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Multiple Choice relating to balance sheet and cash flow

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*Please see attachment for company's 30 June 2003 and 2004 Balance Sheet and other additional information.


(a) Calculate the operating profit for the year ended 30 June 2004.
(b) Prepare a reconciliation of the operating profit for the year ended 30 June 2004 to the net cash flow from operating activities.
(c) Prepare a cash flow statement for the year ended 30 June 2004.
(d) Prepare a statement showing the change in the bank balance between 30 June 2003 and 30 June 2004.
(e) Explain why a cash flow statement is important to shareholders.
(f) Explain how cash flow statements differ from cash budgets.

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The solution provides explanations for multiple choice questions relating to balance sheet and cash flow.

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7. Prior to the acquisition, shareholders funds were 130,000. Shareholders funds include the share capital, share premium, retained earnings and profit and loss account. This is so since the amounts in all these cases belong to the shareholders. Share capital and share premium are directly given by the shareholders and the retained earnings and profit and loss account are the amounts earned by the company by utilizing the shareholders funds. Thus these four elements constitute the shareholders funds. In this example they total to 130,000 prior to acquisition. For the purpose of acquisition, 30000 $ 1 ordinary shares were issued at a premium of 100%. This means that they were issued at $2 and the amount realized was 60,000. The total shareholders funds would become 130000+60000=190,000.
Answer is C

8. The directors emoluments are not included in the directors report. They ...

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