GB518 | Assignment 5
Cash Flow Statements
Total marks
60 marks
Weight
10%
Due date
Wednesday of Week 7 (2nd July 2014) by 5 PM
PLEASE NOTE THE FOLLOWING INSTRUCTIONS
· The portal will close at 5 PM AEST Students in Adelaide and Brisbane please note to adjust for the time difference accordingly).
· This assignment must be completed individually.
· Submission: The assignment must be submitted electronically through the student portal use the link under Assessments to submit your assignment.
· This assignment consists of 5 questions and you are required to answer all of the questions. Please use this word document to complete the assignment and upload it on the portal.
· Please make sure you follow the guidelines noted in your subject outline especially those relating to presentation of written work, late policy and academic integrity.
Question 1 (10 marks | Word limit: 300)
There are two methods of calculating cash flow from operating activities, the direct method (gross flows) and the indirect method (reconciliation)
A. Explain the difference between the two methods. (4 marks)
B. Which method is required by the Australian Accounting standards? (2 marks)
C. Which do you prefer and why? (4 marks)
Question 2 (10 marks | Word limit: 300)
Several income items have been classified differently in the statement of cash flow over time and worldwide. For example dividends received and interest received previously were classified as operating cash flows and can be now classified as investing cash flow in the Australian accounting standards. Some countries even allow them to be classified in the financing cash inflows or allow reporting entities discretion over how to classify them.
A. How would you classify these two items in the statement of cash flows?
(5 marks)
B. Is it important to have standard classification? (5 marks)
Question 3 (10 marks | Word limit: 300)
The statement of cash flows represents a reconstruction from the other financial reports and therefore does not provide new information to report users.
A. What other financial reports are being referred to? What is the relationship between those other financial statements and cash flow statement?
B. Do you think the statement of cash flows provide useful information to report users? If so what is this useful information?
Question 4 (10 marks)
You are given the following financial statement extracts of Morgan trading ltd.
Statement of comprehensive income for the year ended 30 June 2014
Sales
$156,900
Cost of sales
$75,800
Gross profit
$81,100
Depreciation expense
$8,500
Interest expense
$3,400
Other expenses
$27,800
$39,700
Net profit before tax
$41,400
Income tax expense
$12,420
Net profit after tax
$28,980
Statement of financial position extract as at 30 June 2013 and 2014
Yr 2013
Yr 2014
Current assets
Prepaid expenses (other)
$450
$780
Accounts receivable
$8,760
$7,990
Inventory
$17,630
$21,750
Current Liabilities
Accounts payable
$14,770
$12,980
Accrued interest
$950
$730
Income tax payable
$9,800
$12,420
REQIRED:
Using the indirect method, compute the following cash flow amounts for Morgan trading ltd. for the year ended 30th June 2014.
A. Cash receipts from customers