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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
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      
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



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


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.


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.

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