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Cooper Case

The assistant accountant of Cooper has started work on the statement of cash flows for the year ended

31 December 20X8, completing a draft of the cash generated from operations as shown below.

                                                                                                              $000

            Profit from operations                                                                  3,500

            Depreciation                                                                               4,600

            Release of government grant                                                        1,400

            Profit on disposal of property                                                     (3,700)

            Increase in inventories                                                                  (400)

            Decrease in trade and other receivables                            (300)

            Increase in trade and other payables                                              900

            Cash generated from operations                                              13,400

In addition to this, the assistant has seen that the balance of property was $39.5 million at 1 January 20X8 and $29 million at 31 December 20X8. There were no additions of property in the year.  
There was also a deferred income balance relating to government grants of $6 million at 1 January 20X8. The closing deferred income balance was $8 million.

 

1. What method has Cooper’s assistant accountant used to calculate the cash generated from operations?
2. In relation to the calculation of cash generated from operations, select the TWO cells which contain errors made by the assistant.

 

$000

Profit from operations

3,500

Depreciation    

4,600

Release of government grant

1,400

Profit on disposal of property

(3,700)

Increase in inventories

(400)

Decrease in trade and other receivables

(300)

Increase in trade and other payables

900

Cash generated from operations         

6,000

3. How much would be recorded in Cooper’s statement of cash flows in relation to the sale of property?
4. What will be recorded as the receipt of government grants in the year?$_____________
5. Cooper’s assistant accountant has been studying statements of cash flows and is unsure whether the information contained in the study material is true.Which, if any, of the following statements is/are true?

Statement 1: Intangible assets will have no impact on the statement of cash flow as they have no physical substance.
Statement 2: A rights issue of shares will increase the cash flows from financing activities.

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