Statements of cash flows (Y7C20)

1	Which of the following items could 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	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 operating non-current assets should be deducted from net profit before taxation.
	2	Increase in inventory should be deducted from operating profits.
	3	Increase in payables should be added to operating profits.
	4	Depreciation charges should be added to net profit before taxation.
	A	1, 2 and 3
	B	1, 2 and 4
	C	1, 3 and 4
	D	2, 3 and 4
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 Profit on sale of non-current assets Increase in inventories Decrease in receivables Increase in payables		$ 980,000 40,000 130,000 100,000 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
4	Part of a company's draft statement of cash flows is shown below:
	Net profit before tax Depreciation charges Proceeds of sale of non-current assets Increase in inventory Increase in accounts payable		$’000 8,640 (2,160) 360 (330) 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	2 and 3 only
	B	1 and 4 only
	C	1 and 3 only
	D	2 and 4 only
5	In preparing a company's statement of cash flows complying with IAS 7 Statements of Cash Flows, 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
	2	Dividends received
	3	Bonus issue of shares
	A	1 only
	B	2 only
	C	3 only
	D	None of them
6	Which of the following assertions about statement of cash flows is/are correct?
	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.
	2	Rights issues of shares do not feature in statements of cash flows.
	3	A surplus on revaluation of a non-current asset will not appear as an item in a statement of cash flows.
	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
	B	2 and 3
	C	3 only
	D	2 and 4
7	An extract from a statement of cash flows prepared by a trainee accountant is shown below. Cash flows from operating activities
	Net profit before taxation Adjustments for: Depreciation Operating profit before working capital changes Decrease in inventories Increase in receivables Increase in payables Cash generated from operations					$m 28 (9) 19 13 (4) (8) 10
	Which of the following criticisms of this extract are correct?
	1	Depreciation charges should have been added, not deducted.
	2	Decrease in inventories should have been deducted, not added.
	3	Increase in receivables should have been added, not deducted.
	4	Increase in payables should have been added, not deducted.
	A	2 and 4
	B	2 and 3
	C	1 and 3
	D	1 and 4
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
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
10	The following extract is from the financial statements of Pompeii, a limited liability company at 31 October:
					20x9 $’000				20x8 $’000
	Equity and liabilities Share capital Share premium Retained earnings				120 60 85				80 40 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 standard of cash flows for the year ended 31 October 20x9?
	A	$60,000 inflow
	B	$10,000 inflow
	C	$110,000 inflow
	D	$27,000 inflow
11	A draft statement of cash flows contains the following calculation of cash flows from operating activities:
	Profit before tax Depreciation Decrease in inventories Decrease in trade and other receivables Decrease in trade payables Net cash inflow from operating activities		$m 13 2 (3) 5 4 21
	Which of the following corrections need to be made to the calculation?
	1	Depreciation should be deducted, not added.
	2	Decrease in inventories should be added, not deducted.
	3	Decrease in receivables should be deducted, not added.
	4	Decrease in payables should be deducted, not added.
	A	1 and 3
	B	2 and 3
	C	1 and 4
	D	2 and 4
12	The following extract is taken from a draft version of company’s statement of cash flows, prepared by a trainee accountant.
	Net cash flow from operating activities Profit before tax Depreciation charges Profit on sale of property, plant and equipment Increase in inventories Decrease in trade and other receivables Increase in trade payables Cash generated from operations							$’000 484 327 35 (74) (41) 29 760
	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
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
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.
15	The following information is available about the plant, property and equipment of Lok Co, for the year to 31 December 20X3.
	Carrying amount of assets at beginning of the year Carrying amount of assets at end of the year Increase in revaluation surplus during the year Disposals during the year, at cost Accumulated depreciation on the assets disposed of Depreciation charge for the year									$’000 462 633 50 110 65 38
	What will be included in cash flows from investing activities for the year, in a statement of cash flows that complies with IAS 7 Statement of Cash Flows?
	A	$104,000
	B	$159,000
	C	$166,000
	D	$204,000
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?
		Loss on disposal					Proceeds from sale
	A	Deduct as an adjustment in the calculation of cash flows from operating activities					Include in cash flows from investing activities
	B	Deduct as an adjustment in the calculation of cash flows from operating activities					Include in cash flows from operating activities
	C	Add as an adjustment in the calculation of cash flows from operating activities					Include in cash flows from investing activities
	D	Add as an adjustment in the calculation of cash flows from operating activities					Include in cash flows from operating activities
17	Big Time Co had the following transactions during the year. ·        Purchases from suppliers were $18,500, of which $2,550 was unpaid at the year end. Brought forward payables were $1,000. ·        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. ·        Sales revenue was $33,400, including $900 receivables at the year end. Brought forward receivables were $400. ·        Interest on cash deposits at the bank amounted to $175. Using the direct method, what is Big Time Co's cash flow from operating activities?
	A	$3,425
	B	$3,775
	C	$1,425
	D	$6,775
18	Which one of the following statements is correct?
	A	If a business makes a profit, it has positive cash flow.
	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.
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 Statements of Cash Flows.
	D	Jo is correct. A business that does not have cash available to fund operations is likely to fail.
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.