Let's break down the problem step by step as requested. We'll start with **Cash Flow from Operating Activities**, then **Cash Flow from Investing Activities**, and finally **Cash Flow from Financing Activities**. --- ## **Step 1: Cash Flow from Operating Activities (CFO)** ### **A. Start with Net Income** - **Opening Retained Earnings:** $400,000 - **Dividend Paid:** $35,000 - **Ending Retained Earnings:** $800,000 **Net Income:** \[ \text{Net Income} = \text{Ending Retained Earnings} - \text{Opening Retained Earnings} + \text{Dividend Paid} \] \[ = \$800,000 - \$400,000 + \$35,000 = \$435,000 \] --- ### **B. Add Back Non-Cash/Non-Operating Items** - **Depreciation (given):** $70,000 - **Loss on Sale of Short-Term Investments:** $8,000 - **Bad debts written off:** $10,000 (already in net income, but add back as it's non-cash) - **Provision for taxes for current year:** $60,000 (taxes are a liability, but only actual paid matters for cash flow; let's include advance tax adjustments later) - **Interest Expense:** $15,000 (already in net income, but if financing, we ignore unless specifically cash paid is different) - **Income Tax Paid:** Advance tax paid $80,000 --- ### **C. Adjust for Changes in Working Capital** - **Accounts Receivable:** - Opening: $80,000 - Cash collected: $180,000 - Total credit sales: $220,000 - Closing: \( \text{Opening} + \text{Credit Sales} - \text{Cash Collected} - \text{Bad debts written off} \) - \( 80,000 + 220,000 - 180,000 - 10,000 = 110,000 \) - **Increase in Receivables:** $30,000 (outflow) - **Inventory:** - Opening: $20,000 - Purchases: $300,000 - Used: $280,000 - Closing: \( 20,000 + 300,000 - 280,000 = 40,000 \) - **Increase in Inventory:** $20,000 (outflow) - **Accounts Payable:** - Opening: $60,000 - Purchases on credit: $120,000 - Paid: $100,000 - Closing: \( 60,000 + 120,000 - 100,000 = 80,000 \) - **Increase in Payables:** $20,000 (inflow) - **Allowance for Doubtful Debts (ADD):** - Opening: $8,000 - Policy: 10% of closing receivables ($110,000) = $11,000 - **Increase in ADD:** $3,000 (non-cash expense, add back) --- ### **D. Income Taxes Paid** - Tax provision: $60,000 - Advance tax paid: $80,000 --- ### **E. Calculate CFO** #### **Cash Flow from Operations Calculation Table** | Item | Amount ($) | |-----------------------------|------------| | Net Income | 435,000 | | Add: Depreciation | 70,000 | | Add: Loss on ST Investments | 8,000 | | Add: Bad debts written off | 10,000 | | Add: Increase in ADD | 3,000 | | Less: Increase in Receivables| (30,000) | | Less: Increase in Inventory | (20,000) | | Add: Increase in Payables | 20,000 | | Less: Income Tax Paid | (80,000) | \[ \text{CFO} = 435,000 + 70,000 + 8,000 + 10,000 + 3,000 - 30,000 - 20,000 + 20,000 - 80,000 = \boxed{416,000} \] **End of Step 1 Explanation:** We calculated the CFO by starting with net income, adjusting for non-cash items (like depreciation, bad debts, and loss on investments), and changes in working capital (receivables, inventory, payables). We also considered taxes paid. --- ## **Step 2: Cash Flow from Investing and Financing Activities** ### **A. Cash Flow from Investing Activities (CFI)** #### **1. Land Transactions** - **Proceeds from Sale:** $200,000 - **Land Purchased:** $200,000 #### **2. Machinery** - **Sold for:** $140,000 - **Original Cost:** $200,000 (bought Jan 1, 2021, sold July 1, 2024) - **Depreciation** (sum-of-digits, 8 years, 3.5 years used): - Depreciation for 2021: \( \frac{8}{36} \times 200,000 = 44,444 \) - For 2022: \( \frac{7}{36} \times 200,000 = 38,888 \) - For 2023: \( \frac{6}{36} \times 200,000 = 33,333 \) - For 2024: \( \frac{5}{36} \times 200,000 \times 0.5 = 13,889 \) - **Total Depreciation:** $44,444 + $38,888 + $33,333 + $13,889 = $130,554 - **Book Value at Sale:** $200,000 - $130,554 = $69,446 - **Gain on Sale:** $140,000 - $69,446 = $70,554 (already included in net income, so ignore for cash flow) #### **3. Furniture** - **Sold for:** $10,000 #### **4. Short-Term Investments** - **Purchased:** $80,000 - **Ending Balance:** $120,000 - **Loss on Sale:** $8,000 (non-cash, already included in net income, ignore for cash flow) - **Sale Proceeds:** Not directly given; assume all purchased and ending balance is net. #### **5. Investment in Company** - **Invested in shares:** $35,000 #### **Summary Table:** | Item | Inflow ($) | Outflow ($) | |------------------------|------------|-------------| | Sale of Land | 200,000 | | | Purchase of Land | | 200,000 | | Sale of Machinery | 140,000 | | | Sale of Furniture | 10,000 | | | Purchase of ST Invest. | | 80,000 | | Investment in Company | | 35,000 | \[ \text{CFI} = (200,000 + 140,000 + 10,000) - (200,000 + 80,000 + 35,000) = 350,000 - 315,000 = \boxed{35,000} \] --- ### **B. Cash Flow from Financing Activities (CFF)** | Item | Inflow ($) | Outflow ($) | |---------------------------|------------|-------------| | Issue of Shares | 20,000 | | | Repayment of Loans | | 15,000 | | Dividends Paid | | 35,000 | \[ \text{CFF} = 20,000 - (15,000 + 35,000) = 20,000 - 50,000 = \boxed{-30,000} \] **End of Step 2 Explanation:** We determined CFI by adding cash inflows (sale of land, machinery, furniture) and subtracting outflows (purchase of land, investments made). For CFF, we considered cash from share issue, loan repayment, and dividends paid. --- ## **Final Answers** ### **Cash Flow from Operations (CFO):** \[ \boxed{416,000} \] ### **Cash Flow from Investing (CFI):** \[ \boxed{35,000} \] ### **Cash Flow from Financing (CFF):** \[ \boxed{-30,000} \] --- If you need a detailed cash flow statement presentation or want any item clarified, just ask!