The directors of Fruit Sales plc produced the following income statement (profit and loss account) for Year 2 and balance sheet at the end of Year 2.

Income statement for year 2

£m

Revenue 320

Cost of sales (143)

Gross profit 177

Investment income – interest received 5

Gain on disposal of equipment 7

Depreciation (39)

Administrative and selling expenses (13)

Operating profit before interest 137

Interest expense (20)

Profit after deducting interest 117

Taxation (35)

Profit after tax 82

 

Statements of financial position (balance sheets) at 31 December

    Non-current assets	Year 2 £m	Year 1 £m
Vehicles at cost	195	130
Accumulated depreciation	(79)	(52)
Â	116	78
Investments	100	80
Total non-current assets	216	158
Current assets Inventory (stock)	  26	  20
Trade receivables (debtors)	23	21
Cash and cash equivalents	43	6
Total current assets	92	47
Total assets	308	205
Current liabilities Trade payables (creditors)	  (18)	  (13)
Interest payable	(8)	(7)
Taxes payable	(10)	(7)
Total current liabilities	(36)	( 27)
Non-current liabilities Long-term loans	  (26 )	  (18)
Total liabilities	(62)	(45)
Net assets	246	160
Capital and reserves Share capital	  152	  120
Share premium	26	23
Retained earnings	68	17
Â	246	160
Further information	Â	Â

1 The dividend paid during Year 2 was £31m. The retained earnings increased by £82m profit of the period and decreased by the amount of the dividend £31m.

2 During Year 2 the company acquired vehicles costing £90m.

3 During Year 2 the company sold vehicles that had an original cost of £25m and accumulated depreciation of £12m. The proceeds of sale were £20m.

4 Cost of sales consists entirely of purchases of fruit on credit from suppliers. Wages are included in administrative and selling expenses and are paid when incurred.

Required

1 Prepare a statement of cash flows using (a) the direct method and (b) the indirect method of calculating operating cash flow.

2 Write a comment on the cash flow of the period.