Question 1

The following draft financial statements relate to Radish plc.

The following information is relevant:

(i) Statement of profit or loss extract for the year ended 30 September 2017

Note: The interest expense includes finance lease interest.

(ii) The details of the tangible non-current assets are:

During the year Radish Plc sold its factory for its fair value of £12 million and agreed to rent it back, under an operating lease, for a period of five years at £1 million per annum. At the date of sale it had a carrying value of £7.4 million based on a previous revaluation of £8.6 million less depreciation of £1.2 million since the revaluation. The profit on the sale of the factory has been included in operating profit. The surplus on the revaluation reserve related entirely to the factory. No other disposals of non-current assets were made during the year.

Plant acquired under finance leases during the year was £1.5 million. Other purchases of plant during the year qualified for government grants of £950,000 received in the year. 

Amortisation of government grants has been credited to cost of sales.

Question 1

(iii) The insurance claim relates to flood damage to the company’s inventories which occurred in September 2016. The original estimate has been revised during the year after negotiations with the insurance company. The claim is expected to be settled in the near future.

Required:

With reference to IAS 7, Statement of Cash Flows:

a) Prepare a statement of cash flow for Radish plc using the indirect method for the year ended 30 September 2017. Your workings, where applicable must be presented using ledger accounts. 

b) Explain how a statement of cash flows would be useful to the users of financial statements.