Reference no: EM132906647

As the assistant accountant at Yoo plc you are reviewing the draft financial statements. You have discovered that the net cash flow does not reconcile to the opening and closing cash and cash equivalents balance on the statement of financial position.

The indirect method has been used as permitted by IAS 7 Statement of Cash Flows and the draft cash generated from operations is £750,000.

After investigation you have discovered the following errors in the draft financial statements.

1. The closing inventory figure in the statement of cash flows omitted £65,000 relating to inventory stored at a warehouse.
2. The trade payables figure used in the draft statement of cash flows included accrued interest of £85,000.
3. There was a profit on disposal of production equipment of £50,000 included in revenue.
All the above items have yet to be taken account of in the financial statements.

Problem 1: Explain why the above errors should be corrected and the effect that this will have on the statement of cashflows only.

Problem 2: Calculate the revised cash generated from operations figure.

Problem 3: Provide the journal entries that will be required to correct the errors, including a brief journal narrative.