payment of the wages to the employees: 40,000
Cash payment the Tax Agency for the IRPF
withholdings to the employees: 4,200
Cash payment for the acquisition of an investment in
shares that are classified as held for trading: 3,000
Purchase of a machinery by 20,000. 30% of this
amount paid in 18 months time.
Cash payment to the Tax Agency for the income tax
of the previous year: 38,000
Increase in the fair value of the held for trading
portfolio: 1,100
Sale in cash by 26,000 of a land that had a book
value of 12,000
Cash payment of the rent of a building for November
and December of this year and January of next year:
570
Cash collection of a subvention from the City
Council to compensate operating losses: 40,000
Cash collection of a grant, obtained at the end of the
previous year, to finance the purchase of a new
machinery: 87,000
Transfer to income for the year of a portion of a
capital grant: 8,700
Cash payment of a fine of 45,200 for environmental
damage. The company had registered a long-term
provision of 46,000.
Increase in capital stock of 20,000 with a share
premium of 1,000. Uncalled subscribed capital
receivable is 10,000.
Income for the year is 15,000 and 10,000 are
distributed to dividends. The previous year the
company had paid 1,000 as dividends paid in
advance.

SOLUTION

 

Operations

Investing

Financing

No

effect

Cash payment to a supplier for a purchase of

(1,000)

     

inventory made in the previous year: 1,000 Cash receipt from the shareholders to compensate

   

20,000

 

losses accumulated in previous years: 20,000 Cash receipt of a loan received from a financial institution: 100,000

   

100,000

 

Cash payment of interests generated by a debt with financial institutions: 3,400

(3,400)

     

Cash receipt from customers for sales made this

8,000

     

year and in the previous year: 8,000 Cash payment to the City Council for the local taxes: 500

(500)

     

Cash

payment

of

the

wages

to

the

employees:

(40,000)

     

40,000

Cash payment the Tax Agency for the IRPF

(4,200)

     

withholdings to the employees: 4,200 Cash payment for the acquisition of an investment in shares that are classified as held for trading:

 

(3,000)

   

3,000

Purchase of a machinery by 20,000. 30% of this

 

(14,000)

   

amount paid in 18 months time. Cash payment to the Tax Agency for the income

(38,000)

     

tax of the previous year: 38,000 Increase in the fair value of the held for trading portfolio: 1,100

     

XXX

Sale in cash by 26,000 of a land that had a book value of 12,000

 

26,000

   

Cash payment of the rent of a building for November and December of this year and January

(570)

     

of next year: 570 Cash collection of a subvention from the City

40,000

     

Council to compensate operating losses: 40,000 Cash collection of a grant, obtained at the end of the previous year, to finance the purchase of a new

   

87,000

 

machinery: 87,000 Transfer to income for the year of a portion of a

     

XXX

capital grant: 8,700 Cash payment of a fine of 45,200 for environmental damage. The company had

(45,200)

     

registered a long-term provision of 46,000. Increase in capital stock of 20,000 with a share premium of 1,000. Uncalled subscribed capital receivable is 10,000.

   

11,000

 

Income for

the

year

 

is

15,000

and 10,000

are

   

(9,000)

 

distributed to dividends. The previous year the

company

had

paid 1,000

as

dividends paid in

advance.

 

EXERCISE 4 LESSON 7

Company ABC, Ltd. has disclosed the following financial statements at the end of year 2009.

 

Assets

2009

2008

Equity and Liabilities

2009

2008

Constructions

1,800

2,000

Capital stock

5,550

5,000

Machinery

4,950

5,300

Legal reserves

 

850

700

Long-term receivable from buyers of fixed assets

50

-

Income for the year

506

400

Inventories (finished products)

Receivable from public authorities

1,500

2,200

Dividends paid in advance

-

200

Accounts receivable

2,700

2,250

Capital grants Long-term debt payable to

280

-

200

-

credit institutions

Short-term debt payable to

1,024

1,324

(capital grants)

Deferred tax liability

   

120

-

 

Cash

650

710

700

1,220

 

credit institutions Accounts payable for purchases

2,250

2,950

Accounts payable for services

 

570

750

Liability for current tax

200

116

 

Total

11,850

12,460

Total

11,850

12,460

 
   

2009

 

A)

CONTINUING OPERATIONS

 

1.

Net turnover.

 

30,176

a)

Sales.

 

30,176

4.

Procurements.

 

(20,700)

a)

Consumption of goods for sale.

 

(20,700)

7.

Other operating expenses.

 

(7,670)

a)

Outside services.

 

(7,620)

c)

Losses, impairment and change in provisions for trade operations.

 

(50)

8.

Fixed assets depreciation expense.

 

(1,200)

11.

Impairment and income from disposal of non-current assets.

 

50

b)

Income from disposals and others.

 

50

A.1) OPERATING INCOME (1+2+3+4+5+6+7+8+9+10+11)

   

656

12.

Financial revenues.

 

50

b)

From marketable securities and other financial instruments.

   

50

A.2) FINANCIAL INCOME (12+13+14+15+16)

   

50

A.3) INCOME BEFORE TAXES (A.1+A.2)

   

706

17.

Income tax.

 

(200)

A.4) INCOME FROM CONTINUING OPERATIONS (A.3+17)

 

506

A.5) INCOME FOR THE YEAR (A.4+18)

   

506

COMPLEMENTARY INFORMATION:

1.- During 2009 the company made the distribution of 2008 net income. A portion of this income was distributed as reserves and another was paid as dividends in 2009. Moreover, the company made a payment of interim dividends at the beginning of June. 2.- A machinery was sold during 2009 for 100 m.u. Its adquisition price was 250 m.u. and the accumulated depreciation was 200 m.u. A new machinery has also been bought with a cost of 700 m.u.

REQUIRED: Prepare the Cash Flow Statement for 2009.

SOLUTION

A)

CASH FLOWS FROM OPERATING ACTIVITIES

2009

  • 1. Income before taxes

706

  • 2. Adjustments to income

 
 
  • a) Depreciation of fixed assets (+).

1.200

 
  • e) Income from disposal of non-current assets (+/-).

  • - 50

 
  • g) Financial revenues (-).

  • - 50

  • 3. Changes in working capital

 
 
  • a) Inventory (+/-).

700

 
  • b) Accounts receivables and other receivables (+/-).

  • - 450

 
  • d) Accounts payables and other payables (+/-).

  • - 880

  • 4. Other cash flows from operating activities

 
 
  • c) Cash receipts of interests (+).

50

 
  • d) Cash receipts (payments) for income taxes (+/-).

  • - 116

  • 5. Cash flows from operating activities (+/-1+/-2+/-3+/-4)

1.110

B)

CASH FLOWS FROM INVESTMENT ACTIVITIES

 
  • 6. Cash payments for investments (-)

 
 
  • c) Tangible fixed assets.

-700

  • 7. Cash receipts from disinvestments (+)

 
 
  • c) Tangible fixed assets.

50

  • 8. Cash flows from investment activities (7-6)

-650

C)

CASH FLOWS FROM FINANCING ACTIVITIES

 

9.

Cash receipts and payments for equity instruments

 
 

a) Issuing of equity instruments (+).

550

 
  • e) Grants, donations and legacies received (+).

200

  • 10. Cash receipts and payments for debt instruments

 
 
  • b) Refunds and amortization of

 
 

4. Other debt (-).

-820

  • 11. Cash payments of dividends and remuneration of other equity instruments.

 
 
  • a) Dividends (-).

-450

  • 12. Cash flows from financing activities (+/-9+/-10-11)

-520

  • D) Effect of changes in exchange rates

 
  • E) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS

-60

Cash and equivalents at the beginning of the period

710

Cash and equivalents at the end of the period

650

EXERCISE 5 LESSON 7

Company XYZ, Ltd. has published the following financial statements in year 2009:

Assets

2009

2008

Equity and Liabilities

2009

2008

Tangible fixed assets

23,350

23,300

Capital stock

35,000

35,000

Long term financial investments

15,100

15,500

Legal reserves

9,650

9,000

Inventories

11,850

10,900

Income for the year

1,950

1,300

Accounts receivable

9,200

8,600

Capital subventions

560

630

Cash

500

700

Long-term debt payable to credit institut.

2,400

-

Deferred tax liability

240

270

Short-term debt payable to credit institut.

600

800

Interest payable

75

-

Accounts payable for purchases

8,475

11,300

Liability for current tax

1,050

700

Total

60,000

59,000

Total

60,000

59,000

   

2009

A)

CONTINUING OPERATIONS

 

1.

Net turnover.

20,150

a)

Sales.

20,150

4.

Procurements.

-11,850

a)

Consumption of goods for sale.

- 11,850

6.

Personnel expenses.

-

1,800

a)

Wages, salaries and similar expenses.

-

1,800

7.

Other operating expenses.

 

-

800

a)

Outside services.

 

-

800

8.

Fixed assets depreciation expense.

-

2,100

9.

Transfer of grants of non-financial non-current assets and others.

 

100

11.

Impairment and income from disposal of non-current assets.

 

-

250

b)

Income from disposals and others.

 

-

250

A.1) OPERATING INCOME (1+2+3+4+5+6+7+8+9+10+11)

 

3,450

12.

Financial revenues.

 

50

a)

From holdings in equity instruments.

 

50

13.

Financial expenses.

 

-

100

b)

Of third parties.

 

-

100

16.

Impairment and income from disposal of financial instruments.

 

-

400

a)

Impairment and losses.

 

-

400

A.2) FINANCIAL INCOME (12+13+14+15+16)

 

-450

A.3) INCOME BEFORE TAXES (A.1+A.2)

 

3,000

17.

Income tax.

-

1,050

A.4) INCOME FROM CONTINUING OPERATIONS (A.3+17)

 

1,950

A.5) INCOME FOR THE YEAR (A.4+18)

 

1,950

Additional information:

The 15 th of June of 2009 the company made the distribution of the income of the previous year, half of it was taken to reserves and the other half was paid as dividends. The 1 st of October of 2009 a vehicle was sold in cash for 600 m.u. This vehicle had been bought the 1 st of January of 2004 for 2,000 m.u. and has been depreciated by a 10% each year. The 30 th of September of 2009 a new vehicle was bought with a cost of 3,000 m.u. To finance the purchase, that same day the company obtained a loan form a financial institution for the same amount, which will be given back in 5 years at equal amounts. The annual interest is 10% on the outstanding amount and will be paid at the end of each year. The 12th of February of 2009 the company paid the final portion of a long-term loan received in a previous year.

REQUIRED: Prepare the Cash Flow Statement for year 2009.

SOLUTION

A)

CASH FLOWS FROM OPERATING ACTIVITIES

 

2009

  • 1. Income before taxes

 

3.000

  • 2. Adjustments to income

 
 
  • a) Depreciation of fixed assets (+).

 

2.100

 
  • b) Value corrections for impairment (+/-).

 

400

 
  • d) Transfer of grants (-).

-

100

 
  • e) Income from disposal of non-current assets (+/-).

 

250

 
  • g) Financial revenues (-).

-

50

 
  • h) Financial expenses (+).

 

100

  • 3. Changes in working capital

 
 
  • a) Inventory (+/-).

-

950

 
  • b) Accounts receivables and other receivables (+/-).

-

600

 
  • d) Accounts payables and other payables (+/-).

-

2.825

  • 4. Other cash flows from operating activities

 
 
  • a) Cash payments of interests (-).

-

25

 
  • b) Cash receipts of dividends (+).

 

50

 
  • d) Cash receipts (payments) for income taxes (+/-).

-

700

  • 5. Cash flows from operating activities (+/-1+/-2+/-3+/-4)

 

650

B)

CASH FLOWS FROM INVESTMENT ACTIVITIES

 
  • 6. Cash payments for investments (-)

 
 
  • c) Tangible fixed assets.

 

-3000

  • 7. Cash receipts from disinvestments (+)

 
 
  • c) Tangible fixed assets.

 

600

  • 8. Cash flows from investment activities (7-6)

 

-2400

C)

CASH FLOWS FROM FINANCING ACTIVITIES

 
  • 10. Cash receipts and payments for debt instruments

 
   
 
  • a) Issuing of 2. Long term debt payable to credit institutions (+).

 

3000

 
  • b) Refunds and amortization of

 
 

2. Long term debt payable to credit institutions (-).

 

-800,00

  • 11. Cash payments of dividends and remuneration of other equity instruments.

 
 
  • a) Dividends (-).

 

-650

  • 12. Cash flows from financing activities (+/-9+/-10-11)

 

1550

  • D) Effect of changes in exchange rates

 
  • E) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS

 

-200

Cash and equivalents at the beginning of the period

 

700

Cash and equivalents at the end of the period

 

500

EXERCISE 6 LESSON 7

Company ARTEL, Ltd, has available the following information at the end of X1:

BALANCE SHEET AT THE END OF X1

 

31/12/X1

31/12/X0

A)

NON-CURRENT ASSETS

   

II. Tangible fixed assets

 

630

 

700

 

1.

Land and structures

630

700

B)

CURRENT ASSETS

   
 

II. Inventory

 

820

 

615

 

1.

Comercial

770

615

6.

Advances to suppliers

50

---

III. Trade accounts receivables and other receivables

 

260

 

310

 

1.

Trade accounts receivables for sale and services

260

280

3.

Sundry accounts receivables

---

30

 

V. Short-term financial investments

 

25

 

15

 

1.

Holdings in equity

25

15

 

VI. Accrual accounts

 

20

 

----

VII. Cash and cash equivalents

40

20

 

1.

Cash

40

20

 

TOTAL ASSETS

 

1,795

 

1,660

 
 

31/12/X1

31/12/X0

A)

EQUITY

   

A-1) Equity

I. Capital

 

805

 

675

 

1.

Registered capital

805

675

 

III. Reserves

 

370

 

395

 

1.

Legal and statutory

370

395

VII. Income for the year

 

98

 

52

VIII. (Dividends paid in advance)

(50)

---

B)

NON-CURRENT LIABILITIES

   

II. Long term debt

 

89

 

---

 

2.

Long term debt payable to credit institutions

89

---

C)

CURRENT LIABILITIES

   

III. Short term debt

 

110

 

160

 

2.

Short term debt payable to credit institutions

---

160

5.

Other financial liabilities

110

---

V. Trade accounts payable and other payables

 

373

 

328

1.

Trade accounts payable for purchases and services

270

256

3.

Sundry accounts payable

35

60

5.

Liability for current tax

18

12

6.

Other payables to public authorities

50

---

VI. Accrual accounts

 

----

 

50

 

TOTAL LIABILITIES

 

1,795

 

1,660

The list of expenses and revenues that compose the income of year X1 are the following:

 

Amount

Sales revenue

4,800

Other operating revenue

70

Profits from held for trading portfolio

10

Consumption of goods for sale

3,120

Personnel expenses

1,222

Depreciation of tangible fixed assets

30

External services

33

Financial expenses

103

Losses from the sale of tangible fixed assets

150

Reversion of impairment of tangible fixed assets

10

Sale discounts for early payments

100

Income tax expense

34

Income for the year

98

Additional information:

1.- The distribution of income of year X0 is the following: 40 m.u. are distributed to reserves and 12 m.u. were paid as dividends. Moreover, in X1 the company has paid a dividend in advance of the income of that year, as it can be seen from the balance sheet. 2.- A building has been sold in cash. The acquisition price had been 270 m.u. and the accumulated depreciation in the moment of the sale was 60 m.u. At the end of the year a new building was bought with a cost of 160 m.u. (50 m.u. were paid in cash and the remaining will be paid at the end of next year). These are the only transactions with the tangible fixed assets. 3.- At the end of X1 the company has obtained a long-term loan of 92 m.u. from a financial institution. The opening fees were 3.2 %. 4.- The company has issued capital stock. Half of the amount has been paid by the shareholders and the other half has been transferred from reserves. 5.- Accrual accounts in the current assets are interest paid in advance that correspond to the debt with financial institutions. Accrual accounts in the current liabilities are revenues received in advance. 6.- The profits from the held from trading portfolio were registered at the end of the year for the valuation at fair value of that portfolio.

REQUIRED: Prepare the Cash Flow Statement of year X1.

SOLUTION

A)

CASH FLOWS FROM OPERATING ACTIVITIES

 
  • 1. Income before taxes

132

  • 2. Adjustments to income

263

 
  • a) Depreciation of fixed assets (+).

30

 
  • b) Value corrections for impairment (+/-).

-10

 
  • c) Change in provisions (+/-).

0

 
  • d) Transfer of grants (-).

0

 
  • e) Income from disposal of non-current assets (+/-).

150

 
  • f) Income from disposal of financial instruments (+/-).

0

 
  • g) Financial revenues (-).

0

 
  • h) Financial expenses (+).

103

 

j) Change in fair value of financial instruments (+/-).

-10

  • 3. Changes in working capital

-166

 
  • a) Inventory (+/-).

-205

 
  • b) Accounts receivables and other receivables (+/-).

50

 
  • d) Accounts payables and other payables (+/-).

39

 
  • e) Other current liabilities (+/-).

-50

  • 4. Other cash flows from operating activities

-151

 
  • a) Cash payments of interests (-).

-123

 
  • d) Cash receipts (payments) for income taxes (+/-).

-28

  • 5. Cash flows from operating activities (+/-1+/-2+/-3+/-4)

78

B)

CASH FLOWS FROM INVESTMENT ACTIVITIES

 
  • 6. Cash payments for investments (-)

-50

 
  • c) Tangible fixed assets.

-50

  • 7. Cash receipts from disinvestments (+)

60

 
  • c) Tangible fixed assets.

60

  • 8. Cash flows from investment activities (7-6)

10

C)

CASH FLOWS FROM FINANCING ACTIVITIES

 

9.

Cash receipts and payments for equity instruments

65

 

a) Issuing of equity instruments (+).

65

  • 10. Cash receipts and payments for debt instruments

-71

 
  • a) Issuing of

 
 
  • 2. Long term debt payable to credit institutions (+).

89

 
  • b) Refunds and amortization of

 
 
  • 2. Long term debt payable to credit institutions (-).

-160

  • 11. Cash payments of dividends and remuneration of other equity instruments.

-62

 
  • a) Dividends (-).

-62

  • 12. Cash flows from financing activities (+/-9+/-10-11)

-68

  • D) Effect of changes in exchange rates

 
  • E) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS

20

Cash and equivalents at the beginning of the period

20

Cash and equivalents at the end of the period

40

EXERCISE 7 LESSON 7

Company G-3, Ltd discloses the following information:

INCOME STATEMENT 31/12/20X1

20X1

A)

CONTINUING OPERATIONS

 
  • 1. Net turnover.

17.150.000

  • a) Sales.

17.150.000

  • 4. Procurements.

(10.475.000)

  • a) Consumption of goods for sale.

(10.500.000)

  • d) Impairment of goods for sale.

25.000

  • 5. Other operating revenues.

500.000

  • a) Accessory and other ordinary income.

500.000

  • 6. Personnel expenses.

(3.425.000)

  • a) Wages, salaries and similar expenses.

(2.250.000)

  • b) Employee welfare expenses.

(1.175.000)

  • 7. Other operating expenses.

(650.000)

  • a) Outside services.

(150.000)

  • b) Taxes other than income tax.

(500.000)

  • 8. Fixed assets depreciation expense.

(250.000)

  • 9. Transfers of grants of non-financial non-current assets and others.

125.000

A-1) OPERATING INCOME

2.975.000

  • 13. Financial expenses.

(75.000)

  • b) Of third parties.

(75.000)

A-2) FINANCIAL INCOME

(75.000)

A-3) INCOME BEFORE TAXES

2.900.000

 
  • 17. Income tax.

(590.000)

A-4) INCOME FROM CONTINUING OPERATIONS

2.310.000

A-5) INCOME FOR THE YEAR

2.310.000

BALANCE SHEET AT THE END OF 20X1

31/12/X1

31/12/X0

  • A) NON-CURRENT ASSETS

   

II. Tangible fixed assets.

15.250.000

12.500.000

  • 1. Land and structures.

15.250.000

12.500.000

  • V. Long-term financial investments.

140.000

100.000

  • 1. Holdings in equity.

140.000

100.000

  • B) CURRENT ASSETS II. Inventories.

2.975.000

3.700.000

  • 1. Commercial.

2.475.000

3.450.000

  • 6. Advances to suppliers.

500.000

250.000

III. Trade accounts receivables and other receivables.

1.050.000

770.000

  • 1. Trade accounts receivables for sale and services

1.000.000

750.000

  • 3. Sundry accounts receivables.

50.000

20.000

  • V. Short-term financial investments.

-

200.000

  • 1. Holdings in equity.

-

200.000

VI. Accrual accounts.

12.000

-

VII. Cash and cash equivalents.

710.000

150.000

TOTAL ASSETS

20.137.000

17.420.000

 

31/12/X1

31/12/X0

  • A) EQUITY

     

A-1) Shareholders’ equity.

I.

Capital.

10.250.000

10.000.000

 

1.

Registered capital.

11.000.000

10.000.000

2.

(Uncalled subscribed capital).

(750.000)

-

II. Additional paid-in capital.

250.000

-

III. Reserves.

  • 2.000.000 1.200.000

 

1.

Legal and statutory.

2.000.000

1.200.000

VII. Income for the year.

  • 2.310.000 1.500.000

A-2) Adjustments for changes in value

I.

Financial instruments available for sale.

28.000

-

A-3) Grants, donations and legacies received.

612.500

-

  • B) NON-CURRENT LIABILITIES

   

I.

Long-term provisions.

250.000

4.

Other provisions.

250.000

-

II. Long-term debt.

900.000

 

3.

Long-term debt from leasing contracts.

900.000

-

IV. Deferred tax liability

274.500

-

  • C) CURRENT LIABILITIES

   
 

III. Short-term debt.

  • 1.100.000 3.000.000

2.

Short-term debt payable to credit institutions.

1.000.000

3.000.000

3.

Short-term debt from leasing contracts.

100.000

-

V. Trade accounts payables and other payables.

  • 2.162.000 1.720.000

1.

Trade accounts payables for sale and services.

1.175.000

1.000.000

3.

Sundry accounts payables.

87.000

95.000

5.

Liability for current tax.

  • 500.000 325.000

6.

Other payables to public authorities.

  • 400.000 300.000

 

TOTAL LIABILITIES

20.137.000

17.420.000

ADDITIONAL INFORMATION:

  • 1. Accrual accounts refer to interest paid in advance for the interest expenses of a short-term debt with

credit institutions.

  • 2. Distribution of income of X0 has been the following: Legal reserve 800,000; Dividends 700,000.

  • 3. The company issued new capital stock: 1,000 shares were issued at a nominal value of 1,000 m.u. and

an issuing value of 1,250 m.u.

  • 4. The capital grant was obtained at the beginning of X1.

  • 5. At the beginning of the year a long-term provision was registered to account for the risk of paying a

possible compensation to an employee for an accident in the workplace.

  • 6. In June of X1 the company sold in cash the holdings in equity that had as a short-term investment and

that were considered as held for trading. These shares were acquired in X0 for a price of 190,000 m.u. and

their value was increased at the end of year X0 because of an increase in its fair value.

  • 7. Land and structures has the following breakdown:

 

31/12/X1

 

31/12/X0

 

Land

 

5.000.000

4.000.000

Structures

12.000.000

10.000.000

Accumulated depreciation of structures

(1.750.000)

(1.500.000)

The debt from leasing contracts corresponds to the 1,000,000 m.u.

acquisition

of

a

new

building with

a

cost of

REQUIRED: Prepare the Cash Flow Statement of year X1.

SOLUTION

A)

CASH FLOWS FROM OPERATING ACTIVITIES

 

200X

  • 1. Income before taxes

 

2.900.000

  • 2. Adjustments to income

 
 
  • a) Depreciation of fixed assets (+).

 

250.000

 
  • b) Value corrections for impairment (+/-).

 
 
  • c) Change in provisions (+/-).

 

250.000

 
  • d) Transfer of grants (-).

-

125.000

 
  • e) Income from disposal of non-current assets (+/-).

 
 
  • f) Income from disposal of financial instruments (+/-).

 
 
  • g) Financial revenues (-).

 
 
  • h) Financial expenses (+).

 

75.000

 
  • i) Exchange differences (+/-).

 
 
  • j) Change in fair value of financial instruments (+/-).

 
 
  • k) Other revenues and expenses (-/+).

 
  • 3. Changes in working capital

 
 
  • a) Inventory (+/-).

 

725.000

 
  • b) Accounts receivables and other receivables (+/-).

-

280.000

 
  • c) Other current assets (+/-).

 
 
  • d) Accounts payables and other payables (+/-).

 

267.000

 
  • e) Other current liabilities (+/-).

 
 
  • f) Other non-current assets and liabilities (+/-).

 
  • 4. Other cash flows from operating activities

 
 
  • a) Cash payments of interests (-).

-

87.000

 
  • b) Cash receipts of dividends (+).

 
 
  • c) Cash receipts of interests (+).

 
 
  • d) Cash receipts (payments) for income taxes (+/-).

-

415.000

 
  • e) Other cash payments (receipts) (-/+)

 
  • 5. Cash flows from operating activities (+/-1+/-2+/-3+/-4)

 

3.560.000

B)

CASH FLOWS FROM INVESTMENT ACTIVITIES

 
  • 6. Cash payments for investments (-)

 
 
  • a) Subsidiaries and associated companies.

 
 
  • b) Intangible assets.

 
 
  • c) Tangible fixed assets.

-

2.000.000

 
  • d) Investment property.

 
 
  • e) Other financial assets.

 
 
  • f) Non-current assets held for sale.

 
 
  • g) Other assets.

 
  • 7. Cash receipts from disinvestments (+)

 
 
  • a) Subsidiaries and associated companies.

 
 
  • b) Intangible assets.

 
 
  • c) Tangible fixed assets.

 
 
  • d) Investment property.

 
 
  • e) Other financial assets.

 

200.000

 
  • f) Non-current assets held for sale.

 
 

g) Other assets.

 

8.

Cash flows from investment activities (7-6)

-

1.800.000

C)

CASH FLOWS FROM FINANCING ACTIVITIES

 

9.

Cash receipts and payments for equity instruments

 
 

a) Issuing of equity instruments (+).

 

500.000

 
  • b) Amortization of equity instruments (-).

 
 

c) Acquisition of the own equity instruments (-).

 
 
  • d) Disposal of the own equity instruments (+).

 
 
  • e) Grants, donations and legacies received (+).

 

1.000.000

  • 10. Cash receipts and payments for debt instruments

 
 
  • a) Issuing of

 
 
  • 1. Debentures and other negotiable securities (+).

 
 
  • 2. Long term debt payable to credit institutions (+).

 
 
  • 3. Long term debt payable to subsidiaries and associated

 

companies (+).

 
  • 4. Other debt (+).

 
 
  • b) Refunds and amortization of

 
 
  • 1. Debentures and other negotiable securities (-).

 
 
  • 2. Long term debt payable to credit institutions (-).

 
 
  • 3. Long term debt payable to subsidiaries and associated

 

companies (-).

 
  • 4. Other debt (-).

-

2.000.000

  • 11. Cash payments of dividends and remuneration of other equity

 
 

instruments.

 
  • a) Dividends (-).

-

700.000

 
  • b) Remuneration of other equity instruments (-).

 
  • 12. Cash flows from financing activities (+/-9+/-10-11)

-

1.200.000

  • D) Effect of changes in exchange rates

 
  • E) NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS

 

560.000

Cash and equivalents at the beginning of the period

 

150.000

Cash and equivalents at the end of the period

 

710.000

EXERCISE 8 LESSON 7 – From exam of course 0708

Company XYZ, Ltd. has prepared the following financial Statements at the end of 2009:

 

ASSETS

2009

2008

LIABILITIES

 

2009

 

2008

A)

NON-CURRENT ASSETS

18.790.000

13.950.000

A)

EQUITY

 

12.100.000

 

8.000.000

I. Intangible assets.

 
  • 8.750.000 7.000.000

A-1) Shareholders' equity.

 

11.050.000

 

7.300.000

1.

Development.

 
  • 5.000.000 5.000.000

I.

Capital.

 

7.500.000

 

5.000.000

5.

Computer software.

 
  • 3.750.000 2.000.000

1.

Registered capital.

 

8.000.000

 

5.000.000

II. Tangible fixed assets.

 
  • 9.240.000 6.050.000

2.

(Uncalled subscribed capital).

-

500.000

 

1.

Land and structures.

 
  • 5.750.000 III. Reserves.

4.950.000

   

2.300.000

 

2.600.000

2.

Plant and machinery, tools, furniture

 
  • 3.490.000 1.100.000

1.

Legal and statutory.

 

1.600.000

 

1.600.000

and other tangible assets.

III. Investment property.

800.000

900.000

2.

Other reserves.

 

700.000

 

1.000.000

2.

Structures.

800.000

900.000

VII. Income for the year.

 

1.450.000

-

300.000

B)

CURRENT ASSETS

2.795.000

2.450.000

VIII. (Dividends paid in advance).

-

200.000

 

II. Inventories.

900.000

950.000

A-3) Grants, donations and legacies received.

 

1.050.000

 

700.000

1.

Commercial (goods for sale).

900.000

950.000

B)

NON-CURRENT LIABILITIES

 

4.200.000

 

3.800.000

III. Trade accounts receivables and other receivables.

400.000

750.000

I. Long-term provisions.

 

500.000

 

500.000

1.

Trade accounts receivables for sale

         

and services.

400.000

600.000

4.

Other provisions.

 

500.000

 

500.000

3.

Sundry accounts receivables.

-

150.000

II. Long-term debt.

 

3.250.000

 

3.000.000

V. Short-term financial investments.

1.000.000

 

2.

Long-term debt payable to credit

 

1.500.000

 

3.000.000

-

institutions.

1.

Holdings in equity.

500.000

 

5.

Other financial liabilities (Long-term debt

 

1.750.000

 

with suppliers of tangible fixed assets).

2.

Loans to companies (Short-term

500.000

 

IV. Deferred tax liability.

 

450.000

 

300.000

receivable from buyers of fixed assets)

VI. Accrual accounts.

250.000

50.000

C)

CURRENT LIABILITIES

 

5.285.000

 

4.600.000

VII. Cash and cash equivalents.

245.000

700.000

III. Short-term debt.

 

2.150.000

 

2.070.000

TOTAL ASSETS

21.585.000

16.400.000

2.

Short-term debt payable to credit

 

2.150.000

 

2.070.000

institutions.

     

V. Trade accounts payables and other payables.

 

3.135.000

 

2.530.000

     

1.

Trade accounts payables for purchases

 

1.000.000

 

850.000

and services.

     

3.

Sundry accounts payable.

 

950.000

 

150.000

     

4.

Salary payable.

 

50.000

 

300.000

     

5.

Liability for current tax.

 

395.000

 
     

6.

Other payables to public authorities.

 

740.000

 

1.030.000

     

7.

Customer advances.

 

-

 

200.000

     

TOTAL LIABILITIES

 

21.585.000

16.400.000

   

2009

A)

CONTINUING OPERATIONS

 

1.

Net turnover.

 

20.000.000

a)

Sales.

 

20.000.000

4.

Procurements.

-

11.850.000

a)

Consumption of goods for sale.

-

12.000.000

d)

Impairment of goods for sale, raw materials and other consumables.

  <