Use the Information Provided Below to Prepare the Cash Flow Statement of Fairmont Limited for the year ended 31 December 2019: Finance Case Study, WIT, South Africa
| University | University of the Witwatersrand (WIT) |
| Subject | Finance |
QUESTION 1
REQUIRED
Use the information provided below to prepare the Cash Flow Statement of Fairmont Limited for the year ended 31 December 2019. Use the following format as a guide. (Commence with the profit before working capital changes of R240 000.)
CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2019
| R | |
| 1. Cash flows from operating activities | |
| Profit before working capital changes (Profit before tax 120 000+Interest expense 45000+Depreciation 75000) | 240 000 |
| Working capital changes | (68000) |
| Increase/decrease in inventory (205000-215000) Out | (10000) |
| Increase/decrease in receivables(175000-190000) Out | (15000) |
| Increase/decrease in payables (27000-120000) In | 93000 |
| Cash generated from operations | 172000 |
| Interest paid | (45 000) |
| Interest income ? int expense -93000 int payable=48 or payable – recievable -218000 | 5000 |
| Dividends paid (25000+30000) | (55000) |
| Income tax paid (8000+40000-5000) Out 43 | (13000) |
| Net cash inflow from operating activities 233000 | 39000 |
| Cash flow from investing activities | (280 000) |
| 5.Non-current assets purchased (540 000-660 000=(120 000) -75000 depr= Out195 or 1000 000 -1200 000+75000 | (275000) |
| Investments increase/redeemed(40000-35000) In5000 | (5000) |
| Net cash flow from investing activities | (200000) |
| Cash flow from financing activities(310000-25000) | 325000 |
| Proceeds from issue of ordinary shares (155 000 shares x2) In | 310000 |
| Long-term borrowings increase/decrease (diff between non-current liabilities)In | 25000 |
| Net increase/decrease in cash and cash equivalents (50000-35000) | 15000 |
| Cash and cash equivalents at the beginning of the year (2018) | 35000 |
| Cash and cash equivalents at the end of the year (2019) | 50000 |
INFORMATION Fairmont Limited Statement of Comprehensive Income for the year ended 31 December 2019
| R | |
| Sales | 1 100 000 |
| Cost of sales | (650 000) |
| Gross profit | 450 000 |
| Operating expenses | (285 000) |
| Selling and administrative expenses | (210 000) |
| Depreciation | (75 000) |
| Operating profit | 165 000 |
| Interest expense | (45 000) |
| Profit before tax | 120 000 |
| Income tax | (40 000) |
| Profit after tax | 80 000 |
Statement of Financial Position as of 31 December:
| Assets | 2019 (R) | 2018 (R) | |
| Non-current assets | 660 000 | 540 000 | |
| Plant and equipment | 1 200 000 | 1 000000 | |
| Accumulated depreciation | (575 000) | (500 000) | |
| Investments | 35 000 | 40 000 | |
| Current assets | 455 000 | 415 000 | |
| Inventories | 215 000 | 205 000 | |
| Accounts receivable | 190 000 | 175 000 | |
| Cash and cash equivalents | 50 000 | 35 000 | |
| Total assets | 1 115 000 | 955 000 | |
| Equity and liabilities | |||
| Equity | 610 000 | 560 000 | |
| Ordinary share capital (155 000 shares) | 310 000 | 310 000 | |
| Retained earnings | 300 000 | 250 000 | |
| Non-current liabilities | 360 000 | 335 000 | |
| Current liabilities | 145 000 | 60 000 | |
| Accounts payable | 120 000 | 27 000 | |
| Dividends payable (correction adj: 30,000 for 2019) | 20 000 | 25 000 | |
| Income tax payable | 5 000 | 8 000 | |
| Total owners’ equity and liabilities | 1 115 000 | 955 000 |
Note:
■ Dividends paid and recommended during 2019 amounted to R30 000.
■ All purchases and sales of inventories are on credit. Purchases for the year ended 31 December 2019 amounted to R660 000.
REQUIRED
Use the information provided in Question 1 to calculate the following ratios for 2019 (answers rounded off to two decimal places):
2.1 Inventory turnover
2.2 Average collection period
2.3 Average payment period
2.4 Return on equity
2.5 Gross profit margin
2.6 Earnings per share
2.7 Dividends per share
2.8 Current ratio
2.9 Acid test ratio
2.10 Debt to assets
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