Question You have been provided with the following financial information relating to Engro Foods Limited.

Engro Foods Limited. Income Statement For the year ended Dec 31, 2008

Sales Cost of sales Gross operating income Administrative and selling expenses Interest expenses Depreciation of property, plant and equipment Amortization of intangible asset Investment income Earnings before taxes Taxes on income Net income

$45,000 15,000 30,000 3,000 3,000 3,000 750 4,500 24,750 6,000 18,750

Engro Foods Limited. Balance Sheet As of Dec 31, 2007, and 2008 Dec 31, 2008 Assets Cash & cash equivalents Accounts receivables Inventory Intangible asset, net Due from associates Property, plant & equipment, cost Accumulated depreciation Property, plant & equipment, net Total assets Liabilities Accounts payable Income taxes payable Deferred taxes payable $4,500 7,500 3,000 1,500 28,500 18,000 (7,500) 10,500 55,500 Dec 31, 2007 $1,500 3,750 2,250 2,250 28,500 33,750 (9,000) 24,750 63,000

$7,500 3,000 4,500

$18,750 1,500 3,000

Total liabilities Shareholders equity Share capital Retained earnings Total shareholders equity Total liabilities and shareholders equity

15,000

23,250

9,750 30,750 40,500 55,500

9,750 30,000 39,750 63,000

Additional Information: (A) All sales made by Engro Foods Limited. are credit sales. All purchases are on account. (B) Interest expense for the year 2008 was $3,000, which was fully paid during the year. (C) The company pays salaries and other employee dues before the end of each month. All administration and selling expenses incurred were paid before December 31, 2008. (D) Investment income comprised dividends income from investments in shares of blue chip companies. This was received before December 31, 2008. (E) Equipment with a net book value of $11,250 and original cost of $15,750 was sold for $11,250. (F) The company declared and paid dividends of $18,000 to its shareholders during 2008. (G) Income tax expense for the year 2008 was $6,000, against which the company paid $3,000 during 2008 as an estimate. Required: Prepare the cash flow statement for Engro Foods Limited. under the indirect method.

Solution Engro Foods Limited Cash Flow Statement For the year Ending December 31, 2008 Operating activities: Earnings before taxes Interest Expense Depreciation Amortization Investment Income Adjustments to Net Income Accounts Receivable Accounts Payable Inventory Interest paid Income taxes paid Net Cash Flow from Operating Activities Investing Activities Investment Income Sale of Equipment Net Cash Flow from Investing Activities Financing Activities Dividends paid Net Cash Flow from Financing Activities Net increase in Cash and Cash Equivalents Beginning Cash Ending Cash Balance 24,750 3,000 3,000 750 (4,500) 2,250 (3,750) (11,250) (750) (3,000) (3,000) 5,250 4,500 11,250 15,750 (18,000) (18,000) 3,000 1,500 4,500