QUESTION 4 (55 MARKS)
(66 MINUTES)
Avi (Pty) Ltd is a company in the east of Johannesburg. As part of the year-end financial
reporting requirements, the financial accountant requests your assistance with the preparation
of the statement of cash flows for the reporting period ending 31 March 2020.
You are provided with the following balances in the statement of financial position as at 31
March 2020:
Additional 2020 R 2019 R
information
Property, plant and equipment 1, 8 21 385 000 18 105 000
Financial investments - listed 2 2 210 000 2 800 000
Investment in subsidiary 2 8 820 000 6 050 000
Intangible assets at carrying value 3 810 000 1 020 000
Inventories 4 7 650 000 8 870 000
Trade receivables 5 9 500 000 11 400 000
Cash and cash equivalents / 2 765 000 (5 575 000)
Share Capital (17 800 000) (16 000 000)
Retained earnings (15 520 000) (11 650 000)
Long term borrowings (4 450 000) (2 880 000)
Specific loan for building construction 1 (1 900 000) 0
Trade and other payables (9 930 000) (9 750 000)
Current portion of long-term borrowings (410 000) (350 000)
Current tax payable (2 080 000) (1 060 000)
Shareholders for dividends 9 (1 050 000) (980 000)
In addition, the following preliminary statement of profit or loss for the period ended 31 March
2020 is provided to you:
Additional
R
information
Revenue 43 500 000
Cost of sales (18 050 000)
Gross profit 25 450 000
Other operating income 465 000
Operating profit 25 915 000
Income and expenses from subsidiary 6 2 050 000
Income and expenses from financial investments 7 620 000
Profit before financing and income taxes 28 585 000
Finance costs 8 (485 000)
Profit before income taxes 28 100 000
Income tax expense (2 075 000)
Profit for the period 26 050 000
Other relevant income/expenses and profits/losses are reflected elsewhere in the question or
can be derived from the information provided elsewhere in the question.
Additional information:
1. Property, plant and equipment comprises the following items:
2020 2019 R
R
Land – cost 12 010 000 12 010 000
Building – cost 6 105 000 5 000 000
Accumulated depreciation – Building (1 050 000) (945 000)
Building under construction – cost 1 650 000 0
Vehicles – cost 3 910 000 3 045 000
Accumulated depreciation – Vehicles (1 240 000) (1 005 000)
21 385 000 18 105 000
There were no sales of land and buildings during the reporting period.
A loan was obtained for the construction of the new building which meets the requirements
of a qualifying asset as defined. All costs incurred for the construction were paid for in cash.
All unutilised funds were invested in a short-term investment to earn interest.
A vehicle with a cost of R950 000 and a carrying value of R205 000 was involved in an
accident and written off as a result. The insurance company paid out an amount of R325
000 on the claim. The vehicle was replaced with a brand-new vehicle at a cost of R725 000.
The new vehicle was paid for in cash on the date of purchase.
Another vehicle with a cost of R820 000 and accumulated depreciation of R340 000 was
sold for R620 000 cash.
2. No financial investments or investments in subsidiaries were disposed of during the year.
3. No intangible assets were purchased or disposed of during the year. Impairment of R65 000
was however incurred and recognised correctly in the intangible assets account.
4. Certain inventory items were written off to net realisable value at an amount of R320 000.
The write down was accounted for in the current reporting period.
5. The allowance for doubtful debts was decreased by R460 000 during the year.
6. Income from subsidiary consists of dividends of R1 300 000 and management fees of R750
000.
7. Income from financial investments comprises dividends from listed and unlisted investments.
8. The following table provides a breakdown of the finance costs incurred during the current
reporting period:
Finance costs R
Interest on general borrowings 485 000
Interest on building loan 160 000
645 000
Interest income on unutilised borrowings (15 000)
Interest capitalised to building under construction (145 000)
Interest expense 485 000
Interest costs incurred were paid during the year.
9. An interim dividend of R1 870 000 was declared during the year. No other dividends were
declared during the year.
REQUIRED:
a) Present and disclose the Statement of Cash Flows of Avi (Pty) Ltd for the reporting period
ended 31 March 2020. (55)
PLEASE NOTE:
• Ignore VAT for purposes of this question.
• Show all calculations clearly.
TUTORIAL 10 (SUGGESTED SOLUTION)
Note to markers: If students get the amounts in the statement and note correct, please award the marks for the below t-accounts in
the statement or the note accordingly, so no need to award the marks as depicted below
AVI (PTY) LTD
STATEMENT OF CASH FLOWS FOR THE YEAR ENDING 31 MARCH 2020
Notes R
Cash flow from operating activities
Cash receipts from customers 45 860 000 (3)
(11 400 000½ + 43 500 000P – (9 500 000½ - 460 000P)
Cash paid to suppliers and employees (20 790 000) (1p)
Cash generated from operating activities before income taxes 30 25 070 000 (1p)
Income taxes paid (1 060 000½ + 2 075 000P – 2 080 000½) (1 055 000) (2)
Net cash from operating activities 0 (1p)
Cash flow from investing activities
Purchase of building to expand (5 000 000 – 6 105 000) (1 105 000) (1)
Construction of building to expand (1 505 000) (3)
Proceeds from insurance 325 000 (1)
Purchase of vehicle to replace (725 000) (1)
Proceeds on sale of vehicle 620 000 (1)
Purchase of vehicle to expand (1 910 000) (4)
Purchase of subsidiary to expand (6 050 000 – 8 820 000) (2 770 000) (1)
Interest received 15 000 (1)
Dividends received (620 000P + 1 300 000P) 1 920 000 (2)
Net cash used in investing activities (5 135 000 ) (1P)
Cash flow from financing activities
Proceeds on shares issued (17 800 000 – 16 000 000) 1 800 000 (1)
Proceeds on specific loan incurred 1 900 000 (1)
Proceeds from other borrowings ((2 880 000+350 000) – (4 450 000+ 1 630 000 (2)
410 000))
Dividends paid (980 000½ + 1 870 000P – 1 050 000½) (1 800 000) (2)
Interest paid (645 000) (1)
Net cash from financing activities 2 885 000
Net increase in cash and cash equivalents 24 765 000
Cash and cash equivalents beginning of period (5 575 000) (1p)
Cash and cash equivalents end of period 2 765 000
[31]
AVI (PTY) LTD
NOTES TO THE STATEMENT OF CASH FLOWS FOR THE YEAR ENDING 31 MARCH 2020
30 Cash generated from operating activities before income taxes
Reconciliation of profit before tax with cash generated from operations:
R
Operating profit 25 915 000 (2)
Adjusted with non-cash items accounted for in the operating profit
Depreciation – building (945 000 – 1 050 000) 105 000 (1)
Depreciation – vehicles 1 320 000 (3)
Impairment of intangibles 65 000 (1)
Amortisation of intangibles 145 000 (2)
Write down of inventory 320 000 (1)
Adjusted with items that are presented separately in the statement of
cash flows or items which form part of other separate items
Loss on derecognition of vehicle 205 000 (1)
Profit on sale of vehicle (620 000P – (820 000 - 340 000) P) (140 000) (2)
Proceeds from insurance (325 000) (1)
Elimination of the effect of the accrual basis of accounting
Decrease in inventories (7 650 000½ – (8 870 000½ + 320 000P) 900 000 (2)
Increase in payables (9 930 000 – 9 750 000) 180 000 (1)
Decrease in receivables (9 500 000½ – (11 400 000½ + 460 000P) 2 360 000 (2)
Cash generated from operating activities before income taxes 25 070 000
[24]
CALCULATIONS:
Note to markers: If students get the amounts in the statement and note correct, please award the marks for the below t-accounts in
the statement or the note accordingly, so no need to award the marks as depicted below
1 Intangibles
Reconstruction of intangibles
Opening balance 1 020 000 ½ Impairment P 65 000
\Amortisation 145 000
Balance cf ½810 000
1 020 000 1 020 000
2 Building under construction
Reconstruction of Building under construction
Opening balance 0 P
Capitalised interest 145 000 P Balance cf P 1 650 000
\Bank 1 505 000
1 650 000 1 650 000
3 Vehicles
Reconstruction of vehicles
Opening balance 3 045 000 ½ Sold P 820 000
Replacement: Bank 725 000 P Written off P 950 000
\ Bank: Expansion 1 910 000 Balance cf ½3 910 000
5 680 000 5 680 000
4 Accumulated depreciation – vehicles
Reconstruction of accumulated depreciation – vehicles
Sold 340 000 P Opening balance ½1 005 000
Written off 745 000 P \Depreciation 1 320 000
Balance cf 1 240 000 ½
2 325 000 2 325 000
