Exam 4: The Statement of Cash Flows

The statement of cash flows can be drawn up using either the direct method or the indirect method. Under the indirect method, the total inflows and outflows from operations are ignored and the operating profit for a period is adjusted for increases or decreases in inventory, receivables, prepayments, payables and accruals and for the effect of non-cash items. Which one of the following statements is not true?

The omission or misstatement of information in financial statements which could influence the decisions of users based on the financial information provided by an entity is a description of which accounting convention?

Collie Limited had the following cash inflows during the year ended 30 June 2019: Proceeds from the sale of investments of £200,000. Proceeds from the issue of shares of £250,000. Proceeds from the bond issue of £500,000. Proceeds from the sale of property, plant and equipment of £50,000. What is Collie Limited's total cash inflow from financing activities for the year ended 30 June 2019?

An increase in prepayments is added to the operating profit when calculating the cash inflow or outflow from operating activities.

Wye Limited acquired plant and machinery for use in its business at a cost of £200,000 three years ago. The plant and machinery was estimated to have a residual value of £33,600 and an estimated useful life of 5 years. The plant and machinery has been depreciated on the reducing balance basis at the rate of 30% per annum. At the end of 3 years the plant and machinery was sold and a profit of £11,400 was made on the sale. What was the cash inflow from the sale of the plant and machinery that will be recorded under cash flows from investing activities?

Being cautious and expecting less favourable outcomes describes which accounting convention?

Ell Limited acquired plant and machinery for use in its business at a cost of £80,000. The plant and machinery was estimated to have a residual value of £20,000 and an estimated useful life of 4 years. The plant and machinery has been depreciated on the reducing balance basis at a rate of 29.50%. 2 years after the date of acquisition the plant and machinery was sold and a loss of £5,000 was made on the sale of this asset. What is the cash inflow from the sale of the plant and machinery that will be recorded under cash flows from investing activities?

When using the indirect method in preparing the statement of cash flows, increases in inventory, trade receivables and prepayments are deducted from operating profit while increases in trade payables, accruals and provisions are added to operating profit.

Increases in provisions and accruals are added to the operating profit when calculating the cash inflow or outflow from operating activities.

Andreas Limited has the following figures in the financial statements for the year ended 30 November 2019: 2019 2018 £ £ Operating profit 42,000 35,000 Depreciation charged in year 28,000 25,000 Inventories 35,000 40,000 Trade receivables 29,000 32,000 Trade payables 25,000 19,000 What is Andreas Limited's cash inflow from operating activities for the year ended 30 November 2019 using the indirect method?

Murky Limited has a net decrease in cash and cash equivalents of £5m, cash inflows from financing activities of £30m and cash outflows from operating activities of £10m. What is the cash outflow from investing activities?

Not anticipating profits until they have been earned through a sale is a description of which accounting convention?

Which one of the following is not a cash flow from financing activities?

Which one of the following statements is not true?

Jana Limited has the following figures in the financial statements for the year ended 31 August 2019: 2019 2018 £ £ Operating (loss)/proft (5,000) 15,000 Depreciation charged in year 45,000 42,000 Inventories 28,000 35,000 Trade receivables 43,000 32,000 Trade payables 38,000 30,000 What is Jana Limited's cash inflow from operating activities for the year ended 31 August 2019 using the indirect method?

Which of the following account balances would not be classified as cash and cash equivalents in the financial statements of a grocery retailer?

Both the statement of profit or loss and the statement of cash flows are drawn up on the accruals basis of accounting.

Recording all assets and liabilities at their original cost to the business is a description of which accounting convention?

Which one of the following is not a cash flow from investing activities?

Barry Limited has the following figures in the financial statements for the year ended 31 March 2019: 2019 2018 £ £ Operating profit 225,000 200,000 Loss on disposal of property 15,000 Nil Depreciation charged in year 115,000 130,000 Inventories 175,000 158,000 Trade receivables 238,000 252,000 Trade payables 365,000 342,000 What is Barry Limited's cash inflow from operating activities for the year ended 31 March 2019 using the indirect method?