Question: Accounting for Cash Flows
Gemstone Ltd.'s Balance Sheet and Income Statement for the 2010 year are produced below:
Gemstone Ltd Income Statement for the period ended 31 December 2010
2009 2010
$m $m
Sales 173 207
Cost of Goods Sold -96 -101
Gross Profit 77 106
Other expenses (including depreciation) -43 -48
Other operating income 3 4
Interest Revenue and similar income 1 2
Interest expense and similar charges -2 -4
Income Tax expense -8 -16
Net Profit after Tax 28 44
Retained earnings brought forward from last year 16 30
Proposed dividend on ordinary shares -14 -18
Retained earnings carried forward 30 56
Gemstone Ltd Balance Sheet as at 31 December 2010 2009 2010
$m $m
Current assets
Inventory 25 24
Trade receivables 16 26
Cash at Bank 8 27
Non-Current Assets
Land and Buildings 94 110
Plant and Machinery 53 62
Total Assets 196 249
Current Liabilities
Trade Payables 26 23
Income Tax Payable 8 16
Dividend Payable 12 14
Non-Current Liabilities
Debenture loans (10%) 20 40
Shareholders Equity
Share capital 100 100
Retained earnings 30 56
Total Liabilities and Shareholder's Equity 196 249
Additional Information:
In 'other expenses' depreciation was calculated as follows:
2009 2010
$m $m
Land and Buildings 5 6
Plant and Machinery 6 10
There were no non-current asset disposals in either year.
In both years an interim dividend was paid within the financial year and a final dividend was paid just after the end of the year concerned.
Required:
a) Prepare a cash flow statement for the year using the direct method.
b) Prepare a reconciliation of operating profit and cash flow from operations.