Solution

Statement reconciling operating profit to operating cash

Operating profit

1,000,000

Adjust for non cash items in the profit statement

Depreciation

245,000

loss on sale of fixed assets

14,000

Increase in provision for bad debts

17,000

276,000

Adjust for movements in working capital

Decrease in inventory

3,200

Increase in accounts receivable

-2,000

Decrease in prepayments

1,000

Increase in accounts payable

4,000

Decrease in accruals

-2,000

4,200

Cash generated from operations

1,280,200

Less

Loan interest

70,000

Corporation tax

213,000

(283,000)