Week 9 - Solutions to Homework Questions Solution to Case 13 C 1 From One.Tel's statement of cash flows you can see the size of the business is

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Unformatted text preview: Solutions to Homework Questions Solution to Case 13 C: 1. From One.Tel's statement of cash flows you can see the size of the business is getting larger between 19992000, with most of the cash inflows and cash outflows being substantially bigger amounts. Receipts from customers increase substantially but then payments to suppliers and employees increase at a larger rate. As a result, the company continued to have negative net cash from operating activities in 2000 (i.e. it is using more cash in operating activities than what it is receiving). Ultimately, this is a situation that can't continue indefinitely for any company. Because it means that additional financing needs to be arranged to pay for the negative cash flow from operations. During 2000, the company outlaid $525.6 millions for the payment of licences. Licences would have been necessary in order for the company to expand its operations in the telecommunication industry (although they might be trying to bite over too much too soon). While the company did borrow $139.8 million in 2000, the major source of its borrowings was from the issue of new shares amounting to $818.5 million. 2. The main factor that indicated the company may fail in the next year is the continued negative cash flow from operations. This may be considered a negative factor, but few predicted that the company would fail within a year. Particularly given that at the end of the year there was a total cash balance of $335.7 million, which is more than twice the negative cash flow from operations for the year. Also the continued investment in the company by a number of major shareholders and the ability of the company to raise cash, indicated that many shareholder had faith in the company and considered it unlikely to fail within the next year. Solution Problem 13.29 Statement of Cash Flows for the year ending 30 June 2009 Cash from operating activities Cash receipt from customers Cash receipt from dividends Cash paid to suppliers Cash paid for insurance Cash paid for other operating expenses Cash paid for interest Cash paid for income tax Net operating cash flows Cash from investing activities Proceeds from disposal of land Proceeds from sale of buildings Cash paid for acquiring investments Cash paid for acquiring land Cash paid for acquiring buildings Net investing cash flow Cash from financing activities Proceeds from issuance of mortage Proceeds from issuance of shares Repayment of shortterm loan Redemption of bonds Cash paid for 2008 final dividends Cash paid for 2009 interim dividends Net financing cash flows Total net cash flows Cash opening balance Cash closing balance 1492000 5000 1059000 12000 80000 25000 75000 246000 42000 77000 42000 53000 50000 26000 75000 56000 11000 150000 12000 15000 57000 163000 66000 229000 Reconciliation of net profit to CFO Net profit Add: 114000 Depreciation expense Buildings Depreciation expense Equipment Loss on disposal of land Gain on sale of buildings 37000 65000 18000 31000 Less: 89000 Adjustment for changes in operating assets and liabilities Increase in accounts receivable Increase in provision for doubtful debts Decrease in inventory Increase in prepaid insurance Increase in accounts payable Increase in accrued expenses Decrease in income tax payable Cash from operations 17000 4000 15000 3000 36000 16000 8000 43000 246000 Workings Working Area Operating Activities Cash Received From Customers Accounts Receivable DR o/b (1) 1648000 2011 o/b 145000 1520000 1520000 15000 15000 11000 11000 1492000 Cr Accounts Receivable 1492000 CR 128000 1520000 11000 1492000 145000 1648000 (3) (4) c/b Allowance for Doubtful Debt DR CR 12000 o/b (3) 11000 15000 (2) c/b 16000 27000 27000 2011 16000 o/b 1 Dr Accounts Receivable Cr Sales 2 Dr Bad Debt Expense Cr Allowance for Doubtful Debt 3 Dr Allowance for Doubtful Debt Cr Accounts Receivable 4 Dr Cash Receipt of Dividends 5 Dr Cash Cr Dividends Received 5000 5000 Payment to Suppliers Accounts Payable DR (9) c/b 7 Dr COGS Cr Inventory 8 Dr Inventory Cr Accounts Payable 9 Dr Accounts Payable Cr Cash 1059000 1059000 1095000 1095000 Inventory CR DR o/b (8) o/b (8) 190000 1095000 1285000 175000 CR 1110000 175000 1285000 (7) c/b 51000 1059000 1095000 87000 1146000 1146000 87000 2011 o/b 1110000 1110000 2011 o/b Payment of Insurance Prepaid Insurance DR o/b (12) 6000 12000 18000 2011 o/b 11 CR 9000 9000 18000 (11) c/b 9000 Dr Insurance Expense Cr Prepaid Insurance 9000 9000 12000 12000 12 Dr Prepaid Insurance Cr Cash Payment of Other Expenses (13) c/b Accum. Dep'n Buildings DR CR 81000 o/b 43000 37000 (14) 75000 118000 118000 75000 2011 o/b Accrued Expenses DR CR 11000 80000 96000 27000 107000 107000 27000 o/b (15) c/b Accum. Dep'n Equipment DR CR 149000 o/b 65000 (15) 214000 214000 214000 214000 2011 o/b (16) c/b 2011 o/b 77000 43000 31000 89000 37000 37000 13 Dr Cash Dr Accum. Depn. Buildings Cr Gain from sale of Buildings Cr Buildings 14 Dr Depreciation Expense Buildings Cr Accum. Depreciation Buildings Dr Depreciation Expense Equipment 65000 Cr Accum. Depreciation Equipment 65000 15 Remaining other expenses after subtracting depreciation expenses: 96000 Dr Other Expenses Cr Accrued Expenses 16 Dr Accrued Expenses Cr Cash 80000 80000 96000 96000 Payment of Interest Interest Payable DR (18) c/b 17 Dr Interest Expense Cr Interest Payable CR 25000 9000 34000 9000 25000 34000 9000 2011 o/b 25000 25000 o/b (17) 18 Dr Interest Payable Cr Cash 25000 25000 Payment of Income Tax Income Tax Payable DR (21) c/b 20 CR 75000 15000 90000 23000 67000 90000 15000 2011 o/b 67000 67000 75000 75000 o/b (20) Dr Income Tax Expense Cr Income Tax Payable 21 Dr Income Tax Payable Cr Cash Investing Activities Cash Paid/Received Land Land DR o/b (24) 149000 CR Revaluation Reserve DR CR 17000 o/b (23) 15,000 30,000 (24) c/b 32000 47000 47000 2011 32000 o/b 30000 53000 232000 60000 172000 232000 (22) c/b (25) 2011 o/b 172000 22 Dr Cash Dr Loss on sale of Land Cr Land 42000 18000 60000 15,000 15,000 30000 Cr Revaluation Reserve 30000 53000 Cr Cash 53000 23 Dr revaluation Reserve Cr Share Capital Dr Land 24 25 Dr Land Cash Paid/Received Buildings Buildings DR o/b (26) 225000 50000 275000 2011 o/b 186000 77000 43000 31000 89000 50000 Cr Cash 50000 Cr Gain from sale of Buildings Cr Buildings 26 Dr Buildings CR 89000 186000 275000 (13) c/b 13 Dr Cash Dr Accum. Depn. Buildings Cash Paid/Received For Equipment Equipment DR o/b 437000 437000 2011 o/b 437000 437000 437000 c/b CR Cash Paid/Received For Investments Investments DR o/b (27) 163000 42000 205000 2011 o/b 205000 42000 42000 CR 205000 205000 c/b 27 Dr Investments Cr Cash Financing Activities Cash Received/Repaid from Bonds Borrowings DR (28) c/b 28 Dr Bonds Cr Cash CR 250000 150000 100000 250000 250000 100000 o/b 2011 o/b 150000 150000 Cash Received/Repaid from Debentures Debentures DR c/b 29 Dr Cash Dr Debentures CR 0 75000 75000 75000 75000 75000 2011 o/b 75000 75000 o/b (29) Cash Received/Repaid from Short Term Loan Short Term Loan DR (30) c/b 30 Dr Short Term Loan Cr Cash CR 20000 11000 9000 20000 o/b 20000 9000 2011 o/b 11000 11000 Proceeds From Share Issue Share Capital DR c/b CR 420000 15000 56000 491000 491000 491000 24 o/b (24) (31) Revaluation Reserve DR CR 17000 o/b (24) 15000 30000 (23) c/b 32000 47000 47000 2011 32000 o/b 491000 2011 o/b 15,000 15,000 56000 Dr revaluation Reserve Cr Share Capital 31 Dr Cash Cr Share Capital 56000 Payment of Final Dividend Final Dividend Payable DR CR 12000 o/b 12000 16000 (33) 16000 28000 28000 16000 2011 o/b Dr Retained Earnings Cr Final Dividend Payable Implies that during the year: Dr Final Dividend Payable Cr Cash 12000 12000 12000 12000 (32) c/b 33 34 Dr Retained Earnings Cr Final Dividend Declared It will be paid next year 16000 16000 Payment of Interim Dividend Retained Earnings DR (36) (34) (37) c/b CR 280000 49000 114000 16000 15000 314000 394000 34 o/b (35) 394000 314000 2011 o/b 16000 16000 114000 114000 49000 49000 15000 15000 General Reserve DR CR 29000 o/b 49000 (36) c/b 78000 78000 78000 2011 78000 o/b Dr Retained Earnings Cr Final Dividend Declared 35 Dr Profit and Loss Cr Retained Earnings 36 Dr Retained Earnings Cr General Reserve 37 Dr Retained Profits Cr Cash ...
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This note was uploaded on 03/19/2012 for the course ACT 1511 taught by Professor Leon during the Three '12 term at University of New South Wales.

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