Question 2

The statement of comprehensive income of Oak plc, a publicly listed company, is as follows:

Statement of comprehensive income for the year ended 31 March 2020

The following supporting information is available:

i) Depreciation of £965,000 was charged (to cost of sales) for property, plant and equipment in the year ended 31 March 2020. An item of plant with a carrying value of £750,000 was sold at a profit of £65,000 during the year.

ii) The following extracts from the statements of financial position for the years ended 31 March 2020 and 31 March 2019 are relevant:

YOU ARE REQUIRED TO:

a) Calculate the cash generated from operations for Oak plc for the year to 31 March 2020 in accordance with IAS 7 Statement of cash flows using the indirect method.

b) Explain the characteristics of an item to be considered as a cash equivalent and give three examples of items that could be included as cash and cash equivalents in a statement of cash flows.

c) Profit is not a good indicator of performance as it can be changed to suit management’s needs.

Discuss whether, in your opinion, the statement of profit or loss or the statement of cash flows is a better indicator of a company’s performance.