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Condensed financial data of Heroes Pty Ltd follows. Heroes Pty Ltd Statement of financial position as at 30 June 2023 2023 2022 Assets Cash 45,000 25,000 Accounts receivable 38,000 17,000 Inventory 50,000 52,500 Investments (long term) 42,000 45,000 Plant and equipment 150,000 125,000 Accumulated depreciation - 28,000 - 21,000 Total Assets $297,000 $243,500 Liabilities and equity Accounts payable 25,000 24,000 Accrued expenses payable 5,500 9,500 Debentures payable 25,000 30,000 Share capital 150,000 120,000 Retained earnings 91,500 60,000 Total liabilities and equity $297,000 $243,500 Heroes Pty Ltd Statement of profit or loss for the year ended 30 June 2023 Sales 187,000 Gain on sale of equipment 7,500 Less: 194,500 Cost of sales 45,000 Operating expenses, excluding depreciation expense 12,500 Depreciation expense 22,000 Income tax 39,000 Interest expense 4,500 123,000 Profit $71,500 Additional information: 1. New equipment and machinery were purchased for cash during the year. 2. Investments were sold at cost. 3. Equipment costing $22,000 was sold for $14,500, resulting in a gain of $7,500. 4. A cash dividend was declared and paid during the year. 5. Shares are issued at cash. Debentures are reimbursed at cash. 6. Accounts payable pertain to inventory creditors. Required (a) Prepare a statement of cash flows using the direct method. (b) Prepare a reconciliation of profit to cash provided by operations

Question

Condensed financial data of Heroes Pty Ltd follows. Heroes Pty Ltd Statement of financial position as at 30 June 2023 2023 2022 Assets Cash 45,000 25,000 Accounts receivable 38,000 17,000 Inventory 50,000 52,500 Investments (long term) 42,000 45,000 Plant and equipment 150,000 125,000 Accumulated depreciation - 28,000 - 21,000 Total Assets 297,000297,000 243,500 Liabilities and equity Accounts payable 25,000 24,000 Accrued expenses payable 5,500 9,500 Debentures payable 25,000 30,000 Share capital 150,000 120,000 Retained earnings 91,500 60,000 Total liabilities and equity 297,000297,000 243,500 Heroes Pty Ltd Statement of profit or loss for the year ended 30 June 2023 Sales 187,000 Gain on sale of equipment 7,500 Less: 194,500 Cost of sales 45,000 Operating expenses, excluding depreciation expense 12,500 Depreciation expense 22,000 Income tax 39,000 Interest expense 4,500 123,000 Profit $71,500 Additional information:

  1. New equipment and machinery were purchased for cash during the year.
  2. Investments were sold at cost.
  3. Equipment costing 22,000wassoldfor22,000 was sold for 14,500, resulting in a gain of $7,500.
  4. A cash dividend was declared and paid during the year.
  5. Shares are issued at cash. Debentures are reimbursed at cash.
  6. Accounts payable pertain to inventory creditors. Required (a) Prepare a statement of cash flows using the direct method. (b) Prepare a reconciliation of profit to cash provided by operations
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Solution

(a) Statement of Cash Flows using the Direct Method:

Cash Flows from Operating Activities: Cash received from customers: 187,000Cashpaidtosuppliers:(187,000 Cash paid to suppliers: (45,000 + 24,000−24,000 - 25,000) = -44,000Cashpaidforoperatingexpenses:(44,000 Cash paid for operating expenses: (12,500 + 9,500−9,500 - 5,500) = -16,500Cashpaidforinterest:−16,500 Cash paid for interest: -4,500 Cash paid for taxes: -39,000NetCashProvidedbyOperatingActivities:39,000 Net Cash Provided by Operating Activities: 82,000

Cash Flows from Investing Activities: Cash received from sale of equipment: 14,500Cashpaidforpurchaseofequipment:(14,500 Cash paid for purchase of equipment: (150,000 - 125,000+125,000 + 22,000 - 14,500)=−14,500) = -32,500 Cash received from sale of investments: 3,000NetCashUsedinInvestingActivities:−3,000 Net Cash Used in Investing Activities: -15,000

Cash Flows from Financing Activities: Cash received from issuance of shares: (150,000−150,000 - 120,000) = 30,000Cashpaidforredemptionofdebentures:(30,000 Cash paid for redemption of debentures: (30,000 - 25,000)=−25,000) = -5,000 Cash dividends paid: (91,500−91,500 - 60,000 - 71,500)=−71,500) = -40,000 Net Cash Used in Financing Activities: -$15,000

Net Increase in Cash: 82,000−82,000 - 15,000 - 15,000=15,000 = 52,000 Cash at the beginning of the year: 25,000Cashattheendoftheyear:25,000 Cash at the end of the year: 52,000 + 25,000=25,000 = 77,000

(b) Reconciliation of Profit to Cash Provided by Operations:

Profit: 71,500Adjustmentsfor:Depreciation:71,500 Adjustments for: Depreciation: 22,000 Gain on sale of equipment: -7,500Changesinworkingcapital:Increaseinaccountsreceivable:(7,500 Changes in working capital: Increase in accounts receivable: (38,000 - 17,000)=−17,000) = -21,000 Decrease in inventory: (52,500−52,500 - 50,000) = 2,500Decreaseinaccountspayable:(2,500 Decrease in accounts payable: (24,000 - 25,000)=−25,000) = -1,000 Decrease in accrued expenses payable: (9,500−9,500 - 5,500) = 4,000CashProvidedbyOperations:4,000 Cash Provided by Operations: 71,500 + 22,000−22,000 - 7,500 - 21,000+21,000 + 2,500 - 1,000+1,000 + 4,000 = $70,500

Please note that the calculations are based on the given data and additional information. The actual figures may vary depending on the detailed transactions of the company.

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