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FFA/FA FINANCIAL ACCOUNTING

24 Statements of cash flows 51 mins

24.1 Which of the following items appear in a company's statement of cash flows?
1 Surplus on revaluation of non-current assets
2 Proceeds of issue of shares
3 Proposed dividend
4 Irrecoverable debts written off
5 Dividends received
A 1, 2 and 5 only
B 2, 3, 4, 5 only
C 2 and 5 only
D 3 and 4 only (2 marks)

24.2 Part of the process of preparing a company's statement of cash flows is the calculation of cash inflow
from operating activities.
Which of the following statements about that calculation (using the indirect method) are correct?
1 Loss on sale of non-current assets should be deducted from profit before interest and tax.
2 Increase in inventory should be deducted from profit before interest and tax.
3 Increase in payables should be added to profit before interest and tax.
4 Depreciation charges should be added to profit before interest and tax.
A 1, 2 and 3
B 1, 2 and 4
C 1, 3 and 4
D 2, 3 and 4 (2 marks)

24.3 In the course of preparing a company's statement of cash flows, the following figures are to be included
in the calculation of net cash from operating activities.
$
Depreciation charges 980,000
Profit on sale of non-current assets 40,000
Increase in inventories 130,000
Decrease in receivables 100,000
Increase in payables 80,000
What will the net effect of these items be in the statement of cash flows?
$
A Addition to operating profit 890,000
B Subtraction from operating profit 890,000
C Addition to operating profit 1,070,000
D Addition to operating profit 990,000 (2 marks)

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 QUESTIONS

24.4 Part of a company's draft statement of cash flows is shown below:

$'000
Net profit before tax 8,640
Depreciation charges (2,160)
Proceeds of sale of non-current assets 360
Increase in inventory (330)
Increase in accounts payable 440
The following criticisms of the above extract have been made:
1 Depreciation charges should have been added, not deducted.
2 Increase in inventory should have been added, not deducted.
3 Increase in accounts payable should have been deducted, not added.
4 Proceeds of sale of non-current assets should not appear in this part of the statement of cash
flows.
Which of these criticisms are valid?
A
A 2 and 3 only
B 1 and 4 only C
C
D
1 and 3 only
2 and 4 only (2 marks)
C
24.5 In preparing a company's statement of cash flows complying with IAS 7 Statements of Cash Flows,
A
which, if any, of the following items could form part of the calculation of cash flow from financing
activities?
1 Proceeds of sale of premises
G
2 Dividends received L
3 Bonus issue of shares
O
A 1 only
B 2 only B
A
C 3 only
D None of them (2 marks)

24.6 Which of the following assertions about statements of cash flows is/are correct?
L
1 A statement of cash flows prepared using the direct method produces a different figure for
operating cash flow from that produced if the indirect method is used.
B
2 Rights issues of shares do not feature in statements of cash flows.
O
3 A surplus on revaluation of a non-current asset will not appear as an item in a statement of cash
flows. X
4 A profit on the sale of a non-current asset will appear as an item under Cash Flows from Investing .
Activities in a statement of cash flows.
A 1 and 4
C
B 2 and 3 O
C 3 only
D 2 and 4 (2 marks) M

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FFA/FA FINANCIAL ACCOUNTING

24.7 An extract from a statement of cash flows prepared by a trainee accountant is shown below.
Cash flows from operating activities
$m
Net profit before taxation 28
Adjustments for: Depreciation (9)
Operating profit before working capital changes 19
Decrease in inventories 13
Increase in receivables (4)
Increase in payables (8)
Cash generated from operations 10

Which TWO of the following criticisms of this extract are correct?

A Depreciation charges should have been added, not deducted.
B Decrease in inventories should have been deducted, not added.
C Increase in receivables should have been added, not deducted.
D Increase in payables should have been added, not deducted. (2 marks)

24.8 Which of the following items could appear in a company's statement of cash flows?
1 Proposed dividends
2 Rights issue of shares
3 Bonus issue of shares
4 Repayment of loan
A 1 and 3
B 2 and 4
C 1 and 4
D 2 and 3 (2 marks)

24.9 IAS 7 requires the statement of cash flows to open with the calculation of net cash from operating
activities, arrived at by adjusting net profit before taxation.
Which one of the following lists consists only of items which could appear in such a calculation?
A Depreciation, increase in receivables, decrease in payables, proceeds from sale of equipment,
increase in inventories
B Increase in payables, decrease in inventories, profit on sale of plant, depreciation, decrease in
receivables
C Increase in payables, proceeds from sale of equipment, depreciation, decrease in receivables,
increase in inventories
D Depreciation, interest paid, proceeds from sale of equipment, decrease in inventories (2 marks)

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 QUESTIONS

24.10 The following extract is from the financial statements of Pompeii, a limited liability company at
31 October:
20X9 20X8
$'000 $'000
Equity and liabilities
Share capital 120 80
Share premium 60 40
Retained earnings 85 68
265 188

Non-current liabilities
Bank loan 100 150
365 338

What is the cash flow from financing activities to be disclosed in the statement of cash flows for the year
ended 31 October 20X9?
A $60,000 inflow A
B $10,000 inflow
C $110,000 inflow C
D $27,000 inflow (2 marks)
C
24.11 A draft statement of cash flows contains the following calculation of cash flows from operating activities: A
$m
Profit before tax 13
Depreciation
Decrease in inventories
2
(3) G
Decrease in trade and other receivables
Decrease in trade payables
5
4
L
Net cash inflow from operating activities 21 O
Which of the following corrections need to be made to the calculation?
B
1 Depreciation should be deducted, not added.
2 Decrease in inventories should be added, not deducted. A
3
4
Decrease in receivables should be deducted, not added.
Decrease in payables should be deducted, not added.
L
A 1 and 3
B
C
2 and 3
1 and 4 B
D 2 and 4 (2 marks) O
X
.
C
O
M

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FFA/FA FINANCIAL ACCOUNTING

24.12 The following extract is taken from a draft version of company's statement of cash flows, prepared by a
trainee accountant.
$'000
Net cash flow from operating activities
Profit before tax 484
Depreciation charges 327
Profit on sale of property, plant and equipment 35
Increase in inventories (74)
Decrease in trade and other receivables (41)
Increase in trade payables 29
Cash generated from operations 760

Four possible mistakes that may have been made by the trainee accountant are listed below.
1 The profit on sale of property, plant and equipment should be subtracted, not added.
2 The increase in inventories should be added, not subtracted.
3 The decrease in trade and other receivables should be added, not subtracted.
4 The increase in trade payables should be subtracted, not added.
Which of the four mistakes did the trainee accountant make when preparing the draft statement?
A 1 and 2 only
B 1 and 3 only
C 2 and 4 only
D 3 and 4 only (2 marks)

24.13 Which, if any, of the following items could be included in 'cash flows from financing activities' in a
statement of cash flows that complies with IAS 7 Statement of Cash Flows?
1 Interest received
2 Taxation paid
3 Proceeds from sale of property
A 1 only
B 2 only
C 3 only
D None of them (2 marks)

24.14 Which one of the following statements is correct, with regard to the preparation of a statement of cash
flows that complies with IAS 7 Statement of Cash Flows?

A A statement of cash flows prepared using the direct method produces the same figure for net
cash from operating activities as a statement produced by the indirect method.
B An increase in a bank overdraft during the accounting period is included within cash flows from
financing activities.
C A profit on the sale of equipment is included within cash flows from investing activities.
D A surplus on the revaluation of property will appear within cash flows from investing activities.
(2 marks)

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 QUESTIONS

24.15 The following information is available about the plant, property and equipment of Lok Co, for the year to
31 December 20X3.
$'000
Carrying amount of assets at beginning of the year 462
Carrying amount of assets at end of the year 633
Increase in revaluation surplus during the year 50
Disposals during the year, at cost 110
Accumulated depreciation on the assets disposed of 65
Depreciation charge for the year 38
Based on this information, what amount will be included for purchases of property, plant and equipment
for the year, in a statement of cash flows that complies with IAS 7 Statement of Cash Flows?

204
$___________ (2 marks)

24.16 A company sold warehouse premises at a loss during a financial period. How would this transaction be
included in a statement of cash flows for the period that complies with IAS 7 Statement of Cash Flows
and that uses the indirect method to present cash flows from operating activities?
A
Loss on disposal Proceeds from sale C
A Deduct as an adjustment in the calculation of
cash flows from operating activities
Include in cash flows from investing activities
C
B Deduct as an adjustment in the calculation of Include in cash flows from operating activities A
cash flows from operating activities
C Add as an adjustment in the calculation of Include in cash flows from investing activities
cash flows from operating activities G
D Add as an adjustment in the calculation of Include in cash flows from operating activities L
cash flows from operating activities
(2 marks) O
24.17 Big Time Co had the following transactions during the year. B
 Purchases from suppliers were $18,500, of which $2,550 was unpaid at the year end. Brought
A
forward payables were $1,000. L
 Wages and salaries amounted to $9,500, of which $750 was unpaid at the year end. The
financial statements for the previous year showed an accrual for wages and salaries of $1,500.
 Interest of $2,100 on a long term loan was paid in the year.
B
 Sales revenue was $33,400, including $900 receivables at the year end. Brought forward O
receivables were $400.
X
.
Using the direct method, what is Big Time Co's cash flow from operating activities?

6300
$___________ (2 marks)
C
24.18 Which one of the following statements is correct? O
A If a business makes a profit, it has positive cash flow. M
B If a business makes a loss, it has negative cash flow.
C A business may make a profit but have negative cash flow.
D A business that breaks even has cash inflows equal to cash used. (2 marks)

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FFA/FA FINANCIAL ACCOUNTING

24.19 Toots Co has made healthy profits for the past year, although at times the company has been close to
running out of cash. Because Toots Co is profitable, Adam, their accountant is unconcerned by the cash
shortage. Jo, the financial controller at Toots Co, is concerned. Jo tells Adam, 'profits are fine on paper,
but in the real world cash is king'. Jo believes Toots Co needs to take a more proactive approach to cash
flow management.
Adam and Jo have two different views. Who is correct, and why?
A Adam is correct. A profitable business should not waste management time on cash flow issues.
B Adam is correct. A profitable business will always survive and prosper.
C Jo is correct. Proactive cash flow management is required under IAS 7 Statement of Cash Flows.
D Jo is correct. A business that does not have cash available to fund operations is likely to fail.
(2 marks)

24.20 Which one of the following statements correctly identifies a valid disadvantage to users of financial
statements of the statement of cash flows?
A Under IAS 7 Statement of Cash Flows, an entity may use any format for their statement.
B There is an opportunity to reclassify some cash outflows that might have been reported in the
operating section as investing cash outflows.
C Under IAS 7 Statement of Cash Flows the statement of cash flows may cover a different period of
time to the other financial statements.
D Cash flow figures are more open to manipulation than the profit figure. (2 marks)

24.21 The accountant of F Co is preparing the statement of cash flows using the direct method for reporting
cash flows from operating activities. The following information is available at 31 March 20X7.
$
Sales 750,000
Purchases 400,000
Receivables at 31 March 2017 184,000
Receivables at 1 April 2016 163,000
Payables at 31 March 2017 102,000
Payables at 1 April 2016 111,000
What will be disclosed as cash receipts from customers in the statement of cash flows for the year
ended 31 March 20X7?
A $320,000
B $771,000
C $750,000
D $729,000 (2 marks)

(Total = 42 marks)

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