Chapter 5

Question 1

What is the purpose of a statement of cash flows ?

Answer 1

It summarises the inflows and the outflows of cash for a business over a period.

Question 2

What does IAS define cash as ?

Answer 2

notes and coins in hand, and deposits in banks

Question 3

What are cash equivalents?

Answer 3

Short term, highly liquid investments that can be readily convertible to known amounts of cash

Question 4

What are cash flows from operating activities ?

Answer 4

This represents cash inflows and outflows from normal day-to-day trading activities, after taking into account the tax paid and the financing costs relating to these activities

Question 5

What is the formula for net increase in cash / cash equivalents over the period ?

Answer 5

Cash flows from operating activities +/- cash flows from investing activities +/- cash flows from financing activites = net increase

Question 6

What is are cash flows from investing activities ?

Answer 6

These include cash outflows to acquire non-current assets and cash inflows from their disposal

Question 7

What are cash flows from financing activities ?

Answer 7

These are cash inflows and outflows from long term financiing of the busines

Question 8

What are direct costs ?

Answer 8

These are costs which are directly linked to the product and the operating activities involved to make the product

Question 9

What are indirect costs ?

Answer 9

These are costs which can’t be directly tied to the product