GRADE 12 ACCOUNTING

CASH FLOW STATEMENT

RECONCILLIATION BETWEEN NET PROFIT BEFORE TAX AND WORKING CAPITAL AND OPERATING
ACTIVITIES

PRACTICE ACTIVITY 1

LEX LIMITED

The following information relates to Lex Limited a listed company. Their financial year ended on the
28 February 2023.

REQUIRED

1. Complete the reconciliation between profit before tax and working capital
2. Operating Activities section in the cash flow statement

INFORMATION

A. EXTRACT FROM THE STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR.

Operating Profit 1000 000

Operating expenses 560 000
Depreciation 60 000
Operating profit before Interest expense 510 000
Interest expense 110 000
Net profit before tax 400 000
Income tax 112 000
Net Profit after tax 288 000

B. BALANCES EXTRACTED FROM THE STATEMENT OF FINANCIAL POSITION

28 February 2023 28 February 2022

Fixed/Tangible assets at carrying value 1000 000 1 250 000
Trade Inventory 139 000 100 000
Trade receivables 250 000 300 000
Trade payables 90 000 25 000
Cash and Cash equivalents 30 000 24 000
SARS: Income Tax 50 000(Cr) 120 000 (Cr)
Mortgage Loan(ABC bank @10% p.a) 50 000 110 0000

C. Loan and Interest on loan

 Portion of the loan was repaid during the year and no additional loan was acquired.
 Interest on loan is not capitalized and the interest on loan paid for the year amounted to
R110 000.
D. Total dividends paid for the year amounted to R100 000
ANSWER BOOK

1. RECONCIATION BETWEEN PROFIT BEFORE TAX AND CHANGES IN WORKING CAPITAL

Net Profit before tax

Adjustment for:

Depreciation

Interest paid

Profit before changes in working capital

Changes in working capital

Increase/ Decrease in inventory

Increase/ Decrease in trade receivables

Increase/ Decrease in trade payables

Cash generated from operations

2. CASH FLOW STATEMENT

NET CASH EFFECT FROM OPERATING ACTIVITIES

Cash generated from operations

Interest paid

Dividends paid

Taxation paid
Practice activity 2

LEX LIMITED

The following information relates to Lex Limited a listed company. Their financial year ended on the
28 February 2023.

REQUIRED

1. Complete the reconciliation between profit before tax and working capital
2. Operating Activities section in the cash flow statement
3. Investing Activities section in the cash flow

INFORMATION

A. EXTRACT FROM THE STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR.

Operating Profit 1000 000

Depreciation 90 000
Interest expense 200 000
Income tax 195 860
Net Profit after tax 503 640

B. BALANCES EXTRACTED FROM THE STATEMENT OF FINANCIAL POSITION

28 February 2023 28 February 2022

Fixed/Tangible assets at carrying value 1550 000 1 250 000
Fixed deposit 100 000 190 000
Trade Inventory 139 000 100 000
Trade receivables 250 000 300 000
Accrued income (Rent income) 7 000 3 000
Trade payables 90 000 25 000
Accrued expense (Water and Electricity) 3 500 1 200
Cash and Cash equivalents 30 000 24 000
SARS: Income Tax 50 000(Dr) 120 000(Cr)
Mortgage Loan(ABC bank @10% p.a) 1500 000 2 000 000
Shareholders for dividends 60 000 90 000

C. Loan and Interest on loan

 Portion of the loan was repaid during the year and additional loan of R200 000 was
received during the year.
 Interest on loan is not capitalized and the interest on loan paid for the year amounted to
R220 000.
D. Fixed/tangible asset and fixed deposit
 New Building was purchased during the year and there were no disposal of fixed
deposit.
 Fixed deposit matured and the amount was deposited to the business bank account
E. Interim (paid) dividends for the year amounted to R40 000 and Final dividends declared
amounted to R60 000.
ANSWER BOOK
1. RECONCIATION BETWEEN PROFIT BEFORE TAX AND CHANGES IN WORKING CAPITAL

Net Profit before tax

Adjustment for:

Depreciation

Interest paid

Profit before changes in working capital

Changes in working capital

Increase/ Decrease in inventory

Increase/ Decrease in trade receivables

Increase/ Decrease in trade payables

Cash generated from operations

2. CASH FLOW STATEMENT

NET CASH EFFECT FROM OPERATING ACTIVITIES

Cash generated from operations

Interest paid

Dividends paid

Taxation paid
3

NET CASH EFFECT FROM INVESTING ACTIVITIES

Practice activity 3

LEX LIMITED

The following information relates to Lex Limited a listed company. Their financial year ended on the
28 February 2023.

REQUIRED

1. Complete the reconciliation between profit before tax and working capital
2. Operating Activities section in the cash flow statement
3. Investing Activities section in the cash flow

INFORMATION

A. TOTALS

Operating Profit 1000 000

Depreciation 90 000
Interest expense 200 000
Income tax 221 200
Ordinary share dividends 50 000

B. BALANCES EXTRACTED FROM THE STATEMENT OF FINANCIAL POSITION

28 February 2023 28 February 2022

Fixed/Tangible assets at carrying value 1550 000 1 250 000
Fixed deposit 100 000 190 000
Trade Inventory 139 000 100 000
Trade receivables 250 000 300 000
Accrued income (Rent income) 7 000 3 000
Trade payables 90 000 25 000
Accrued expense (Interest on loan) 12 000 10 000
Cash and Cash equivalents 30 000 24 000
Ordinary share capital 3 740 000 3 000 000
SARS: Income Tax 50 000(Cr) 120 000 (Dr)
Mortgage Loan(ABC bank @10% p.a) 1 500 000 2000 000
Shareholders for dividends 40 000 100 000

C. Loan and Interest on loan

 Portion of the loan was repaid during the year and no additional loan was acquired.
 Interest on loan is not capitalized and the interest on loan paid for the year amounted to
R220 000.
D. Fixed/tangible asset and fixed deposit
 New Building was purchased during the year and Vehicle worth R300 000 was sold for
cash at Carrying value/Book Value
 Fixed deposit matured and the amount was deposited to the business bank account.
E. Income tax and ordinary share capital
 Income tax is calculated at 28% on the net profit before tax.
 Additional shares were issued to the public. No shares were repurchased.
 3. RECONCIATION BETWEEN PROFIT BEFORE TAX AND CHANGES IN WORKING CAPITAL

Net Profit before tax

Adjustment for:

Depreciation

Interest paid

Profit before changes in working capital

Changes in working capital

Increase/ Decrease in inventory

Increase/ Decrease in trade receivables

Increase/ Decrease in trade payables

Cash generated from operations

3. CASH FLOW STATEMENT

NET CASH EFFECT FROM OPERATING ACTIVITIES

Cash generated from operations

Interest paid

Dividends paid

Taxation paid
3

NET CASH EFFECT FROM INVESTING ACTIVITIES

NET CASH EFFECT FROM FINANCING ACTIVITIES