Warwick Business School IB9AXO: Foundations of Financial and Management Accounting

WEEK 5 (WORKSHOP – LECTURE 4): QUESTIONS

Q1
(a)
A company’s credit sales are £45,678 during 20X8. Accounts receivable at 1 January 20X8 are
£4,602 and at 31 December 20X8 are £5,709. What cash has the company received from its credit
customers during 20X8?
(b)
The financial statements of A Ltd at 31 December 20X8 and 20X7 included the following figures:

20X8 20X7
Revenue (Income Statement) £400 £200
Trade receivables (SOFP) £ 50 £ 30

Required:
How much cash was received from the credit customers during the year ended 31 December
20X8? Assume all sales were made on credit.

Q2
(a)
A company’s cost of sales in its income statement for the year ended 31 October 20X5 is
£105,066. Inventory at 31 October 20X4 is £6,430 and at 31 October 20X5 is £5,757. Accounts
payable at 31 October 20X4 are £9,204 and at 31 October 20X5 are £8,580.
i. What are the purchases for the year?
ii. Assuming all purchases are made on credit, what cash has the company paid to suppliers
during the year?

(b)

The financial statements of A Ltd at 31 December 20X8 and 20X7 included the following
figures:

20X8 20X7

Purchases (income statement) £800 £900

Accounts payable (SOFP) £100 £160

Required:

How much cash was paid to suppliers during the year ended 31 December 20X8? Assume all
purchases were made on credit.

Q3
(A)
At 30 June 20X3 a company has issued £100,000 7% debentures. On 1 April 20X4 the company
issues a further £50,000 of the same debentures.

(a) What is the interest expense for the year ended 30 June 20X4?
(b) (i) Assuming the company pays interest quarterly in arrears on the last day of
each quarter (31 March, 30 June, 30 September and 31 December), and
the company pays all interest when it is due, what is the cash paid for
interest in the year ended 30 June 20X4?
Warwick Business School IB9AXO: Foundations of Financial and Management Accounting

(ii) If there is an accrual for interest at 30 June 20X3 and 20X4 of £1,750 and
£2,625 respectively, what is the cash paid for interest in the year ended
30 June 20X4?

(B)

Equity shares with a total nominal value of £30,000 in 25p have been issued and fully paid. The company
pays an ordinary dividend of 10p per share.

Required:
What was the total equity dividends paid and accounted for by the company in the statement of changes
in equity?

(C)
A plc has the following issued share capital at 1 January 20X2:
£20,000 equity share capital (50p shares).
£10,000 8% irredeemable preference share capital (£1 shares).
The company paid the following dividends during the year:
The 20X2 final equity dividend of 4p per share.
An interim equity dividend of 3p per share.
Required
What figure for dividends paid will be accounted for in the financial statements of A Plc for year ended 31
December 20X2?

Q4
(a)
The following information has been taken from the financial statements of Marks plc for 20X2
and 20X1:
20X2 20X1
£000 £000
Operating profit 2,805 2,340
Depreciation charged in arriving at operating profit 825 705
Profit / (loss) on disposal on non-current assets 65 (102)
Inventories held at end of year 465 405
Trade receivables at end of year 345 360
Prepayments at end of year 66 57
Trade payables at end of year 255 225
Accruals at end of year 89 95

Required:

What is the figure for cash generated from the operations for Marks plc for 20X2?
Warwick Business School IB9AXO: Foundations of Financial and Management Accounting

(b)

The extracts from the financial statements of ABC Ltd are set out below.
ABC Ltd: Income statement for the year ended 31 December 20X8
£’000 £’000
Turnover 300
Cost of sales (150)
Gross profit 150
Profit on sale of non-current asset 75
225
Expenses 15
Depreciation 30 (45)
Operating profit 180

ABC Ltd: SoFP as at 31 December…………….. 20X8 20X7

£’000 £’000
Inventories 40 90
Receivables 55 10
Payables 45 30
Accruals 15 20

Required:
What figure would appear in the cash flow statement of ABC Ltd for the year ended 31
December 20X8 in respect of cash generated from operations?

(c)
The following is an extract from the statement of the financial position of Angela Limited for the years
ended 31 July 20X0 and 20X1.
20X1 20X0
£’000 £’000
Inventories 80 180
Receivables 110 20
Payables 90 60
Accruals 30 40

The operating profit for year ended 31 July 20X1 is £360,000. This was after charging depreciation
£50,000 and loss on disposal of plant £60,000.
Required:
What figure would appear in the cash flow statement for the year ended 31 July 20X1 as part of the cash
generated from operations?
Warwick Business School IB9AXO: Foundations of Financial and Management Accounting

(d)
The following information has been taken from the financial statements of Marks plc for 20X2 and 20X1:
20X2 20X1
£000 £000
Operating profit 2,805 2,340
Depreciation charged in arriving at operating profit 825 705
Profit / (loss) on disposal on non-current assets 65 (102)
Inventories held at end of year 465 405
Trade receivables at end of year 345 360
Prepayments at end of year 66 57
Trade payables at end of year 255 225
Accruals at end of year 89 95

Required:
What is the figure for cash generated from the operations for Marks plc for 20X2?

Q5.
(a)
A company acquired new plant costing £30,000 to replace an old plant which was disposed of. The
carrying amount of the plant disposed is £9,000 (i.e., cost £18,000 less accumulated depreciation £9,000).
The proceeds of sale of plant were £12,000 which resulted in the profit on sale of plant of £3,000 (i.e.,
proceeds £12,000 less carrying amount £9,000).
Required:
What figure would appear in the statement of cash flows under ‘cash flows from investing activities’?

(b)
A Ltd acquired a machine costing £360,000 to replace a machine that was sold. The net book value of the
machine sold £108,000 (i.e., cost £216,000 less accumulated depreciation £108,000). The proceeds of sale
of the machine were £144,000 which resulted in the profit on sale of plant of £36,000 (i.e., proceeds
£144,000 less carrying amount £108,000).
Required:
What figure would appear in the statement of cash flows under ‘cash flows from investing activities’?
(c)
A company acquired new plant costing £10,000 to replace an old plant which was disposed of. The
carrying amount of the plant disposed is £3,000 (i.e., cost £6,000 less accumulated depreciation £3,000).
The proceeds of sale of plant were £4,000 which resulted in the profit on sale of plant of £1,000 (i.e.,
proceeds £4,000 less carrying amount £3,000).
Required:
What figure would appear in the statement of cash flows under ‘cash flows from investing activities’?
Warwick Business School IB9AXO: Foundations of Financial and Management Accounting

Q6.
(a)
The company’s extracts of the SoFP and SOCE are as follows.

Extracts: SOFP as at 31 March …… 20X8 20X7

Equity £’000 £’000
Ordinary £1 shares 550 400
Share premium 210 160
Retained earnings 490 376
1,250 936
Non-current liabilities
Debentures (loan) 250 450

Statement of changes in equity for the year ended 31 March 20X8

Share Share Retained
Capital Premium Earnings Total
£000 £000 £000 £000
Balance at 1 April 20X7 400 160 376 936
Issue of share capital 150 50 200
Profit for the year 184 184
Dividends paid (70) (70)
Balance at 31 March 20X8 550 210 490 1,250

Required: How much will be the net cash flows from financing activities?
(b)
A Plc issued shares during the period amounting to £1,200, 000. The company repaid part of the
debenture loan £1,000,000 cash. The company paid dividends during the year amounting to £300,000
cash.
Required:
How much will be the net cash flows from financing activities
(c)

A Plc issued shares during the year amounting to £400, 000. The company repaid part of the debenture
loan £100,000 cash. The company paid dividends during the year amounting to £140,000 cash.

Required:
How much will be the net cash flows from financing activities
Warwick Business School IB9AXO: Foundations of Financial and Management Accounting

Q7.
A Ltd’s statements of financial position extract at 31 July…...

20X6 20X5
Current assets
Inventory 1,500 500
Receivables 2,680 890
Bank - 60
4,180 1,450
Current liabilities
Trade payables 1,100 680
Corporation tax 280 320
Bank overdraft 1,810 -
3,190 1,000
Required:
What is the net increase or decrease in cash and cash equivalents during the year ended 31 July 20X6?
Warwick Business School IB9AXO: Foundations of Financial and Management Accounting

Q8. Practice Question

The following information relates to the activities of Hexagon Ltd.:

Statements of financial
position at 31 March 20X8 20X7
£000 £000 £000 £000
Non-current assets
Freehold land at cost 780 700
Plant and equipment - cost 660 560
Less: Accumulated depreciation 296 230
364 330
1,144 1,030
Current assets
Inventory 498 356
Receivables 304 330
Bank - 30
802 716
Total assets £ 1,946 £ 1,746

Equity
Ordinary £1 shares 550 400
Share premium 210 160
Retained earnings 490 376
1,250 936
Non-current liabilities
6% debentures 250 450
Current liabilities
Trade payables 230 240
Corporation tax 90 120
Bank overdraft 126 -
446 360
Total equity and liabilities £ 1,946 £ 1,746

Statement of profit or loss for the year ended 31 March 20X8

£000
Sales 4,520
Cost of sales 3,420
Gross profit 1,100
Expenses 766
Profit before tax 334
Tax 150
Profit after tax £ 184
Warwick Business School IB9AXO: Foundations of Financial and Management Accounting

Statement of changes in equity for the year ended 31 March 20X8

Share Share Retained

Capital Premium Earnings Total
£000 £000 £000 £000
Balance at 1 April 20X7 400 160 376 936
Issue of share capital 150 50 200
Profit for the year 184 184
Dividends paid (70) (70)
Balance at 31 March 20X8 550 210 490 1,250

Additional information:

(a)Plant which originally cost £80,000 was sold for cash of £14,000. The profit/loss on
disposal is included in expenses. Accumulated depreciation relating to the plant sold
amounted to £58,000.
(b)Depreciation expense for the year amounted to £124,000.
(c)The debentures were repaid on 30 September 20X7. Interest for the year was fully paid by 31
March 20X8 and is included in expenses.

Required:
(i) The net cash flow for the year ended 31 March 20X8.
(ii) The cash flow from operating activities prepared using the indirect method (i.e.
reconciling profit before tax to cash flow from operating activities).
(iii) Prepare the complete statement of cash flows for Hexagon Ltd. for the year ended 31
March 20X8.
(iv) Comment on the information provided.