The management of ABC Trading Ltd a retailer of electrical goods is extremely
concerned at the accounting information presented below. Specifically that their
Income Statement presented below, constructed under accrual accounting,
highlights a profit of $785,000 yet the cash flow from operations (cash profit)
shows a net cash OUTFLOW of $301,000
REQUIRED
(a) With reference to the statements below describe three reasons why
ABC Trading Ltd made a profit of $785,000 for the year ending 31
December 2016 yet generated a negative cash flow from operations
over the same period. (Hint: Review movements in current assets to
explain Income Statement Figures to Cash Flow Figures) With each
cause identified highlight the impact on Assets = Liabilities +Owners
equity and profit versus its impact on cash flow.
(120 words limit) (b) Given the above differences discuss which statement (Income
Statement or Cash Flow from Operations) better reflects the financial
performance / wealth creation for the period ending 31 December
2016. (Justify your answer with reference to accrual accounting) (80
word limit)
(c) Compare and contrast the major purpose of the balance sheet, income
statement and cash flow statement in terms of its information content
provided to interested end users. (80 words limit) Financial Statements of ABC Trading Limited
Extract of the Income Statement (abstract) for the year ended 31 December
2016
$’000
Sales
1,700
Cost of sales
(750)
Gross profit
950
Loss on sale of equipment
(80)
Depreciation of equipment
(45)
Salaries
(22)
Other expenses
(18)
Operating Profit
785 Extract of the Balance Sheets as at 31 December
2015
2016
$’000
$’000
Inventory
180
400
Accounts Receivable
285
700
Accounts Payable
600
100
Accrued expenses
100
20
Extract of the Cash Flow from 0pertions for the year
ended 31 December 2016
Cash Flow from Operating Activities
2016
$’000
Cash Receipts Cash Paid Cash Paid from to Suppliers for Cash Paid for salaries
Net Cash Outflow Customers
$1285 Other (1700+285-700) (750-180+400+600-100)
($1470)
Expenses
($98)
($18)
($301) (18+100-20)

• 1496301009-Q4.docx

SuperTutor

(15)

Status NEW Posted 01 Jun 2017 07:06 AM My Price 20.00

-----------

Attachments

file 1496301011-Solutions file.docx preview (51 words )

S-----------olu-----------tio-----------ns -----------fil-----------e -----------Hel-----------lo -----------Sir-----------/Ma-----------dam----------- T-----------han-----------k y-----------ou -----------for----------- yo-----------ur -----------int-----------ere-----------st -----------and----------- bu-----------yin-----------g m-----------y p-----------ost-----------ed -----------sol-----------uti-----------on.----------- Pl-----------eas-----------e p-----------ing----------- me----------- on----------- ch-----------at -----------I a-----------m o-----------nli-----------ne -----------or -----------inb-----------ox -----------me -----------a m-----------ess-----------age----------- I -----------wil-----------l b-----------e q-----------uic-----------kly----------- on-----------lin-----------e a-----------nd -----------giv-----------e y-----------ou -----------exa-----------ct -----------fil-----------e a-----------nd -----------the----------- sa-----------me -----------fil-----------e i-----------s a-----------lso----------- se-----------nt -----------to -----------you-----------r e-----------mai-----------l t-----------hat----------- is----------- re-----------gis-----------ter-----------ed -----------onÂ----------- th-----------is -----------web-----------sit-----------e -----------Tha-----------nk -----------you----------- -----------

Not Rated(0)

• Buy Answer