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QUESTION 1

The following information was extracted from the financial records of Pink Ltd.

	31/3/2022 $	31/3/2021
	$	$
Cash	30	15
Accounts receivable	10 300	11 200
Allowance for DD	180	220
Inventory	13 800	14 500
Short-term investment (55 day)	70	-
Plant and equipment - at cost	15 905	8 785
Accumulated Depreciation	3 200	2 700
Accounts payable	15 000	13 808
GST payable/receivable	400 Cr	362 Dr
Operating expenses payable	4 120	4 434
Dividends payable	305	-
Long-term borrowings	4 000	2 000
Share capital	11 000	10 200
Retained earnings	1 900	1 500
Sales	120 000
Cost of goods sold	85 000
Operating expenses	29 770
Interest expense	360
Doubtful debts expense	150
Discount allowed expense	80
Depreciation expense	878
Gain on sale of plant and equipment	6
Tax expense	1 306

Additional information:

1. Pink Ltd uses the direct method of reporting cash flows from operating activities. The reconciliation note, as per FRS-44 NZ, is required.

2. The entity classifies interest expense paid and dividends paid as cash flows from operating activities.

3. Long-term borrowings of $1 200 were repaid during the year ended 31 March 2022.

4. Plant and equipment items were purchased during the year at a total cost of $7 620.

4. The GST rate is 15%.

Question 1 continued:

Required:

(i) Prepare the necessary journal entry to recognise the discount allowed expense.

(ii) Reconstruct all the general ledger accounts provided in the answer booklet.

(iii) Prepare a Statement of Cash Flows for Pink Ltd, in accordance with NZ IAS 7 Statement of Cash Flows, for the year ended 31 March 2022.

(iv) Prepare a Statement of Cash Flows for Pink Ltd, in accordance with NZ IAS 7 Statement of Cash Flows, for the year ended 31 March 2022. Assume this time that Pink Ltd uses the indirect method to report cash flows from operating activities and the entity classifies dividends paid as a financing cash flow.

(v) Explain why there is a difference in the dollar amount for Net cash flow (used in)/from operating activities in (iii) and (iv) above. Comment on the cash generated from operations amount in your answer.

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