Problem
The management of Trucks Ltd, a transport business, wants to get a report from the accountant on the cash provided from various activities. The accountant has provide you the following information for the financial year ended 30 June 2016
Item $
Interest paid 3,000
Dividends paid to Shareholders 20,000
Profit after tax for year ended 30/6/2016 100,000
Cash at bank at July 1, 2015 1,000,000
Depreciation for the year 50,000
Payment for Motor vehicle purchased on 28th April 2016 40,000
Loan repayments made 60,000
Taxes paid to the Tax Office 76,000
Payments to employees 100,000
Cash received from the sale of machinery 100,000
Cash sales 650,000
Dividend received 240,000
Investments in companies listed on the ASX (Australia Security Exchange) 56,000
Cash received from accounts receivable 550,000
Bad Debts expense 10,000
Payments to suppliers 500,000
Credit sales for the year 750,000
Money borrowed from Net bank 250,000
Purchase of property and land for cash 800,000
REQUIRED
(a) Prepare a fully classified cash flow statement for the year ended 30th June 2016 for Trucks Ltd.
(b) Trucks Ltd management is confused in that their Income Statement is indicating they made a net loss (negative profit) over the same period whilst reporting a positive cash inflow from operations. Assuming both reports are accurate explain to Truck management providing two possible reasons why this discrepancy could occur when comparing cash flow from operations (cash profit) with accrual accounting profit / loss. For each cause identified highlight the impact on Assets = Liabilities + Owners Equity and profit versus cash flow.
(c) Given the above differences discuss which statement (Income Statement or Cash Flow from Operations) better reflects the financialperformance / wealth creation for the period ending 31 December 2016. (Justify your answer with reference to accrual accounting).