SOCF II SMNR S

Q2.1. Jim Ltd

£000
Operating profit 1450
Depreciation 80
Decrease in stock 400
Decrease in debtors and prepayments 200
Decrease in creditors (600)
Net cash provided by operating activities
1530

Q2.2. Brian Ltd

Included in income and Included in cash flow statement

expenditure
A Yes No
B No Yes, financing
C Yes No
D Yes Yes, net cash flow from operating activities
E No Yes, capital expenditure and financial
investment
F No Yes, capital expenditure and financial
investment
G No Yes, returns on investment and servicing finance
H Yes No
I No Yes, financing
J Yes Yes, returns on investment and servicing finance
Q2.3.

(a) Purposes- to show the reasons for changes in cash and bank balances during the
accounting period and the activities which have generated or used cash.

Uses- to reconcile the change in cash with the profit/loss for the period, to identify the
extent to which the company is able to generate cash by its continuing activities.

Addition to balance sheet/income and expenditure– “cash” is an easier concept to

understand than “profit”

- cash cannot be affected by accounting policies in the same way as profit

- cash flow statements therefore make it easier to compare performance between
periods
- cash generation rather than profitability is the best measure of a company’s
ability to continue in existence
- cash is essential if a company is to be able to pay dividends and settle current
liabilities. The cash flow statement is therefore of interest to users including
investors and creditors.

(b) (i)
£
Profit before taxation 1185
Depreciation 440
Increase in stock (185)
Decrease in debtors 140
Decrease in creditors (195)
Net cash flow from operations 1385

(ii)

Depreciation is not a cash movement, so it should be added back to profit in

calculating the cash from operations.

(c) Closing balance sheet total 23400

Less opening balance sheet (14800)
Less transfer from P&L (200)

Cash raised 8400