IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

44

Wiley IFRS: Practical Implementation Guide and Workbook

Tremendous Enterprises II/c. STATEMENT OF INCOME For the Year Ended Decemb er 31, 2005

Sales Cost of sales Gross operating income Administrative and selling expenses Interest expenses Depreciation of property. plant, and equipment Amortization of intangible asset Investment income Net income before taxation Taxes on income Net income

$45,000 (15 000) 30,000 (3,000) (3,000) (3,000) (750) 4500 24,750 (6,000) $ 18 750

Cash and equivalents 3,000 Additional Information This additional informatio n is relevant to the preparation of the statement of cas h flows: I . All sales made by Tremendou s Enterpr ises Inc. ("c ompany") are credi t sales . All purch ases are on account. 2. Interest expense for the year 200 5 was $3,000, which was full y paid during the year. 3. The company pays salar ies and other emp loyee dues before the end of each month. All ad– ministrati on and se lling expe nses incurre d were paid before December 3 1, 2005. 4. Investment income comprised dividends income from investments in shares of bl ue ch ip companies . Thi s was recei ved before December 3 1, 2005. Equipme nt with a net book value of $ 11,250 and original co st of $ 15, 750 was sold for $ 11,250. The company declared and paid dividends of $ 18,000 to its shareho lders during 2005. Income tax expense for the year 200 5 was $6,000, aga inst whi ch the company paid $3, 000 duro ing 2005 as an estimate. Required Usi ng the foll owing financial information for Tremendous Ent erprises Inc., pre pare the cas h flow state– men t accordi ng to the requ irements of lAS 7 unde r both the direct and the indirect meth od s. Solution a. A worksheet ca n be prepared analyz ing the changes in the balance sheet figures as the first step to the preparation of the ca sh flow stateme nt. Cash Flow Worksheet Analyzing Changes in Balance Sheet Figures (all ligures in US dollars) Cash fl ow Cash flo w Cash flow effect effect effect op erating inves ting financi ng Cash and equivalents Trade receivables Inventory Intangible asset (3,750) (750) 750 2004 1,500 3,750 2,250 2,250 2005 4.500 7,500 3,000 1,500 5. 6. 7.

Change 3,000 3,750 750 (750) o (142501 (7.500) (11,250)

28,500 24750 63000 18,750

Due from associates Property, plant, and equipment Accounts payable Income taxes payable Deferred taxes payable Share capital Retained earnings

28,500 10 500 55500

3,000

11,250

(11,250) 1,500 1,500

7,500 3,000 4,500 9,750

1,500 1,500

1,500 3,000 9,750

o

ill (7 500)

30750 55500

30 000 63000

b. Direct Method

Tremendous Enterprises Inc. STATEMENT OF CASH FLOWS For th e Year Ended December 31, 2005

Cash flows fro m operating activities: Cash receipts from customers Cash paid to suppliers and employees Cash provided by operations Interest paid Income taxes paid Net cash flows from operating activities

$ 41,250

(30 000) 11,250 (3,000) (3 000)

$ 5,250