Financial Accounting Work

1(b)

Operating activities

To an investor, a company’s ability to finance operations, service debts and monitor cash and liquidity was important. During the year, cash generated from operations amounted to $45,000 was sufficient to pay the interest and tax expenses of 45,000 and $4,000 respectively. The positive cash flow generated from operating activities of $407,000 showed that the company has healthy as it was able to generate positive cash flow from its day-to-day operations to fulfil its debt obligations.

Investing activities

The investing activities in the statement of cash flows allowed an investor to assess the management’s decisions to invest in non-current assets so as to safeguard the future profitability of the company. For the year ended 30 September 20x5, proceeds received from collection of short-term loan receivables of $24,000, interest income of $3,000, sale of old building of $307,000 and from sale of motor vehicle of $52,000 contributed significantly to the cash inflow in the investing activities. However, these were still insufficient to cover the purchases of investments, buildings, and motor vehicles of $50,000, $510,000, and $60,000 respectively. Hence there was a net cash outflow of $234,000 from investing activities. The company may wish to consider using finance lease or issue shares to finance its fixed assets purchases in future

The statement of cash flows shoed the relationship of operating profit of a business and its changes in cash position. This information is vital to an investor to ensure that the business do not fail due to insufficient cash.

For Angus Pte ltd, though it had a low net profit before tax of $18,000, the net cash flows from operating activities of $407,000 was sufficient to cover the cash used in investing activities and financing activities of $234,000 and $160,000 respectively. Overall, there was an increase in cash of 13000 during the year. Together with a positive beginning cash balance of $219,000 in the company, this gave rise to a healthy ending cash balance of 232000

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