5) Construction contract that the Auditor has found nothing to suggest that the cash flow projections are inaccurate. Decrease in receivables Non-current assets held for sale and discontinued operations (IFRS 5), Chapter 9. Question 11 to 20 = Cash flows from Investing Activities Question 21 to 26 = Cash flows from Financing Activities ANSWER TO SECTION B: TRUE OR FALSE 1. 14. Log in, Chapter 3. Required: You may be asked to prepare a statement of cash flows. IAS 7 requires an entity to present the information about changes in the cash and cash equivalents by a statement of cash flows, these cash flows will be classified under operating, investing and financing activities. ACCA Financial Reporting (FR) - Statement of cash flows (IAS 7) - Practice Questions - Chapter 4 Free ACCA Financial Reporting (FR) Tests. Having a good understanding of the format of the statement of cash flows is key to a successful attempt at these questions. 242 Accountancy : Company Accounts and Analysis of Financial Statements 6.5.1 Cash from Operating Activities (b) Using the indirect method determine the operating activities section of the statement of cash flows. OTQs will only appear in computer-based exams but these questions will still provide valuable practice for all The profit on disposal of $5 ($20–$15) would be adjusted for as a non-cash item under the operating activities (see later). The tax charged in the profit or loss means that the entity now owes more tax. Note how whichever method is used that the same cash is generated from operating activities. ADVERTISEMENTS: Here is a compilation of top nine problems on cash flow statements along with its relevant solutions. There are two different ways of starting the cash flow statement, as IAS 7, Statement of Cash Flows permits using either the 'direct' or 'indirect' method for operating activities. Interest paid is $12,000 and taxation paid is $13,000. It purchased fixed assets for […] Question 5: Mocca . Answer (a) direct method During the year depreciation of $50,000 and amortisation of $40,000 was charged to profit. The global body for professional accountants, Can't find your location/region listed? Non-current assets (IAS40) Chapter 6. Entities are financed by a mixture of cash from borrowings from third parties (debt) and by the shareholders (equity). At the start of the accounting period the company has a tax liability of $50 and at the reporting date a tax liability of $90. D. Pays a dividend in shares rather than cash. Solution IAS 7, Statement of Cash Flows requires an entity to present a statement of cash flows as an integral part of its primary financial statements. Finally, the payments for interest and tax are presented – usually as a further deduction. 4(b) Calculation of diluted EPS. Presentation of Financial Statements (IAS 1) Chapter 4. The indirect method is more commonly examined. Chapter 3. (iii) Financing activities. This is the cash receipts from customers. Pays no dividend at all. Answer will be showing it that is closing bank and cash balance. T 9. Answer (b) indirect method The Cash Flow Statement (AS 3) provides information about the Net Assets of an Enterprise its Financial Structure and Its Ability to Affect the Amounts and timing of Cash Flows. T 5. With our 1.8 minute per 1 mark rule, you only need to spend 21.6 minutes in cash flow question in SBR exam but if under P2 exam, it’s 63 minutes! A company can reward investors through script dividends without paying out any cash. Problem 1: The bank balance of a business firm has increased during the last financial year by Rs.1,50,000. This simple technique of taking the opening balance of an item (in this case the tax liability) and adding (or subtracting) the non-cash transactions that have caused it to change, to then reveal the actual cash flow as the balancing figure, has wide application. Conversely, decreases in inventory and trade receivables are added back to the profit before tax. F 3. The cash flow statement may include data not disclosed in a funds flow statement. Question 3: Bengal. However, that does not mean that FR will never require the preparation of a complete statement of cash flows so be prepared. A ‘script dividend’ is where a company: A. It is relevant to the FA (Financial Accounting) and FR (Financial Reporting) exams. Consolidated Financial Statements of the Association of Chartered Certified Accountants Corporate Governance Statement Report from the Audit Committee Report of the Independent Auditor 2 3 4 41 49 53. Statement of Cash Flow, p. 227 The statement of cash flow summarizes the effects on cash of the operating, investing, and financing activities of a company for a period and the year to date. Thus, in the reconciliation process, the increases in inventory and trade receivables are deducted from profit before tax. C Financial statements C1 Cash flow statements Chapter 21 C2 Tangible non-current assets Chapter 5 C3 Intangible assets Chapter 6 C4 Inventory Chapter 12 C5 Financial assets and financial liabilities Chapter 14 C6 Leases Chapter 16 C7 Provisions, contingent liabilities and contingent assets Chapter 13 C8 Impairment of assets Chapter 7 (a) Using the direct method prepare the operating activities section of the statement of cash flows. Common cash flow calculations include the tax paid, which is an operating activity cash out flow, the payment to buy property plant and equipment (PPE) which is an investing activity cash out flow and dividends paid, which is a financing activity cash out flow. ACCA F8 Audit & Assurance Full Course Workbook www.mapitaccountancy.com The form of assurance provided by the report in this case will be ‘negative assurance’ i.e. Required: Calculate the cash paid to buy new PPE. As before, to ascertain the cash flow – in this case dividends paid - we can reconcile an opening to closing balance – in this case retained earnings. Solution Examples of investing cash flows include the cash outflow on buying property plant and equipment, the sale proceeds on the disposal of non-current assets and any cash returns received arising from investments. Operating Activities: Generally include transactions in the “normal” operations of the firm. The article will explain how to calculate cash flows and where those cash flows are presented in the statement of cash flows. The Statement of Cash Flows describes the cash inflows and outflows for the firm based upon three categories of activities. Here we can take the opening balance of PPE and reconcile it to the closing balance by adjusting it for the changes that have arisen in period that are not cash flows. 5. FR, however, is more likely to ask for an extract from the statement of cash flows using more complex transactions (for example, the purchase of PPE using right-of-use asset leases). cash flow statement to assess the impact of these activities on the financial position of an enterprise and also on its cash and cash equivalents. The double entry for depreciation is a debit to statement of profit or loss to reflect the expense and to credit the asset to reflect its consumption. Financing activity cash flows relate to cash flows arising from the way the entity is financed. Non-current assets (IAS16) Chapter 5. T . Financial performance (profitability), Chapter 23. Non-current assets (IAS23) Chapter 5. The accounting statement of cash flows explains the change in cash during the year. At the reporting date the carrying amount of the PPE is $300. Cash flows are either receipts (ie cash inflows and so are represented as a positive number in a statement of cash flows) or  payments (ie cash out flows and so are represented as a negative number using brackets in a statement of cash flows). The profit before tax is then reconciled to the cash that it has generated. Here is a compilation of top three accounting problems on cash flow statement with its relevant solutions. It is necessary to reconcile the opening tax liability to the closing tax liability to reveal the cash flow – the tax paid - as the balancing figure. The second is the indirect method which reconciles profit before tax to cash generated from operating profit. Cap., Debenture, Bank Loan, Dividend and Interest paid etc. For example, when the opening balance of an asset, liability or equity item is reconciled to its closing balance using information from the statement of profit or loss and/or additional notes, the balancing figure is usually the cash flow. T 2. Solution T 6. During the reporting period a profit for the year of $450 was reported. Accounting policies, changes in accounting estimate and errors (IAS 8), Chapter 11. Receipts from customers, combined with cash sales, were $800,000, payments to suppliers of raw materials $400,000, other operating cash payments were $100,000 and cash paid on behalf and to employees was $126,000. Preparation of the statement of cash flows in accordance with IAS 7 The statement of cash flows is one of the financial statements required to be prepared by an entity in terms of IAS 1 Presentation of financial statements. Prepare a statement of cash flows for a single entity (not a group) in accordance with relevant accounting standards using the direct and the indirect method. Cash Forecast for the Three Months Ended 31 March 20X1. The revaluation gain increases PPE without being a cash flow. Under both of these methods the interest paid and taxation paid are then presented as cash outflows deducted from the cash generated from operations. Examples of financing cash flows include the cash received from new borrowings or the cash repayment of debt as well as the cash flows with shareholders in the form of cash receipts following a new share issue or the cash paid to them in the form of dividends. testing question (OTQ) format. changes in Cash Flow from it like Equity capital, Pref. More information on these question types will be available on the ACCA website. T 7. Note that the cash proceeds ffrom the disposal of PPE ($20) would be shown separately as a cash inflow under investing activities. Question 4: IASB Framework / Rebound. This article considers the statement of cash flows of which it assumes no prior knowledge. Objective of IAS 7 Statement of Cash Flows. F 8. 1.Cash Flow Statement Cash flow statement is a statement showing the changes in financial position of a business concern during different intervals of time in terms of cash and cash equivalents. B. IAS 7 Statement of Cash Flows applied on the statements after 1 January 1994. Alternatively, the indirect method starts with profit before tax rather than a cash receipt. It is the balancing figure and explains why the actual year-end tax liability is smaller than the sub-total, This is the closing balance of the tax liability. The direct method is relatively straightforward in that all the data are cash flows so it is really just a case of listing the receipts as positive and the payments as negative. A statement of cash flow classifies and presents cash flows under three headings: (i) Operating activities ... 19 IAS 7 (Revised): Statements of Cash Flows 103 20 Interpretation of Accounts – Ratio Analysis 113 21 IAS 33 Earnings Per Share 119 ... Free ACCA notes t Free ACCA lectures t Free ACCA tests t Free tutor support t Studyuddies t ACCA forums This topic is examined in much more depth in the FR examination than it is at FA. Presentation of Financial Statements (IAS 1), Chapter 4. As latest ACCA F3 past exam questions are not available anymore we recommend ACCA F3 students to use our FREE ACCA F3 Practice Kit to best prepare ACCA F3 Financial Accounting exams. Please visit our global website instead, Can't find your location listed? This FREE practice kit is updated according to latest syllabus and questions format and serves as a large exam level question bank for preparation, practice and revision of each and every topic of the syllabus. 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