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. 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. Problem 1: From the following summary of Cash Account of X Ltd., prepare Cash Flow Statement for the year ended 31st March 2007 in accordance with AS-3 using the direct method. 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. The importance of statements of cash flow. When comparing the two cash flow statements, the financial statement of cash flows is a more appropriate measure of the company’s performance because of its treatment of interest. Here as we start with profit before tax we have to add back all the non-cash expenses charged, deduct the non-cash income and adjust for the changes in working capital. Intangible assets (IAS 38) Chapter 7. Answer (b) indirect method F 8. Non-current assets (IAS23) Chapter 5. The accounting statement of cash flows will be: Statement of cash flows Operations Net income $95 Depreciation 90 Changes in other current assets (5) Change in accounts payable 10 Total cash flow from operations $190 Investing activities The changes in inventory, trade receivables and trade payables (working capital) do not impact on the measurement profit but these changes will have impacted on cash and so further adjustments are made. Chartered Education IFRS MCQs have more than 1,100 questions like these covering all subjects. The debit charged as the expense in profit or loss is posted and a credit to the tax liability account reflects the effect of increase in the tax liability, This sub-total represents the amount of the tax liability that there would have been at the reporting date in the event that no tax had been paid, This is the last figure written in the reconciliation. Cash and cash equivalents comprise cash on hand and demand deposits, together with short-term, highly liquid investments that are readily convertible to a known amount of cash, and that are subject to an insignificant risk of changes in value. T . The accounting statement of cash flows explains the change in cash during the year. A ‘script dividend’ is where a company: A. Let us see if you can answer the question. This article considers the statement of cash flows of which it assumes no prior knowledge. Note that the cash proceeds ffrom the disposal of PPE ($20) would be shown separately as a cash inflow under investing activities. Important Questions for CBSE Class 12 Accountancy Cash Flow Statement. 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. This working is in effect an extract from the statement of changes in equity. Net cash from/used in financing activities. Non-current assets held for sale and discontinued operations (IFRS 5), Chapter 9. A cash flow statement is used as a Conjunction with the other Financial Statements. This topic is examined in much more depth in the FR examination than it is at FA. Additional information Non-current assets (IAS40) Chapter 6. (b) Using the indirect method determine the operating activities section of the statement of cash flows. Solution Short term cash flow forecasts. 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. 242 Accountancy : Company Accounts and Analysis of Financial Statements 6.5.1 Cash from Operating Activities Financing activity cash flows relate to cash flows arising from the way the entity is financed. 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. 17 Group statements of cash flows 413 Part D Performance reporting 18 Performance reporting 437 19 Current developments 495 20 Reporting for specialised entities 511 21 Reporting for small and medium-sized entities 529 Exam question and answer bank 539 Mathematical tables 627 Index 631 Review form 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. 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). Only then are the two actual cash flows of interest paid and tax paid presented. Having a good understanding of the format of the statement of cash flows is key to a successful attempt at these questions. ACCA Financial Reporting (FR) - Statement of cash flows (IAS 7) - Practice Questions - Chapter 4 Free ACCA Financial Reporting (FR) Tests. Statement of cash flows (IAS 7), Chapter 8. Extracts from the financial statements are as follows. QUESTION AND ANSWER FOR JUNE 2018 PUBLIC SECTOR IN FINANCIAL MANAGEMENT PAPERS . This working is in effect an extract from the statement of changes in equity. Is the above statement TRUE or FALSE Answer TRUE 15. Tom Clendon FCCA is a senior lecturer based in Singapore and he lectures for FTMS Global in their South East Asia colleges, Virtual classroom support for learning partners, Support for students in Australia and New Zealand. A vertical presentation of the numbers lends itself to noting the source of the numbers. Having a good understanding of the format of the statement of cash flows is key to a successful attempt at these questions. changes in Cash Flow from it like Equity capital, Pref. (iii) Financing activities. Question 5: Mocca . 5. Events after the reporting date (IAS 10), Chapter 20. 3(b) Interpret cash flow statement to assess performance and position of an entity. (ii) Investing activities and F 3. 5) Construction contract A bank overdraft should be treated as a negative cash balance when arriving at the cash and cash equivalents. Pays no dividend at all. T 9. Deprecation reduces the carrying amount of the PPE without being a cash flow. During the year the tax charged in the statement of profit or loss was $100. At the start of the accounting period the company has PPE with a carrying amount of $100. Statement of cash flow are an important statement for the users of accounts because: They help users to assess liquidity and solvency – an adequate cash position is essential in the short term both to ensure the survival of the business and to enable debts and dividends to be paid. The double entry is a credit to the revaluation surplus to reflect the gain and to debit the asset to reflect its increase, The carrying amount of the PPE that has been disposed of reduces the PPE thus a credit to the asset account which is then posted as a debit in the disposals account, This sub-total represents the balance of the PPE if no PPE had been bought for cash, This is the last figure written in the reconciliation This balancing figure explains why the actual PPE at the reporting date is greater than the sub-total. 14. 4(b) Calculation of diluted EPS. During the year depreciation of $50,000 and amortisation of $40,000 was charged to profit. This means that the figures at the start of the cash flow statement are not cash flows at all. Objective of IAS 7 Statement of Cash Flows. The statement of cash flow reports cash transactions associated with the purchase or sale of fixed assets (Investing Activities) and cash paid For example, an increase in the levels of inventory and receivables will have not impacted on profit before tax but will have had an adverse impact on the cash flow of the business. Interest paid is $12,000 and taxation paid is $13,000. Non-current assets (IAS20) Chapter 5. 1. Cash Flow Statements - … The direct method is intuitive as it means the statement of cash flow starts with the source of operating cash flows. Conversely, decreases in inventory and trade receivables are added back to the profit before tax. The following is a pro forma showing the indirect method. Operating Activities: Generally include transactions in the “normal” operations of the firm. The direct method is intuitive as it means the statement of cash flow starts with the source of operating cash flows. that the Auditor has found nothing to suggest that the cash flow projections are inaccurate. 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). ... 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 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. 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. In that initial reconciliation the profit before tax is adjusted for expenses that have been charged against profit that are not cash out flows; for example depreciation and losses on disposal of non-current assets, have to be added back, and non-cash income; for example, investment income and profits on disposal of non-current assets are deducted. Required: For example, in FA, an extract, or the whole statement of cash flow might be required in the multi-task questions but it could also be constructed as an OT question. (a) Using the direct method prepare the operating activities section of the statement of cash flows. 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. Free IAS 7 multiple choice quiz. 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. More information on these question types will be available on the ACCA website. Investing activity cash flows are those that relate to non-current assets including investments . OTQs include a wider variety of questions types including MCQ as well as number entry, multiple response and drag and drop. ACCA and subsidiaries ... Consolidated Cash Flow Statement For the year ended 31 March 2019 8. Market values can never be negative. 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. Finally, the payments for interest and tax are presented – usually as a further deduction. Presentation of Financial Statements (IAS 1) Chapter 4. The profit before tax is then reconciled to the cash that it has generated. The tax charged in the profit or loss means that the entity now owes more tax. 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. Decrease in receivables Non-current assets (IAS16) Chapter 5. A statement of cash flow classifies and presents cash flows under three headings: (i) Operating activities 9. The profit on disposal of $5 ($20–$15) would be adjusted for as a non-cash item under the operating activities (see later). Entities are financed by a mixture of cash from borrowings from third parties (debt) and by the shareholders (equity). 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. As explained by examiner, some students spent a disproportionate of time in cash flow statement in their SBR exam. 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. Accounting policies, changes in accounting estimate and errors (IAS 8), Chapter 11. Group statement of profit and loss. 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. 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. Presentation of Financial Statements (IAS 1), Chapter 4. It is relevant to the FA (Financial Accounting) and FR (Financial Reporting) exams. The profit for the year is a credit and increases the retained earnings, This sub-total represents the balance on retained earnings in the event that no dividends have been paid, This is the last figure written in the reconciliation. Here as we start with profit before tax we have to add back all the non-cash expenses charged, deduct the non-cash income and adjust for the changes in working capital. T 7. Alternatively, the indirect method starts with profit before tax rather than a cash receipt. We will have more to say about this in a later chapter. Required: Calculate the cash paid to buy new PPE. Cash is a very important asset in any entity. 2020-21. Financial instruments (IFRS 9), Chapter 13. (1 mark) Negative assurance is appropriate for a cash flow projection Statement of cash flows (IAS 7) ACCOUNTING STANDARDS Chapter 5. OTQs will only appear in computer-based exams but these questions will still provide valuable practice for all Pays a dividend every other year. C. Pays a larger than average dividend. ACTIVITY 23.3 State whether you believe, given your knowledge so far, that cash flow is understandable, relevant, reliable and complete. The first is the direct method which shows the actual cash flows from operating activities – for example, the receipts from customers and the payments to suppliers and staff. Operating activities can be presented in two different ways. You may be asked to prepare a statement of cash flows. 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. 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