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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
11,250
3,000
(3,750)
(750)
750
(11,250)
1,500
1,500
Change
3,000
3,750
750
(750)
o
(142501
(7.500)
(11,250)
1,500
1,500
o
ill
(7 500)
2004
1,500
3,750
2,250
2,250
28,500
24750
63000
18,750
1,500
3,000
9,750
30 000
63000
2005
4.500
7,500
3,000
1,500
28,500
10 500
55500
7,500
3,000
4,500
9,750
30750
55500
5.
6.
7.
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
Due from associates
Property, plant, and
equipment
Accounts payable
Income taxes payable
Deferred taxes payable
Share capital
Retained earnings
b. Direct Method
$
41,250
(30 000)
11,250
(3,000)
(3 000)
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
$ 5,250