Answer:
Explanation statement of cash flow for the year ended December 31.2017
Cash flow from operating activities
Net income 100,000
Add back depreciation 10,000
Add back amortization 1,000
Add back loss on asset sales 5,000
Increase in account receivable(40,000)
Increase in inventory (35,000)
Decrease in accounts payable (41,000) (100,000)
Net cash from operating activities 0
Cash flow from investing activities
Sales of land 25,000
Purchase of equipment (100,000)
Purchase of Land (200,000)
Net cash from investing activities (275,000)
Cash from financing activities
Payment of dividends (10,000)
Redemption of bonds (100,000)
Bet cash from financing activities (110,000)
Net decrease in Cash ( 385,000)
Cash balance in January 1, 2017 400,000
Cash balance in December 31 , 2017 15,000
<u>Workings</u>
1)
The disparity between the net income and the cash floe are as a result loss of cash to operating activities as a result of cash tied down to increase in receivable and inventory and also to an increase in payable leading to an overall cash generated by operating activities of 0
Moreover , a larger portion (300,000) of the opening cash balance(400,000) for the year was used in acquiring land and equipment and also 100,000 used in the redemption of bond. , even though this reduced the interest expense and improve equity , yet it was a big blow to the cash flow.
2)
The importance of cash flow is that it helps to analyse and monitor cash movement and cash available for the purpose of business activities towards liquidity and long term solvency.
3)
Renewable sources of cash flow are generated from the company's operating activities as the cash used for the financing and operating activities are generated from this medium.
4)
Suggestion to improve cash flow for Kappler are
- Reduce the level of inventory held
- Negotiate with the account payable for a longer trade payable payment period
- Reduce the trade receivable collection period
- Payment of dividends and redemption of bonds van be suspended till alter date when adequate cash is available
- it can also negotiate for external sources of financing
