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Devil Co

Below are the statements of financial position of Devil Co as at 31 March 20X8 and 31 March 20X7, together with the statement of profit or loss and other comprehensive income for the year ended 31 March 20X8.

 20X8 20X7 $'000$'000 Assets Non‐current assets Property, plant and equipment 925 737 Development expenditure 290 160 1,215 897 Current assets Inventories 360 227 Trade receivables 274 324 Investments 143 46 Cash and cash equivalents 29 117 806 714 Total assets 2,021 1,611 Equity and liabilities Equity Share capital – $1 ordinary shares 500 400 Share premium 350 100 Revaluation surplus 160 60 Retained earnings 229 255 1,239 815 Non‐current liabilities 6% debentures 150 100 Lease liabilities 100 80 Deferred tax 48 45 298 225 Current liabilities Trade payables 274 352 Lease liabilities 17 12 Current tax 56 153 Debenture interest 5 - Bank overdraft 132 54 484 571 Total equity and liabilities 2,021 1,611 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME$'000

Revenue                                                                                                                                                     1,476

Cost of sales                                                                                                                                                (962)

Gross profit                                                                                                                                                 514

Other expenses                                                                                                                                        (157)

Finance costs                                                                                                                                              (15)

Profit before tax                                                                                                                                       342

Income tax expense                                                                                                                                (162)

Profit for the year                                                                                                                                      180

Other comprehensive income:

Gain on revaluation of property, plant and equipment                                                                   100

Total comprehensive income for the year                                                                                         280

Notes

1. During 20X8, amortisation of $60,000 was charged on development projects. 2. During 20X8 items of property, plant and equipment with a carrying amount of$103,000 were sold for $110,000. Profit on sale of these items was netted off against 'other expenses'. Depreciation charged in the year on property, plant and equipment totalled$57,000. Devil Co acquired $56,000 of property, plant and equipment by means of leases with payments being made in arrears on the last day of each accounting period. 3. The current asset investments are government bonds and management has decided to classify them as cash equivalents. 4. The new debentures were issued on 1 April 20X7. Finance cost includes debenture interest and lease finance charges only. 5. During the year Devil Co made a 1 for 8 bonus issue, capitalising its retained earnings, followed by a rights issue. Required A. Prepare an extract from the statement of cash flows for Devil Co from the net cash generated from operations line only. Use the indirect method. The net cash from operating activities was a$40,000 inflow.
B. The Board of Directors of Devil Co want explanations as to why the statement of cash flow is showing a net cash outflow whilst the company has made a profit. Explain to the Board where Devil Co has generated and spent its cash during the year, including any concerns or comments where appropriate.