PAS 7 – STATEMENT OF CASH FLOWS

1. The primary purpose of the statement of cash flows is to provide information

a. About the operating, investing, and financing activities of an entity during a period
b. That is useful in assessing cash flow prospects
c. About the cash receipts and cash payments of an entity during a period
d. About the entity’s ability to meet its obligations, its ability to pay dividends, and its needs for
external financing

2. Cash comprises
a. Cash on hand and demand deposits
b. Cash on hand, demand deposits and cash equivalents
c. Cash on hand and cash equivalents
d. Demand deposits and cash equivalents

3. Cash equivalents are

a. Treasury bills, commercial paper and money market funds purchased with excess cash
b. Investments with original maturities of three months or less
c. Readily convertible to known amounts of cash
d. All of these

4. All of the following can be classified as cash and cash equivalent, except:

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a. Redeemable preference shares acquired and due in 60 days

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b. Loan notes held due for repayment in 90 days

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c. Equity investments eH w
d. A bank overdraft

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5. In preparing the statement of cash flows, the purchase of a three-month Treasury bill would
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a. Be treated as outflow from operating activities

b. Be treated as outflow from investing activities
c. Be treated as outflow from financing activities
d. Have no effect
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6. The statement of cash flows reports all of the following, except

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a. The net change in cash for the period

b. The cash effects of operations during the period
c. The free cash flow generated during the period
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d. Investing transactions
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7. Free cash flow is calculated as net cash provided by operating activities less
a. Capital expenditures
b. Dividends
c. Capital expenditures and dividends
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d. Capital expenditures and depreciation

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8. Which of the following statements is true in relation to cash flows?

I. Operating activities are the principal revenue producing activities of the entity
II. Investing activities are the acquisition and disposal of long-term assets and other investments not
included in cash equivalents
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III. Financing activities are activities that result in changes in the size and composition of equity
capital and borrowings of the entity

a. I and II only b. II and III only c. I and III only d. I, II, III

9. Bank borrowings are generally considered

a. Operating activities c. Financing activities
b. Investing activities d. Borrowing activities

10. Bank overdrafts that are repayable on demand and the bank balance often fluctuates from positive to
overdrawn shall be classified as
a. Operating activities c. Financing activities
b. Investing activities d. Component of Cash and Cash Equivalents

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 11. Which classification of cash flow arising from the proceeds from an earthquake disaster settlement
would be most appropriate?
a. Cash flows from operating activities c. Cash flows from investing activities
b. Cash flows from financing activities d. Does not appear in the statement of cash flows

12. Which of the following items should be presented under cash flows from investing activities?
a. Employee costs c. Redemption of debentures
b. Property revaluation d. Development costs capitalized in the period

13. Which classification of the cash flow arising from the disposal proceeds of a major item of plant
would be most appropriate?
a. Cash flows from operating activities c. Cash flows from financing activities
b. Cash flows from investing activities d. Does not appear in the statement of cash flows

14. In a statement of cash flows, the cash flows from investing activities should report
a. The issuance of ordinary shares in exchange for a factory building
b. Share dividends received
c. A major repair to machinery charged to accumulated depreciation
d. The factoring of accounts receivable

15. Which of the following events will appear in the cash flows from financing activities?

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a. Cash purchase of equipment

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b. Cash purchase of bonds issued by another entity

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c. Cash received as repayment for funds loaned
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d. Cash purchase of treasury shares

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16. Making and collecting loans are
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a. Operating activities c. Financing activities

b. Investing activities d. Liquidity activities

17. In a statement of cash flows, receipts from sale of property, plant, and equipment and other productive
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assets should generally be classified as cash inflows from

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a. Operating activities c. Investing activities

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b. Financing activities d. Selling activities

18. Interest payments to lenders and other creditors should be classified as cash outflows for
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a. Operating activities c. Lending activities

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b. Financing activities d. Financing activities

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19. Proceeds from issuing equity instruments should be classified as cash inflows from
a. Lending activities c. Investing activities
b. Operating activities d. Financing activities
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20. Payments to acquire debt instruments of other entities other than cash equivalents should be classified
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as cash outflows for

a. Operating activities c. Financing activities
b. Investing activities d. Lending activities
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21. A statement of cash flows typically would not disclose the effects of
a. Ordinary shares issued at an amount greater than par value
b. Share dividends declared
c. Cash dividends paid
d. A purchase and immediate retirement of treasury shares

22. Noncash investing and financing transactions include all of the following except
a. The acquisition of asset either by assuming directly related liability or by means of a finance lease
b. The acquisition of an entity by means of an equity issue
c. The conversion of debt to equity
d. Noncash items such as depreciation provisions, deferred taxes and unrealized foreign currency
gains and losses

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 23. Noncash investing and financing activities are
a. Reported in the statement of cash flows only if the direct method is used
b. Reported in the statement of cash flows only if the indirect method is used
c. Disclosed in a note or separate schedule accompanying the statement of cash flows
d. Not reported or disclosed because they have no impact on cash

24. An entity shall report cash flows from operating activities using
a. Direct method
b. Indirect method
c. Either the Direct method or Indirect method
d. Neither the Direct method nor the Indirect method

25. An entity shall report separately cash flows from investing and financing activities using
a. Direct method
b. Indirect method
c. Either Direct method or Indirect method
d. Neither Direct method nor Indirect method

26. Which of the following statement is correct?

a. The indirect method starts with income before income tax
b. The direct method is known as the reconciliation method
c. The direct method is more consistent with the primary purpose of the statement of cash flows

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d. All of these

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27. Under indirect method, cash flows from operating activities
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a. Are always equal to accrual accounting income

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b. Are calculated as the difference between revenue and expenses
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c. Can be calculated by appropriately adding to or deducting from net income those items in the
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income statement that do not affect cash

d. Can be calculated by appropriately adding to or deducting from net income those items in the
income
statement that do affect cash
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28. Preparing the statement of cash flows, using the indirect method, involves all of the following, except
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deterring the
a. Cash provided by operations
b. Cash provided by or used in investing and financing activities
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c. Change in cash and cash equivalents during the period

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d. Cash collections from customers during the period

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29. Cash advances and loans made by financial institutions are usually classified as
a. Operating activities c. Financing activities
b. Investing activities d. Component of cash and cash equivalents
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30. Interest and dividend received may be classified as cash inflows for
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a. Operating dividends c. Lending activities

b. Borrowing activities d. Financing activities

31. Dividend paid may be classified as cash outflows for

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a. Operating dividends c. Financing activities

b. Investing activities d. Ordinary activities

32. All of the following could potentially be classified as either operating or investing cash flows, except
a. Interest received
b. Dividends received
c. Taxes paid that are specifically identified with investing
d. Dividends paid

33. Cash flows arising from income taxes shall be separately disclosed and classified as
a. Operating activities c. Financing activities
b. Investing activities d. Extraordinary activities

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 34. The aggregate cash flows from acquisition and disposal of a subsidiary shall
a. Be classified as operating activities
b. Be classified as investing activities
c. Be classified as financing activities
d. Not be reported

35. Dividends received from an equity investee shall be presented as

a. Deduction from cash flows from operating activities
b. Addition to cash flows from operating activities
c. Deduction from cash flows from investing activities
d. Addition to cash flows from investing activities

36. Which cash flow does not appear in a statement of cash flows using indirect method?
a. Net cash flow from operating activities
b. Cash received from customers
c. Cash inflow from sale of equipment
d. Cash outflow for dividend payment

37. Which would increase reported cash flows from operating activities using the direct method?
a. Dividends received from investments
b. Gain on sale of equipment
c. Gain on retirement of bonds

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d. Change from straight line to accelerated depreciation

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38. When preparing a statement of cash flows under indirect method, which of the following is not an
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adjustment to reconcile net income to net cash provided by operating activities?

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a. A change in interest payable
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b. A change in dividends payable
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c. A change in income taxes payable

d. All of these are adjustments

39. Which should not be disclosed in the statement of cash flows using the indirect method?
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a. Interest paid, net of amounts capitalized

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b. Income taxes paid

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c. Cash flow per share

d. Dividends paid on preference shares
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40. How should a gain from the sale of an equipment be reported using the indirect method?
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a. In investing activities as a reduction of cash inflow from the sale

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b. In investing activities as a cash outflow

c. In operating activities as a deduction from income
d. In operating activities as an addition to income
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41. In a statement of cash flows, if used equipment is sold at a gain, the amount shown as a cash flow
from investing activities equals the carrying amount of the equipment
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a. Plus the gain

b. Plus the gain and less the amount of tax attributable to the gain
c. Plus both the gain and the amount of tax attributable to the gain
d. With no addition or subtraction
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42. When preparing a reconciliation of net income to cash from operations, an increase in inventory will
result in an adjustment to reported net income because
a. Cash is increased because inventory is a current asset
b. Inventory is an expense deducted in computing net earnings, but is not a use of cash
c. The net increase in inventory is part of the difference between cost of goods sold and cash paid
to suppliers
d. All changes in noncash accounts must be disclosed

43. The amortization of bond premium related to long-term debt shall be presented in a statement of cash
flows prepared using the indirect method as
a. Inflow and outflow of cash
b. Outflow of cash

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 c. Deduction from net income to reconcile net income to cash from operating activities
d. Addition to net income to reconcile net income to cash from operating activities

44. The amortization of patent shall be presented in a statement of cash flows prepared using the indirect
method as
a. Inflow and outflow of cash
b. Outflow of cash
c. Addition to net income
d. Deduction from net income

45. When using the direct method, amortization of goodwill is

a. Shown as an increase in cash flows from operating activities
b. Shown as a reduction in cash flows from operating activities
c. Included with supplemental disclosures of noncash transactions
d. Not reported in the statement of cash flows or related disclosures

46. Which of the following is not added to net income as an adjustment to reconcile net income to cash
from operating activities in the statement of cash flows?
a. Increase in an accrued liability
b. Amortization of discount on bond payable
c. Loss on sale of non-operating asset
d. Increase in deferred tax asset

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47. When an entity uses the indirect method, which of the following would not be reported?

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a. Depreciation expense eH w
b. Retirement of bonds payable

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c. An increase in inventory
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d. Purchase of equipment by issuing a note
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48. Which of the following is not disclosed in the statement of cash flows when prepared under the direct
method, either on the face of the statement or in a separate schedule?
a. The major classes of gross cash receipts and gross cash payments
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b. The amount of income taxes paid

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c. A reconciliation of net income to net cash flow from operations

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d. A reconciliation of ending retained earnings to net cash flow from operations

49. Zenith Company provided the following information:

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2015 2014
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Cash 6,600,000 5,500,000

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Financial assets held for trading 2,500,000 -

Accounts receivable 4,800,000 3,200,000
Allowance for doubtful accounts ( 800,000) ( 200,000)
Inventories 5,200,000 7,000,000
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Investment in associate 5,400,000 5,000,000

Property, Plant, and Equipment 13,000,000 9,000,000
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Accumulated Depreciation ( 3,700,000) (3,200,000)

Patent, net 1,000,000 1,700,000
Accounts Payable 4,800,000 4,500,000
Note Payable – bank 2,000,000 3,500,000
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Deferred tax liability 700,000 500,000

Bonds payable 3,000,000 -
Share Capital, P10 par value 18,000,000 15,000,000
Share Premium 1,500,000 1,000,000
Treasury Shares at cost ( 500,000) -
Retained Earnings 4,500,000 3,500,000
 The net income for the current year is P6,000,000. The entity paid a cash dividend of P5,000,000
on October 31, 2015
 During the current year, the entity purchased financial assets held for trading for P3,000,000 cash
and sold financial assets held for trading costing P1,000,000 for P1,400,000 cash. On December
31, 2015, the market value of the remaining financial assets increased by P500,000
 On January 1, 2015, the entity sold equipment costing P1,000,000, with a carrying amount of
P600,000, for P500,000

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  On July 1, 2015, the entity purchased equipment for P2,000,000 cash
 On December 31, 2015, the entity purchased land by issuing bonds payable at face value of
P3,000,000
 On December 31, 2014, the entity acquired 20% of another entity’s share capital for P5,000,000.
The associate reported income of P3,000,000 for 2015 and paid cash dividend of P1,000,000 on
December 31, 2015

A. What is the net cash provided by operating activities?

a. 6,500,000 b. 6,100,000 c. 9,000,000 d. 8,600,000

B. What is the net cash used in investing activities?

a. 1,900,000 b. 1,500,000 c. 3,500,000 d. 4,000,000

C. What is the net cash used in financing activities?

a. 3,500,000 b. 3,100,000 c. 1,000,000 d. 4,000,000

50. Zany Company provided the following data for the current year:
Dividend received 500,000
Dividend paid 1,000,000
Cash received from customers 9,000,000
Cash paid to suppliers and employees 6,000,000
Interest received 200,000

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Interest paid on long-term debts 400,000
Proceeds from issuing share capital 1,500,000

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Proceeds from sale of long-term investments
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Income taxes paid 300,000

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What is the net cash provided by operating activities?
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a. 3,300,000 b. 3,000,000 c. 2,500,000 d. 5,500,000
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51. During the year, Zealous Company had the following activities related to financial operations:
Prepayment for the early retirement of long-term bonds payable
(carrying amount of bonds payable, P5,000,000) 4,000,000
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Payments during the year of cash dividends declared last year 2,000,000
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Preference share capital converted into ordinary share capital 1,000,000

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Proceeds from sale of treasury shares (cost, P1,000,000) 1,500,000

What amount should be reported as net cash used in financing activities?
a. 4,500,000 b. 3,500,000 c. 2,500,000 d. 5,500,000
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52. Zest Company had the following activities during the current year:
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- Acquired share capital of another entity for P2,000,000

- Sold an investment with carrying amount of P2,000,000 for P1,500,000
- Acquired a P5,000,000 one-year certificate of deposit from a bank. During the year, interest of
P500,000 was received from the bank
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- Collected dividends of P300,000 on share investments

What amount should be reported as net cash used in investing activities?
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a. 5,500,000 b. 5,000,000 c. 4,700,000 d. 6,300,000

53. Zoom Company provided the following data for the current year:
Gain on sale of equipment 60,000
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Proceeds from sale of equipment 100,000

Purchase of bonds with face value of P2,000,000 1,800,000
Amortization of bond discount 20,000
Dividends declared 450,000
Dividends paid 380,000
Proceeds from sale of treasury shares (carrying amount P650,000) 750,000
What amount should be reported as net cash used in investing activities?
a. 1,700,000 b. 1,760,000 c. 1,880,000 d. 1,940,000

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