Question
Condensed financial data of Alderbrook SA for 2027 and 2026 are presented below.
Alderbrook SA
Comparative statements of Financial Position
As of December 31, 2027 and 2026
| 2027 | 2026 |
|---|
| Debt investments (held-for-collection) | 1,560 | 1,764 |
| Plant assets | 2,280 | 2,040 |
| Accumulated depreciation | (1,440) | (1,404) |
| Inventory | 1,920 | 2,280 |
| Accounts receivable | 2,100 | 1,560 |
| Cash | 2,160 | 1,320 |
| 8,580 | 7,560 |
| Share capital - Ordinary | 2,280 | 2,040 |
| Retained earnings | 2,940 | 2,280 |
| Bonds payable | 1,680 | 1,980 |
| Accounts payable | 1,440 | 960 |
| Accrued liabilities | 240 | 300 |
| 8,580 | 7,560 |
Alderbrook SA
Income Statement
For the Year Ended December 31, 2027
| Sales revenue | 8,280 |
| Cost of goods sold | 5,640 |
| Gross margin | 2,640 |
| Selling and administrative expense | 1,116 |
| Income from operations | 1,524 |
| Other income and expense | |
| Gain on sale of investments | 96 |
| Income before tax | 1,620 |
| Income tax expense | 648 |
| Net income | 972 |
Additional information:
During the year, $84 of ordinary shares were issued in exchange for plant assets. No plant assets were sold in 2027. Cash dividends were $312.
Instructions: Prepare a statement of cash flows using the indirect method.
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 7 — Statement of Cash Flows
Start from profit, then undo everything in it that was not cash. Add back non-cash charges such as depreciation and amortisation, remove gains and losses that belong to investing activities, and then adjust for the movement in each working-capital account. The reconciliation is finished only when the closing cash figure agrees with the balance sheet.
Common mistakes
- Getting the sign of a working-capital movement backwards — a rise in a current asset consumes cash, a rise in a current liability provides it.
- Leaving a gain on disposal inside operating cash flow as well as showing the full proceeds under investing, which counts it twice.
- Classifying the purchase of non-current assets as operating rather than investing.
IFRS vs US GAAP: IFRS permits interest and dividends paid to be shown as operating or financing; US GAAP fixes interest paid in operating.
Further readingDirect vs indirect method cash flow