Page 183 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes Net income before tax 342000
Provision of tax 117000
Net Income after tax 225000

Additional information:
(a) Operating expenses include depreciation of 59400 and charges from preliminary
expenses of 3600.

(b) Land was sold at its book value.
(c) Cash dividend paid for the year 2006 amounted to 27000 and fully paid bonus
shares were given in the ratio of 2 shares for every 3 shares held.

(d) Interest expenses was paid in cash.
(e) Equipment with a cost of 298800 was purchased for cash .Equipment with a cost of
73800 (book value 64800) was sold for 61200.

(f) Debenture for 18000 were redeemed for cash and for 54000 were redeemed by
converting into equity shares at par value.
(g) Equity shares of 162000 were issued for cash at par.

(h) Income tax paid during the year amounted to 117000.
Prepare the cash flow statement with both the methods.
7. Determine which of the following are added back to [or subtracted from, as appropriate]
the net income figure (which is found on the Income Statement) to arrive at cash flows
from operations.
(a) Depreciation
(b) Deferred tax
(c) Amortization
(d) Any gains or losses associated with the sale of a non-current asset.
Support your answers with elaborative reasoning.
8. Assume that you are thinking of purchasing a new machine that will allow you to offer a
new product to your customers. The machine will cost 100,000 to purchase and install,
and after five years (when you plan to sell it) the machine will be worth about 10,000.
Your facility has plenty of room, so you won't have any additional rental costs for space,
and you can piggyback advertising for the new product on to your existing advertising
budget. You will, however, have to pay for insurance, personal property taxes, and a part-
time employee to operate the machinery (these items are included in your fixed costs
which will total 12,000 in the first year). Also, there will be costs for materials, supplies,
and electricity that will vary depending on the volume of production. These variable costs
will amount to about 60 percent of the sales revenues. Develop a projected cash flow
statement for the project.
9. Think of the possible errors that might be committed while developing the cash flow
statements and suggest ways to prevent such mistakes beforehand.
10. Show by example how to prepare a cash flow statement using a balance sheet.
11. Unlike the balance sheet and the income statement, the cash flow statement is not based on
accruals accounting, why?

178 LOVELY PROFESSIONAL UNIVERSITY