The following information has been extracted from the draft financial statements of Bradford Ltd for the year ended 31 October 2020

Question 1:

The following information has been extracted from the draft financial statements of Bradford Ltd for the year ended 31 October 2020. All figures are expressed in £’000s.

Income statement for the year ended to 31 October 2020

Sales 106
Cost of sales (14)
Gross profit 92
Less: Expenses (12)
Operating profit 80
Interest expense (4)
Interest income 3
Loss on disposal of non-current asset (9)
Profit before taxation 70
Taxation (36)
Profit after taxation 34

Balance sheet as at:

  31 October 2020 31 October 2019
Non-current assets   1,650   1,240
Current assets        
Inventory 470   165  
Trade receivables 188   201  
Cash at bank 220   0  
Total assets   2,528   1,606
Current liabilities        
Bank overdraft 0   50  
Trade payables 860   406  
Non-current liabilities        
Long-term bank loan 284   356  
Share capital (£1) 526   422  
Share premium 375   178  
Other reserves 483   194  
Total equity and liability   2,528   1,606

Additional information:

  1. Accumulated depreciation at the start of the year amounted to £20,000, and the closing depreciation provision stood at £50,000.
  2. During the financial year, there was no revaluation on the Non-current Assets.
  3. Interest and Taxation balance
  2020 2019
Interest 24,000 32,000
Taxation 66,000 38,000
  1. Bradford Ltd has received the dividend of £78,000 and paid the dividend of £33,000 to shareholders.
  2. The historical cost of the non-current asset has been sold is £54,000. Depreciation which had been charged on the assets sold in the year totalled £10,000.
  3. The historical cost of the non-current assets at the start of the year was £1,550,000. The total historical cost of non-current assets on 31 October 2020 was £1,750,000.

You Are Required To:

  1. Use the indirect method to prepare a cash flow statement for the year ending 31 October 2020 in accordance with IAS 7.

(16 Marks)

  1. During the reporting period, Bradford Ltd purchased 6% of the ordinary shares of Edge Hill, a public limited company. The share price of Edge Hill has risen considerably over the year and the fair value of the shares at the reporting date is £9 million. Edge Hill is listed on a stock exchange, and so Bradford Ltd can sell the shares quickly if it experiences short-term cash flow shortages. The finance director has included this investment at £9 million as part of ‘cash and cash equivalents’ in the statement of cash flows. Discuss this accounting treatment in accordance with IAS 7.

(6 Marks)

  1. Briefly comment on the cash position of Bradford Ltd.
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