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Page 7 of 8

7. Cash Flow Statement

The following information is taken from the books of Saunders Ltd:

Profit and Loss Extract for year ended 31/12/1999£

Operating profit 105,000Interest paid (5,000)

100,000Taxation (35,000)

65,000Proposed dividend (25,000)Retained profits for year 40,000Profit and loss balance 1/1/1999 80,000Profit and loss balance 31/12/1999 120,000

Balance Sheets as at 31/12/1999 31/12/1998£ £ £ £

Fixed Assets Land & Buildings 380,000 330,000Less: Depreciation Provision 80,000 300,000 70,000 260,000

Current AssetsStock 108,000 85,000Debtors 44,000 39,000Cash 8,000 10,000

160,000 134,000

Less: Creditors:amounts falling due within 1 year Creditors 30,000 54,000Taxation 35,000 18,000Proposed dividend 25,000 12,000

(90,000) (84,000)Net Current Assets 70,000 50,000Total Net Assets 370,000 310,000

Financed by:Creditors:amounts falling due after more than one year

10% Debentures 20,000 50,000Capital and Reserves

Ordinary Share Capital issued 230,000 180,000Profit & Loss Account 120,000 80,000

370,000 310,000

You are required to:(a) Reconcile the operating profit to net cash inflow from operating activities. (30)

(b) Prepare the cash flow statement of Saunders Ltd for the year ended 31/12/1999 under the following headings:(1) Operating Activities.(2) Return on Investment.(3) Taxation.(4) Investing Activities.(5) Financing. (70)

(100 marks)

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SECTION 3 (80 marks)Answer ONEquestion

8. Costing: Cost-Volume-Profit (Marginal Costing)

Southern Ltd., manufactures a product which it sells at £20 per unit. All goods produced are sold so there is never any stock of product on hand. A costing analysis reveals that:

Variable costs amount to £11 per unitFixed costs will be £6,000 for the period.

You are required to:

(a) Calculate the Contribution for each unit sold.(b) Calculate the Break Even Point for this product using the data above.(c) Prepare a Marginal Costing Statement to show the Profit & Loss at the following production levels:

1. 800 units

2. 1,120 units3. 1,400 units4. 1,800 units

(d) Calculate the level of production and sales revenue that will yield a profit of £9,500.(e) Calculate the Margin of safety in units and in sales revenue in (d) above. (80 marks)

9. Cash Budgeting

W. Solan had the following Assets, Liabilities and Capital at Jan. 1 st 1999.

Assets Fixed assets 110,000Stock 7,800Debtors 32,000Cash 1,400

151,200

LiabilitiesCreditors 44,200

Capital 107,000151,200

The expected sales and purchases for the next 5 months are as follows:

Jan Feb Mar Apri l May TotalSales £75,000 £72,000 £80,000 £90,000 £85,000 402,000Purchases £52,000 £54,000 £60,000 £66,500 £70,000 302,500

All sales are on credit and are paid for one month after sale.All purchases are on credit, except for £20,000 in May, and are paid for one month later.Solan rents the premises for £9,600 per annum payable each month.Wages to be £4,500 per month.Equipment bought in May for £5,000.Closing stock at 31/5/1999 is expected to be £16,800.Net profit for 5 months is expected to be £82,000.

You are required to prepare: (a) A Cash Budget showing Solan's expected monthly receipts and payments for the five months January to May.(b) A Budgeted Balance Sheet as at 31/5/1999. (80 marks)