8/13/2019 Cash Flow for Practise

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Question

You have been provided with the following financial information relating to Engro Foods

Limited.

Engro Foods Limited.Income Statement

For the year ended Dec 31, 2008

Sales

Cost of sales

Gross operating income

Administrative and selling expenses

Interest expenses

Depreciation of property, plant and equipmentAmortization of intangible asset

Investment income

Earnings before taxes

Taxes on income

Net income

$45,000

15,000

30,000

3,000

3,000

3,000750

4,500

24,750

6,000

18,750

Engro Foods Limited.

Balance Sheet

As of Dec 31, 2007, and 2008

Assets

Cash & cash equivalents

Accounts receivables

Inventory

Intangible asset, net

Due from associates

Property, plant & equipment, cost

Accumulated depreciationProperty, plant & equipment, net

Total assets

Liabilities

Accounts payable

Income taxes payable

Deferred taxes payable

Dec 31, 2008

$4,500

7,500

3,000

1,500

28,500

18,000

(7,500)10,500

55,500

$7,500

3,000

4,500

Dec 31, 2007

$1,500

3,750

2,250

2,250

28,500

33,750

(9,000)24,750

63,000

$18,750

1,500

3,000

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Total liabilities

Shareholders’ equity 

Share capital

Retained earnings

Total shareholders’ equity Total liabilities and shareholders’ equity 

15,000

9,750

30,750

40,50055,500

23,250

9,750

30,000

39,75063,000

 Additional Information:

(A) All sales made by Engro Foods Limited. are credit sales. All purchases are on account.

(B) Interest expense for the year 2008 was $3,000, which was fully paid during the year.

(C) 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, 2008.

(D) Investment income comprised dividends income from investments in shares of blue chip

companies. This was received before December 31, 2008.

(E)  Equipment with a net book value of $11,250 and original cost of $15,750 was sold for

$11,250.

(F)  The company declared and paid dividends of $18,000 to its shareholders during 2008.

(G) Income tax expense for the year 2008 was $6,000, against which the company paid

$3,000 during 2008 as an estimate.

Required:

Prepare the cash flow statement for Engro Foods Limited. under the indirect method.

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Solution

Engro Foods Limited

Cash Flow Statement

For the year Ending December 31, 2008

Operating activities:Earnings before taxes 24,750

Interest Expense 3,000

Depreciation 3,000

Amortization 750

Investment Income (4,500)

Adjustments to Net Income 2,250

Accounts Receivable (3,750)

Accounts Payable (11,250)

Inventory (750)

Interest paid (3,000)

Income taxes paid (3,000)

Net Cash Flow from Operating Activities 5,250

Investing Activities

Investment Income 4,500

Sale of Equipment 11,250

Net Cash Flow from Investing Activities 15,750

Financing Activities

Dividends paid (18,000)

Net Cash Flow from Financing Activities (18,000)

Net increase in Cash and Cash Equivalents 3,000

Beginning Cash 1,500

Ending Cash Balance 4,500