Deck 4: The Statement of Cash Flows

Question 1

Roberta Limited has an operating profit for the year ended 28 February 2020 of £25,000. During the year, £40,000 depreciation was charged on the company's non-current assets. Inventory at 28 February 2019 was £10,000, while inventory at 28 February 2020 was £15,000. Roberta Limited trades for cash and had no trade receivables at either 28 February 2019 or 28 February 2020. Trade payables at 28 February 2019 stood at £20,000 while trade payables at 28 February 2020 amounted to £35,000. During the year, Roberta Limited sold non-current assets realising a profit on disposal of £3,000. What is Roberta Limited's cash inflow from operating activities for the year ended 28 February 2020 using the indirect method?

A) £42,000
B) £72,000
C) £78,000
D) £82,000

Answer 1

B

Question 2

Jonathan Limited bought plant and machinery costing £24,000 3 years ago. The plant and machinery was estimated to have a residual value of £4,000 and an estimated useful life of 4 years. The plant and machinery has been depreciated on the straight line basis. At the end of the third year, the plant and machinery was sold for £12,000. What is the profit or loss on disposal to deduct or add back to operating profit in the statement of cash flows?

A) £3,000 loss
B) £3,000 profit
C) £6,000 profit
D) £6,000 loss

Answer 2

B

Question 3

Luigi Limited has an operating profit for the year ended 30 June 2019 of £84,000. During the year, £65,000 depreciation was charged on the company's non-current assets. Inventory at 30 June 2018 was £20,000, while inventory at 30 June 2019 was £25,000. Trade receivables at 30 June 2019 were £35,000 compared to trade receivables at 30 June 2018 of £38,000. Trade payables at 30 June 2019 totalled £29,000 compared to trade payables at 30 June 2018 of £31,000. What is Luigi Limited's cash inflow from operating activities for the year ended 30 June 2019 using the indirect method?

A) £139,000
B) £145,000
C) £149,000
D) £153,000

Answer 3

B

Question 4

Andreas Limited has the following figures in the financial statements for the year ended 30 November 2019:
$\begin{array}{|l|c|c|}\hline & 2019 & 2018 \\\hline & £ & £ \\\hline \text { Operating profit } & 42,000 & 35,000 \\\hline \text { Depreciation charged in year } & 28,000 & 25,000 \\\hline \text { Inventories } & 35,000 & 40,000 \\\hline \text { Trade receivables } & 29,000 & 32,000 \\\hline \text { Trade payables } & 25,000 & 19,000 \\\hline\end{array}$ What is Andreas Limited's cash inflow from operating activities for the year ended 30 November 2019 using the indirect method?

A) £56,000
B) £66,000
C) £72,000
D) £84,000

Question 5

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

A) £14,000
B) £24,000
C) £44,000
D) £54,000

Question 6

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

A) £271,000
B) £317,000
C) £347,000
D) £375,000

Question 7

Boris Limited has the following figures in the financial statements for the year ended 31 December 2019:
$\begin{array}{|l|r|r|}\hline & 2019 & 2018 \\\hline & £ & £ \\\hline \text { Operating profit } & 110,000 & 130,000 \\\hline \text { Profit on disposal of property } & 20,000 & 5,000 \\\hline \text { Depreciation charged in year } & 65,000 & 62,000 \\\hline \text { Inventories } & 75,000 & 70,000 \\\hline \text { Trade receivables } & 92,000 & 85,000 \\\hline \text { Trade payables } & 88,000 & 100,000 \\\hline\end{array}$ What is Boris Limited's cash inflow from operating activities for the year ended 31 December 2019 using the indirect method?

A) £131,000
B) £155,000
C) £169,000
D) £179,000

Question 8

Which one of the following is not a cash outflow from operating activities?

A) Cash paid to employees to pay for wages and salaries.
B) Cash paid to the tax authorities to pay income tax that is due.
C) Cash paid to the bank to pay interest due on a loan.
D) Cash paid to suppliers to pay for trading goods delivered.

Question 9

A profit on disposal of a non-current asset is added to the operating profit when calculating the cash inflow or outflow from operating activities.

Question 10

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

Question 11

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

Question 12

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

A) Interest paid on borrowings.
B) Cash paid to acquire property, plant and equipment.
C) Trademarks acquired for cash.
D) Dividends received.

Question 13

Cash flows from investing activities consist of cash paid out to acquire new non-current assets, cash paid to acquire non-current asset investments, cash received from the sale of non-current assets, cash received from the sale of non-current asset investments, interest received and dividends received.

Question 14

'Interest paid' appears under cash flows from investing activities.

Question 15

The J Organization has cash inflows from operating activities of £14.5m, cash inflows from financing activities of £2.6m and a net decrease in cash and cash equivalents of £4.2m. What is the cash outflow from investing activities?

A) £7.7m
B) £12.9m
C) £16.1m
D) £21.3m

Question 16

Big Finance Corporation has cash inflows from operating activities of £20.5m, cash outflows from financing activities of £5.2m and a net increase in cash and cash equivalents of £6.7m. What is the cash outflow from investing activities?

A) £8.6m
B) £19.0m
C) £22.0m
D) £32.4m

Question 17

Investing Limited has a net increase in cash and cash equivalents of £22m, cash inflows from financing activities of £7m and cash inflows from operating activities of £39m. What is the cash outflow from investing activities?

A) £10m
B) £24m
C) £54m
D) £68m

Question 18

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?

A) £45m
B) £35m
C) £25m
D) £15m

Question 19

Exe Limited acquired plant and machinery for use in its business at a cost of £50,000 two years ago. The plant and machinery was estimated to have a residual value of £10,000 and an estimated useful life of 5 years. The plant and machinery has been depreciated on the straight line basis. At the end of 2 years the plant and machinery was sold and a loss of £4,000 was made on the sale. What is the cash inflow from the sale of the plant and machinery that will be recorded under cash flows from investing activities?

A) £22,000
B) £26,000
C) £30,000
D) £38,000

Question 20

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?

A) £57,200
B) £61,640
C) £80,000
D) £112,075

Question 21

Zed 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 straight line basis. 2 years and 6 months after the date of acquisition the plant and machinery was sold and a profit of £3,500 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?

A) £26,500
B) £33,500
C) £39,000
D) £46,000

Question 22

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?

A) £34,762
B) £39,762
C) £44,762
D) £44,821

Question 23

During the year ended 30 September 2019 Ricky Limited sold motor vehicles which had cost £20,000 three years ago, for £10,000. The total depreciation charged on these motor vehicles since they were purchased was £12,000 and the sale resulted in a profit on disposal of £2,000. Interest received during the year was £2,000 and interest paid was £5,000. Additions to property, plant and equipment during the year totalled £50,000 and payment for these new assets was in cash. This cash was paid out of the money raised from a share issue during the year which produced a cash inflow of £100,000. What is Ricky Limited's cash flow from investing activities for the year ended 30 September 2019?

A) £57,000 inflow
B) £54,000 inflow
C) £46,000 outflow
D) £38,000 outflow

Question 24

During the year ended 31 December 2019 Billy Limited paid £60,000 to acquire new plant and equipment to replace assets that had originally cost £45,000 but which now had a written down value of £15,000. The replaced assets were sold for £18,000, realising a profit on sale of £3,000. During the year, interest received was £1,000 and £5,000 of interest was paid. What is Billy Limited's net cash outflow from investing activities for the year ended 31 December 2019?

A) £41,000
B) £46,000
C) £47,000 outflow
D) £49,000 outflow

Question 25

Angela Limited undertook the following transactions during the year ended 31 March 2020:
Paid £100,000 to acquire new property, plant and equipment.
Sold redundant plant and equipment. The redundant plant and equipment had cost £35,000 and had a carrying amount of £20,000 at the date of disposal. The sale made a loss on disposal of £5,000.
Received interest of £3,000 from the bank.
Paid interest of £6,000 on a bank loan.
Received dividends from BG Plc of £2,000.
Paid dividends of £25,000.
What is Angela Limited's net cash outflow from investing activities for the year ended 31 March 2020?

A) £70,000
B) £76,000
C) £80,000
D) £95,000

Question 26

Taran Investments undertook the following transactions during the year ended 30 November 2019:
Sold shares in Kish Limited for a profit of £50,000. The shares had originally cost £125,000 five years ago.
Bought a new computer system for the offices at a cost of £80,000.
Bought 100,000 shares in Jay Limited, a start-up, at a cost of 90 pence per share.
Received dividends from various investments totalling up to £85,000.
Paid bonuses to the directors of £65,000.
What is Taran Investments' net cash inflow from investing activities for the year ended 30 November 2019?

A) £25,000
B) £30,000
C) £80,000
D) £90,000

Question 27

Dividends paid are classified under cash flows from financing activities to reflect the return expected by shareholders who finance the business through the purchase of shares.

Question 28

Dividends received are classified under cash flows from financing activities while dividends paid are classified under cash flows from investing activities.

Question 29

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

A) Cash received from a long term loan.
B) Cash received from the issue of share capital.
C) Cash paid to the bank to pay interest due on a loan.
D) Cash loaned to another company.

Question 30

Which one of the following would be classified as a cash flow from financing activities in the statement of cash flows of a mining company?

A) Sale of an investment in a mining company in Chile.
B) Dividends received.
C) Repayment of a loan to the mining company.
D) The repayment of a loan to the bank.

Question 31

During the financial year ended 31 May 2020, Brendan Limited raised £75,000 in cash from an issue of share capital and took out a new loan from the bank of £100,000. The proceeds of the share issue and the new loan were used in part to repay an existing bank loan of £150,000. A further £15,000 was raised from the sale of investments, realising a profit of £3,000 on the original cost and interest received contributed £5,000 while interest paid amounted to £10,000. Based on these figures, what is the cash inflow from financing activities for the year ended 31 May 2020?

A) £15,000
B) £20,000
C) £23,000
D) £35,000

Question 32

Olly Limited undertook the following transactions during the year ended 30 November 2019:
Issued 20,000 new shares at a price of £1.50 per share.
Made £6,000 of repayments on the business loan.
Received dividends of £1,000 from Molly Limited.
Paid loan interest of £750.
Paid dividends of £10,000.
Received £500 bank interest.
Paid overdraft interest of £125.
What is Olly Limited's net cash inflow from financing activities for the year ended 30 November 2019?

A) £3,125
B) £13,125
C) £13,625
D) £14,625

Question 33

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?

A) £250,000
B) £450,000
C) £750,000
D) £1,000,000

Question 34

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?

A) Under the indirect method, an increase in inventory is added to the operating profit for the accounting period.
B) Under the indirect method, an increase in trade payables is added to the operating profit for the accounting period.
C) Under the indirect method, depreciation is added to the operating profit for the accounting period.
D) Under the indirect method, an increase in provisions is added to the operating profit for the accounting period.

Question 35

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 true?

A) Under the indirect method, an increase in trade receivables is added to the operating profit for the accounting period.
B) Under the indirect method, an increase in trade payables is deducted from the operating profit for the accounting period.
C) Under the indirect method, an increase in prepayments is deducted from the operating profit for the accounting period.
D) Under the indirect method, a decrease in accruals is added to the operating profit for the accounting period.

Question 36

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?

A) Under the indirect method, a loss on disposal of non-current asset investments is an addition to operating profit.
B) Under the indirect method, an increase in accruals is deducted from the operating profit for the accounting period.
C) Under the indirect method, an increase in prepayments is deducted from the operating profit for the accounting period.
D) Under the indirect method, an increase in inventory is deducted from the operating profit for the accounting period.

Question 37

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 decreases in trade payables, accruals and provisions are added to operating profit.

Question 38

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.

Question 39

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

Question 40

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

Question 41

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

A) Cash in the tills.
B) Cash in a bank deposit account requiring 60 days notice for withdrawals.
C) Cash in an investment bond repayable in 4 months' time.
D) Cash in the bank current account.

Question 42

Which one of the following statements is not true?

A) Profit does not equal cash.
B) Without a steady inflow of cash, an entity will not be a going concern.
C) Entities should aim to receive cash from sales after cash for expenses is paid out to maximize cash and minimize financing costs.
D) The statement of cash flows enables users of financial statements to determine how quickly profits are turned into cash.

Question 43

Under the indirect method of preparing the statement of cash flows: Please select all that apply.

A) The operating profit for a period is adjusted for the effect of non-cash items.
B) The operating profit for a period is adjusted for increases or decreases in inventory, receivables, prepayments, payables and accruals.
C) All the cash inflows and outflows from operations are summarised to produce the net cash inflow from operating activities.
D) Total cash inflows and outflows from operations are ignored.

Question 44

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

Question 45

Which one of the following statements is not true?

A) The provision of astatement of profit or loss together with a statement of cash flows enables users to see much more clearly how quickly profit is turned into cash.
B) The provision of the statement of cash flows enables users of accounts to distinguish between different entities with the same level of profit.
C) The statement of cash flows on its own can still tell us how profitable an organisation is and how quickly profits are being turned into cash.
D) Statements of cash flows are not distorted by the effect of the accrual of income and expenditure into different accounting periods.

Question 46

Which of the following statements are true? Please select all that apply.

A) Depreciation is an accounting adjustment that allocates the cost of non-current assets to the accounting periods benefiting from their use.
B) Cash flows associated with non-current assets are the cash paid to acquire the assets.
C) Depreciation is not a cash flow.
D) Cash received on disposal of non-current assets when they are sold or scrapped at the end of their useful lives is not recognised in the statement of cash flows.

Question 47

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

A) Accruals
B) Periodicity
C) Prudence
D) Realisation

Question 48

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

A) Realisation
B) Prudence
C) Accruals
D) Historic cost

Question 49

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?

A) Business entity
B) Money Measurement
C) Materiality
D) Consistency

Question 50

Keeping the affairs of a business and the affairs of the owner of that business totally separate describes which accounting convention?

A) Business entity
B) Consistency
C) Dual aspect
D) Going concern

Question 51

The recognition of all income and expenditure in the accounting period in which they occurred, rather than in the accounting period in which cash is received or paid, describes which accounting convention?

A) Money measurement
B) Periodicity
C) Dual aspect
D) Accruals

Question 52

The presentation or measurement of the same piece of accounting information on the same basis each year is a description of which accounting convention?

A) Historic cost
B) Dual aspect
C) Consistency
D) Periodicity

Question 53

The assumption that a business will continue in operational existence for the foreseeable future is a description of which accounting convention?

A) Prudence
B) Going concern
C) Realisation
D) Business entity

Question 54

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

A) Historic cost
B) Consistency
C) Prudence
D) Money measurement

Question 55

Two figures change each time a new transaction is undertaken. Which accounting convention does this statement describe?

A) Realisation
B) Money measurement
C) Accruals
D) Dual aspect