The directors of Fruit Sales plc produced the following income statement (profit and loss account) for Year 2 and balance sheet at the end of Year 2.
Income statement for year 2
£m
Revenue 320
Cost of sales (143)
Gross profit 177
Investment income - interest received 5
Gain on disposal of equipment 7
Depreciation (39)
Administrative and selling expenses (13)
Operating profit before interest 137
Interest expense (20)
Profit after deducting interest 117
Taxation (35)
Profit after tax 82
Statements of financial position (balance sheets) at 31 December
|
Non-current assets
|
Year 2 £m
|
Year 1 £m
|
|
Vehicles at cost
|
195
|
130
|
|
Accumulated depreciation
|
(79)
|
(52)
|
|
|
116
|
78
|
|
Investments
|
100
|
80
|
|
Total non-current assets
|
216
|
158
|
| Current assets |
|
|
|
Inventory (stock)
|
26
|
20
|
|
Trade receivables (debtors)
|
23
|
21
|
|
Cash and cash equivalents
|
43
|
6
|
|
Total current assets
|
92
|
47
|
|
Total assets
|
308
|
205
|
| Current liabilities |
|
|
|
Trade payables (creditors)
|
(18)
|
(13)
|
|
Interest payable
|
(8)
|
(7)
|
|
Taxes payable
|
(10)
|
(7)
|
|
Total current liabilities
|
(36)
|
( 27)
|
| Non-current liabilities |
|
|
|
Long-term loans
|
(26 )
|
(18)
|
|
Total liabilities
|
(62)
|
(45)
|
|
Net assets
|
246
|
160
|
| Capital and reserves |
|
|
|
Share capital
|
152
|
120
|
|
Share premium
|
26
|
23
|
|
Retained earnings
|
68
|
17
|
|
|
246
|
160
|
Further information
1. The dividend paid during Year 2 was £31m. The retained earnings increased by £82m profit of the period and decreased by the amount of the dividend £31m.
2. During Year 2 the company acquired vehicles costing £90m.
3. During Year 2 the company sold vehicles that had an original cost of £25m and accumulated depreciation of £12m. The proceeds of sale were £20m.
4. Cost of sales consists entirely of purchases of fruit on credit from suppliers. Wages are included in administrative and selling expenses and are paid when incurred.
Required
1. Prepare a statement of cash flows using (a) the direct method and (b) the indirect method of calculating operating cash flow.
2. Write a comment on the cash flow of the period.