Statement of Cash Flows

Question 1

What does the statement of cash flow show

Answer 1

• How entity has generated and spent cash and cash equivalents over a period

Question 2

What are the two methods used to produce a statement of cash flow

Answer 2

Direct method
Indirect Method

Question 3

What is the structure of the statement of cash flow

Answer 3

Cash flows from operating Activities

Cash flows from investing activities

Cash flows from financing activities

Question 4

What is incuded in the cash flows from operating activities

Answer 4

+Profit before tax
Adjustments for:
+ Depreciation
+Amortisation
+Loss on sale of equipment
- (Investment income)
- Interest expense

Working capitall movement:
- (Increase in trade and other recievables)
-( Increase in inventories)
+Increase in trade payables

=Cash generated from oerations
-( Interest paid)
-(Income taxes paid)
=Net cash from operating activities

Question 5

What is incuded in the cash flows from investing activities

Answer 5

• (Purchase of PPE)
• Proceeds from sale of equipment
• Interest recieved
• Dividends recieved
  -Net cash used in investing activities

Question 6

What is incuded in the cash flows from financing activities

Answer 6

• Proceeds from issue of share capitaal
• Proceeds from long term borrowing
• (Payment of lease liabilities)
• (Dividends paid)
• Net cash flow from investing activities

Question 7

What is included in the title of socf

Answer 7

-Company name
- Statement name
- FOR the year ended
- (Indirect method)

Question 8

How is gain on sale of equipment treated

Answer 8

Deducted from cash flows of operating activities

Question 9

How do you work out the loss on the sale of equipment?

Answer 9

Proceeds- carrying value

Question 10

In working capital how are assets and liabilities treated?

Answer 10

Increase in asset: receivables/inventory means we have to take it away from the cash flow

Increase in liabilities: payables means we have to add it to the cash flow

Question 11

What notes are included in the statement of cash flow

Answer 11

1.PPE
2. Cash and Cash Equivalent

Question 12

What is the definition of cash equivalent

Answer 12

• short term (1 to 3 months)
• Highly liquid
• insifnificant risk of changes in value

Question 13

What are operating activities

Answer 13

Principle revenue producing activities
Cash flows include
- Cash receipts from sale of goods, rendering of services, royalties, fees and commisssions
- Cash payments to suppliers for goods and services, to and on behalf of employees, felating to finance charges and income

Question 14

What is meant by investing activities?

Answer 14

Aquisition and ddisposal of long term assets and other investments
Cash flows include
- Cash reciepts from the sale s of non current assets and trade investments, investments such as dividends and interest recieved
- Cash payments erlating to he acquisition on non current assets and trade investments

Question 15

What are financing activities

Answer 15

Activities that result in changes to the equity and borrowings of an equity
- cash receipts from issuing shares, issuing debentures, issuing loan notes and other borriwns
- Cash payments to repay borrowings/lease liabilities, pay dividends to shareholders

Question 16

How to work out overall cash flow change

Answer 16

Look on SOFP to see what is included as cash and cash equivalent - if investments are included
- Check for an overdraft
which will be in the liabilities
- if overdraft is included then the difference is taken away

Question 17

How to work out Income tax paid

Answer 17

Current tax payable bought down figure -

+ Income tax expense

• tax paid

= Current tax payable current

Question 18

How to know whether finance cost/ interest expense is the same as interest paid

Answer 18

If there are no prepayments or interest accruals under current liabilities then finance costs have been paid fully

Question 19

What should retained earnings difference entail

Answer 19

Dividends have been payed out