Question 2 (30 Marks) : Sales 8000 Cost of Sales (6000)

Question 2 (30 marks)
The following information is given regarding the financial statements of Cake Ltd
and its subsidiary, Cream Ltd, the shares in which were acquired on 31 October
2015.
Cake Cake Cream Ltd

Group Group
Assets 31.12. 2015 31.12. 2014 31.10.2015
Non-current assets Rs’000 Rs’000 Rs’000
Property, plant and equipment 4,764 3,685 694
Goodwill 42
Investment in Associates 2,195 2,175
Total non-current assets 7,001 5,860 694
Current assets
Inventories 1,735 1,388 306
Receivables 2,658 2,436 185
Bank Balances and Cash 43 77 7
Total current assets 4,436 3,901 498
Total assets 11,437 9,761 1,192
Equity and Liabilities

Equity
Share capital 4,896 4,776 400
Share premium 216
Retained earnings 2,540 2,063 644
Total equity 7,652 6,839 1,044
Non-current liabilities
Loans 1,348 653 -
Deferred Tax 111 180 -
Total non-current liabilities 1,459 833 -
Current Liabilities
Payables 1,915 1,546 148
Bank Overdraft 176 343 -
Current Tax Payable 235 200 -
Total current liabilities 2,326 2,089 148
Total equity and liabilities 11,437 9,761 1,192
Summary Consolidated Statement of profit or loss and other comprehensive income

for the year ended 31 December 2015.
Rs’000
Sales 8000
Cost of sales (6000)
Gross profit 2000
Operating costs (1,454)
Profit before interest and tax 546
Finance costs -
Share of profit of associates 120
Profit before tax 666
Income tax expense (126)
Profit for the year 540
Attributable to:
Owners of Parent 540
Non-controlling interest 0
540
Additional information:
a) The amount of depreciation on property, plant and equipment in the

consolidated financial statements during the year ended 31 December 2015
was Rs78,000. There were no disposals.
b) The cost on 31 October 2015 of the shares in Cream Ltd was Rs1,086,000
comprising the issue of Rs695,000 unsecured loan stock at par, 120,000
ordinary shares of Rs1 at a value of Rs2.80 and Rs55,000 in cash.
c) No write down of goodwill was required during the year.
Required:
(a) Prepare a statement of cash flows for Cake Ltd and its subsidiary for the year
ended 31 December 2015.
(b) Compute the following for the year ended December 2015: (i) Purchases (ii)
Cash paid to suppliers (iii) Cash received from Customers
End of Question
************************************
Answer
Question 2 (30 marks)
Consolidated statement of cash flows for the year ended 31 December 2015
Operating Activities Rs’000 Rs’000 Marks

Profits before tax 666 1
Share of profits of associate (120) 1
Depreciation charge for year 78 1
(Increase)/decrease in inventories (1735-1388-306) (41) 2
(Increase)/decrease in Trade payables (1915-1546- 221 2
148)
(Increase)/decrease in Trade receivables (2658- (37) 2
2436-185)
Tax paid (160) 1
Cash flow from operating activities 607 1
Investing Activities
Dividends received from Associate 100 1
Purchase of PPE (463) 1
Acquisition of subsidiary (48) 1
Cash flow used in investing activities (411) 1
Financing Activities
Dividend paid to owners of parent (63) 1
Cash flow used in financing activities (63) 1
Increase/(decrease) in cash 133 1
Cash at 1 Jan 2015 (266) 1
Cash at 31 December 2015 (133) 1
Workings
Investment in Associates (2 marks)
Bal b/d 2175 DIV FROM ASSOCIATE 100

PnL 120
2295 2295
Tax payable (2 marks)

Bank: Tax paid 160 Bal B/d – corporation tax 200
- Deferred tax 180
Bal c/d – Corp tax 235

Deferred tax 111
Consolidated Retained Earnings (2 marks)

Bank: Dividend paid 63 Bal B/d 2063
Profit for year attributable to 540
owners of Parent
Bal c/d – 2540

2603 2603
PPE (2 marks)
Balance b/d 3685 Depreciation for year 78
PPE in the Acquisition of 694
Subsidiary
Bank: Purchase of PPE 463 Bal c/d – 4764

4852 4852
Journal entry for acquisition of subsidiary
Therefore: net cash to acquire Subsidiary: 55-7= 48 (2 marks)
Dr Cr
Assets acquired (excluding 1185
cash)
Cash acquired 7
Liabilities acquired 148

Loan stock issued 695
Share capital 120
Share premium 216
Cash 55
Figures in Rs’000
Purchases (1 mark): -6000-41= -6041
Cash paid to suppliers (1 mark): -6041+221 = -5,820
Cash from customers (1 mark): 8000-37 = 7,963

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Question 2 (30 marks)

Cake Cake Cream Ltd

Total assets 11,437 9,761 1,192

Equity and Liabilities

Total equity and liabilities 11,437 9,761 1,192

Summary Consolidated Statement of profit or loss and other comprehensive income

a) The amount of depreciation on property, plant and equipment in the

Question 2 (30 marks)

Operating Activities Rs’000 Rs’000 Marks

Investment in Associates (2 marks)

Bal b/d 2175 DIV FROM ASSOCIATE 100

Tax payable (2 marks)

Bal c/d – Corp tax 235

Consolidated Retained Earnings (2 marks)

Bal c/d – 2540

Bank: Purchase of PPE 463 Bal c/d – 4764

Therefore: net cash to acquire Subsidiary: 55-7= 48 (2 marks)

Liabilities acquired 148

Purchases (1 mark): -6000-41= -6041

Cash paid to suppliers (1 mark): -6041+221 = -5,820

Cash from customers (1 mark): 8000-37 = 7,963

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