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.

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?

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 cashflows.

Which of these criticisms are valid?

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

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.

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 19Decrease in inventories 13

Increase in receivables (4)

Increase in payables (8)

Cash generated from operations 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.

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

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?

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 yearended 31 October 20X9?

A draft statement of cash flows contains the following calculation of cash flows from operating activities:

$m

Profit before tax 13Depreciation 2

Decrease in inventories (3)

Decrease in trade and other receivables 5

Decrease in trade payables 4

Net cash inflow from operating activities 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.

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?

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

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?

he following information is available about the plant, property and equipment of Lok Co, for the year to31 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

What will be included in cash flows from investing activities for the year, in a statement of cash flowsthat complies with IAS 7 Statement of Cash Flows?

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?

Which one of the following statements is correct?

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 cashshortage. 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 cashflow management.

Adam and Jo have two different views. Who is correct, and why?

Which one of the following statements correctly identifies a valid disadvantage to users of financial statements of the statement of cash flows?

XYZ has decided to change its reporting date, which will result in a 15-month reporting period.

Which TWO of the following items must be disclosed in accordance with IAS 1 Presentation of Financial Statements?

During the year ended 31 March 20X7 Woolf sold a property for $1,550,000. The property was purchased for $100,000 and had been revalued to $1.9m on 31 March 20X4; at this date the property had a remaining life of 10 years. Woolf depreciates properties on a straight-line basis over the assets’ useful life, with a full year’s depreciation in the year of acquisition and none in the year of disposal.

Woolf revalued another property to $2m on 31 March 20X7. Its historical cost was $1m and accumulated depreciation on the property was $350,000.

Match the amounts to be recognised in profit or loss and other comprehensive income for these transactions at 31 March 20X7.

Bell made a profit of $183,000 for the year ended 30 June 20X7 and paid a dividend during the year of $18,000. During the year the company wrote off development costs of $45,000 directly to retained earnings as a prior period adjustment and revalued a property with a carrying amount of $60,000 to $135,000.

What was total comprehensive income for period ended 30 June 20X7?

DT’s final dividend for the year ended 31 October 20X5 of $150,000 was declared on 1 February 20X6 and paid in cash on 1 April 20X6. The financial statements were approved on 31 March 20X6.

Which TWO of the following statements reflect the correct treatment of the dividend in the financial statements of DT?

2. The dividend is shown as an accrued liability in the statement of financial position as at 31 October 20X6

3. The $150,000 dividend was shown in the notes to the financial statements at 31 October 20X5

4. The dividend is shown as a deduction in the statement of changes in equity for the year ended 31 October 20X6

Which of the following items must be disclosed in the notes to the financial statements?

1. (1) Useful lives of assets or depreciation rates used

2. (2) Increases in asset values as a result of revaluations in the period

3. (3) Depreciation expense for the period

4. (4) Reconciliation of carrying amounts of non-current assets at the beginning and end of period