1. Construction of a cash flow statement II
PaintPot is a manufacturer and distributor of decorative paints for use inside and outside the home. The company’s x4 income statement and end-x3 and end-x4 balance sheets are set out in Exhibit 18.13. The notes to the accounts contain the following additional information. (All amounts save per-share amounts are in A millions.)
1 The company purchases equipment (tangible fixed assets) for 13.8 cash in x4.
2 PaintPot accounts for its stakes in associated companies by the equity method. It makes no new investments or disposals during x4.
3 All sales are on account. The company writes off bad debts of 8.9 in x4. Bad debt expense is included in ‘Other operating costs’ on the income statement.
4 The company issues one million new A5 par value shares at A12/share towards the end of x4 to finance the planned acquisition of a wallpaper manufacturer. Issuance costs of 0.4, all paid in the year, are charged against share premium.
5 Dividends are declared and paid in the same year.
6 PaintPot issued at par 10-year 10% bonds at the start of x1. The market rate of interest for debt of equivalent risk and maturity falls below 6% in x4 and the company decides to refinance the debt. It retires all the 10% bonds at the end of x4 and at the same time issues new 10 year 6% debt securities with a total face value of 35 at a price of 102 (per cent) yielding 5.73% to maturity.
7 Interest expense (income) is approximately equal to interest paid (received) in x4.
Required
Prepare a cash flow statement for PaintPot for x4, using balance sheet and income statement data. Present cash flows by activity. Use the indirect method to determine operating cash flow. Assume interest charges, investment income, interest income and taxes are classified as operating cash flows.
Check figure:
Net cash flow from operations 28.8
