Page 6 of 6 Question 7: Statement of Cash Flows Trinkets Ltd manufactures and markets souvenirs for tourists. As part of its normal operations Trinkets routinely uses the surplus funds from its souv

Page 6 of 6

Question 7: Statement of Cash Flows

Trinkets Ltd manufactures and markets souvenirs for tourists. As part of its normal operations Trinkets routinely uses the surplus funds from its souvenir business to add to its investment portfolio. As the accountant for Trinkets Ltd, you have been presented with the following cash flow statement prepared by a work experience student. Some debate has arisen as to the amount of cash on hand at the beginning and end of the period. Trinkets bosses believe the balances to be as follows:

• Cash on hand at 1 April 2011 $402,000

• Cash on hand at 31 March 2012 ($357,000)

Trinkets Ltd have asked that you determine whether the balances are correct as determined by them or those calculated by the student.

Trinkets Ltd

Cash Flow Statement for the year ended 31st March 2012

Cash Inflows:

Receipts from customers 1 400 000

Depreciation expense 185 000

Dividends received 15 000

Interest received 28 000

Proceeds from sale of shares 130 000

Issue of shares for cash 200 000

Issue of shares in exchange for shares in subsidiary 450 000

Cash from term deposit 400 000

Issue of debentures for cash 425 000

Total cash inflows 3 233 000

Cash outflows:

Expenses:

Wages475 000

Raw materials300 000

Interest22 000

All other production and operating expenses 290 000

Income Tax paid 135 000

Total payment for purchase of shares 591 000

Purchase of plant and equipment 1 024 000

Dividends paid 120 000

Investment in Term deposits (on call) 275 000

Total cash outflows 3 232 000

Net change in cash on hand 1 000

Cash on hand at beginning of the year 2 000

Cash on hand at end of the year 3 000

Required:

Prepare a properly formatted Statement of Cash Flows in accordance with direct method.

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