QUESTIONS 4 AND 5 ARE BASED ON THE FOLLOWING INFORMATION INF

QUESTIONS 4 AND 5 ARE BASED ON THE FOLLOWING INFORMATION: INFORMATION Corel Ltd\'s Statement of Comprehensive Income for the year ended 31 December 2018 and Statement of Financial Position as at 31 December 2017 and 2018 are as follows: STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2018 Sales (all credit) Cost of sales Gross profit Other operating income 2 304 000 (1 228 000) Distribution expenses Administrative expenses Operating profit Interest income Interest expense Profit before tax Income tax Profit after tax 1 076 000 84 000 1 160 000 (260 000) (104 000) 796 000 68 000 (92 000) 772 000 (184 000) 588 000

Solution

Cash Flow Statement of Corel Limited for the year ended 31st December 2018 Cash flows from operating activities Profit before taxation 772000 Adjustments for: Depreciation 316000 Investment income -68000 Interest expense 92000 Profit / (Loss) on the sale of property, plant & equipment 0 Working capital changes: (Increase) / Decrease in trade and other receivables 24000 424000-400000 (Increase) / (Decrease) in inventories 12000 176000-164000 Increase / (Decrease) in trade payables -52000 492000-440000 Cash generated from operations Interest paid -92000 Income taxes paid -156000 Dividends paid -200000 Net cash from operating activities 648000 Cash flows from investing activities Purchase of property, plant and equipment -380000 2200000-316000-2264000 -380000 Investment income 68000 Net cash used in investing activities -312000 Cash flows from financing activities Proceeds from issue of share capital 360000 600000-960000 Payment of long-term borrowings -600000 Net cash used in financing activities -240000 Net increase in cash and cash equivalents 96000 Cash and cash equivalents at beginning of period 60000 Cash and cash equivalents at end of period 156000 Taxation Paid Amount at the beginning of the year 64000 Income statement amount 184000 Amount at the end of the year 92000 156000 Profit Margin Net Income/Sales 588000/2304000 25.52% Debtors Collection Period Debtors*365/Sales (400000*365)/2304000         63.37 days Inventory Turnover COGS/Inventory 1228000/164000           7.49 Return on Assets Net Income/ Total assets 588000/2984000           0.20 Acid-test Ratio Current assets - inventory/Current Liabilities (720000-164000)/532000           1.05 Debt to assets Total Assets - Total Equity/ Total assets (2984000-1452000)/2984000           0.51 Return on Equity Net Income/Total Equity (588000-200000)/1452000 26.72% The return on equity of the company has increased from 2017 of 18% to 26.72% in 2018 Current Ratio Current Assets/current Liabilities 720000/532000 1.353383 The company will be able to pay its short term debt even in unfavourable condition due to higher available of assets as compared to liabilities. The company is solvent position