Deck 18: Statement of Cash Flows

Question 1

Which of the following would be classified as investing activities on a statement of cash flows?
I) Purchase of a computer
II) Issue of debentures
III) Sale of land
IV) Payment of dividends

A) I and II only
B) I and III only
C) II and IV only
D) I, II, III and IV

Answer 1

B

Question 2

IAS 7/AASB 107 defines activities that relate to changes in the size and composition of the financial structure of an entity as:

A) borrowing activities.
B) investing activities.
C) financing activities.
D) equity activities.

Answer 2

C

Question 3

IAS 7/AASB 107 requires which of the following items to be disclosed in the note to the statement of cash flows?
I) Details of cash flows from the acquisition and disposal of subsidiaries.
II) A reconciliation of net cash from operating activities with profit after income tax.
III) A reconciliation of cash and cash equivalents with the items reported in the balance sheet.

A) I only
B) I and II only
C) II and III only
D) I, II and III

Answer 3

D

Question 4

For a manufacturer, which of the following is not an operating cash outflow?

A) Payment of GST
B) Payment of wages
C) Payment to suppliers
D) Payment for the purchase of manufacturing equipment

Question 5

A firm reported that accounts receivable increased by $20 000 between the current year and the prior year. If accrual-basis sales were $150 000 the amount of cash received from customers during the year was:

A) $150 000.
B) $130 000.
C) $170 000.
D) $20 000.

Question 6

Which assertion relating to the statement of cash flows is incorrect?

A) Cash flows from one activity are not normally offset against cash flows from a different activity.
B) GST is not included anywhere in the statement of cash flows.
C) Cash outflows are shown in brackets.
D) The statement is headed 'for the period ended'.

Question 7

The 'bottom line' in the statement of profit or loss and other comprehensive income is profit. The 'bottom line' in the statement of cash flows is:

A) cash flow from operations.
B) net cash at the end of the year.
C) net cash at the beginning of the year.
D) net increase (decrease) in the cash balance over the period.

Question 8

In IAS 7/AASB 107, is/are short-term, highly liquid investments that are readily convertible into known amounts of cash and are subject to an insignificant risk of change in value.

A) cash.
B) bills of exchange.
C) cash equivalents.
D) accounts receivable.

Question 9

The accounting standard dealing with the statement of cash flows is:

A) IAS 7/AASB 107.
B) IAS 1/AASB 1001.
C) IAS/19/AASB 1019.
D) IAS 18/AASB 118.

Question 10

Information about an entity's cash inflows and cash outflows is provided in the:

A) statement of changes in equity.
B) statement of cash flows.
C) statement of financial position.
D) statement of profit or loss and other comprehensive income.

Question 11

Which of the following is not classified as a financing activity by IAS 7/AASB 107?

A) Repayment of borrowings.
B) Dividends paid to shareholders.
C) The issue of shares by a company to raise capital.
D) The sale of shares that have been held as an investment.

Question 12

Which of the following are methods that are used to prepare a statement of cash flows?
I) Use information obtained directly from the primary records of cash transactions.
II) Use information in the accrual-based statement of profit or loss and statement of financial positions but remove the effect of non-cash items.
III) Use information in the accrual-based statement of profit or loss and statement of financial positions but add the effect of non-cash items.

A) I, II and III
B) I and III
C) II and III
D) I and II

Question 13

Which of the following is a classification used in the statement of cash flows?

A) Operating activities
B) Selling activities
C) Borrowing activities
D) Administrative activities

Question 14

Which statement concerning the treatment of the purchase and sale of non-current assets in a statement of cash flows is incorrect?

A) The cash purchase of a non-current asset is treated as an investing outflow.
B) The proceeds of sale from a non-current asset are treated as an investing inflow.
C) The carrying value of a non-current asset that has been sold is treated as an investing outflow.
D) Inflows and outflows for the purchase and sale of non-current assets must not be netted off against each other.

Question 15

Which statement concerning the concept of cash adopted by IAS 7/AASB 107 is incorrect?

A) Accounts receivable are generally included in the definition of cash and cash equivalents.
B) Depending on the conditions that apply, a bank overdraft may be treated as a financing activity.
C) Transfers between items included in the definition of cash and cash equivalents are not reported in the statement of cash flows.
D) As a general rule, liquid investments with a term of three month or less, with insignificant risk of changes in value, fall within the definition of cash or cash equivalents.

Question 16

Which of the following is not a requirement of IAS 7/AASB 107?

A) Reporting of gross cash flows rather than net flows.
B) Provision of a note reconciling gross profit with cash paid for cost of sales.
C) Provision of comparative figures for the previous year as well as current year figures.
D) A reconciliation of the net increase or decrease in cash held with the cash items appearing in the statement of financial position.

Question 17

When an annual statement of cash flows is prepared the sum of the three major components add up to:

A) profit for the period.
B) the ending working capital.
C) the ending cash at bank account balance.
D) the change in the cash at bank account balance over the year.

Question 18

If cost of sales is $300 000, inventory has increased by $12 000 and creditors have decreased by $20 000 what is the amount of cash paid for the purchase of goods for resale?

A) $332 000
B) $320 000
C) $288 000
D) $268 000

Question 19

How would the purchase of government bonds by a sporting club be reported in the statement of cash flows?

A) Financing outflow
B) Financing inflow
C) Investing outflow
D) Investing inflow

Question 20

The primary purpose of a statement of cash flows is to provide information about an entity's:

A) gross profit.
B) operating activities.
C) long-term financial position.
D) cash inflows and cash outflows.

Question 21

In its most recent financial year Boomerang Ltd reported that accounts payable increased $8 000; inventory decreased $12 000; profit was $68 000 and depreciation expense was $4 000. Using the indirect approach, what is the net cash flow from operating activities that will be reported in the statement of cash flows?

A) $92 000
B) $88 000
C) $52 000
D) $44 000

Question 22

Discount allowed is a:

A) cash item that is included as an outflow in the statement of cash flows.
B) cash item that is included as an inflow in the statement of cash flows.
C) cash item that is adjusted in a note attached to the statement of cash flows.
D) non-cash item that is deducted from accrual based revenue and thus not included in the statement of cash flows.

Question 23

The ledger account for buildings had a balance of $720 000 at the beginning of the year and a balance of $1 050 000 at the end of the year. If the buildings have been revalued upwards by $100 000 during the year what is the investing outflow for the period, for buildings, assuming no buildings were sold?

A) $130 000
B) $230 000
C) $330 000
D) $430 000

Question 24

From the information provided below, determine the amount of cash received from customers during 2019.
$$\begin{array} { l r } \text { Accounts receivable (31-Dec-2018) } & \$ 23000 \\\text { Accounts receivable (31-Dec-2019) } & 31000 \\\text { Sales } & 270000\end{array}$$

A) $239 000
B) $262 000
C) $270 000
D) $278 000

Question 25

The statement of profit or loss of Little Co shows accrual-basis interest income for the year ended 30 June 2019 as $4 000. The comparative balance sheets show that interest receivable at 30 June 2018 and 30 June 2019 was $500 and $800 respectively. The amount of cash received by way of interest during the year was:

A) $4 500
B) $3 700
C) $3 200
D) $4 300

Question 26

The records of Angelo's Pizza showed the following:
$$\begin{array} { l r r } & \text { 30 June 18 } & \text { 30 June } 19 \\\text { Pizza ovens and equipment } & \$ 39000 & \$ 43000 \\\text { Accumulated depreciation ovens and equipment } & 6000 & 9000 \\\text { Cost of equipment sold } & & 6000 \\\text { Carrying value of equipment sold } & & 1000 \\\text { Proceeds of sale of equipment } & & 4500\end{array}$$
The amount of depreciation expense on ovens and equipment that would appear in a note attached to a statement of cash flows reconciling profit with cash flow from operations is:

A) $6 000.
B) $8 000.
C) $9 000.
D) $15 000.

Question 27

The following details relate to the equity of R. Simpson, sole proprietor.
$\begin{array}{lcc} & \text { End year 1 } & \text { End year 2 } \\\text { Capital } & \$ 60000 & \$ 60000 \\\text { Current account } & 24000 \mathrm{CR} & 38000 \mathrm{CR}^{*}\end{array}$
$\text { * Includes nrofit for the vear of } \$ 48000$
How much was withdrawn by R. Simpson during year 2?

A) $34 000
B) $62 000
C) $72 000
D) Cannot be calculated from the information provided

Question 28

Assume tax is paid annually in a lump sum. The beginning balance in the current tax liability account is $52 000 and the ending balance is $73 000. There was no under or over provision of tax for the year. What is the amount of tax paid to be included in the statement of cash flows for the period?

A) Nil
B) $52 000
C) $73 000
D) $13 000

Question 29

Osco Ltd uses the allowance method of accounting for bad and doubtful debts. Bad and doubtful debts expense shown in the income statement is $10 000 and the amount of bad debts actually written off is $8 000. If sales are $220 000 and accounts receivable have increased by $12 000 over the period, the amount to be shown in the statement of cash flows for receipts from customers is:

A) $200 000
B) $210 000
C) $220 000
D) $240 000

Question 30

Jackson Company's accounting records are set out below.
$\begin{array}{lcc} & \text { Beginning balance } & \text { Ending balance } \\ & \$^{\prime} 000 & \$ 000 \\\text { Accounts receivable } & 45 & 52 \\\text { Accounts payable } & 30 & 26 \\\text { Prepaid expenses } & 22 & 26 \\\text { Inventory } & 40 & 43 \\\text { Sales } & - & 90 \\\text { Cost of sales } & - & 60 \\\text { Expenses (other than cost of sales) }& - & 41\end{array}$
Determine the amount of cash paid for purchases of inventory during the period.

A) $64 000
B) $60 000
C) $53 000
D) $67 000

Question 31

The records of Angelo's Pizza showed the following:
$$\begin{array} { l r r } & 30 \text { June } 18 & \text { 30 June } 19 \\\text { Pizza ovens and equipment } & \$ 39000 & \$ 43000 \\\text { Accumulated depreciation ovens and equipment } & 5000 & 8000 \\\text { Cost of equipment sold } & & 6000 \\\text { Carrying value of equipment sold } & & 3000 \\\text { Proceeds of sale of equipment } & & 4500\end{array}$$
The investing cash outflow for equipment for the year ending 30 June 2019 is:

A) Equipment purchased $6 000
B) Equipment purchased $10 000
C) Equipment purchased $3 000
D) Equipment purchased $4 500

Question 32

For a statement of cash flows, when preparing the note reconciling a net loss and cash flow from operations, depreciation is:

A) subtracted from net loss.
B) added back to the net loss.
C) does not appear in the reconciliation.
D) appears as part of the profit figure.

Question 33

During the year Mike's Bikes reported that accounts receivable had increased by $13 000. If accrual basis sales were $118 000 the amount of cash received from customers during the year must have been:

A) $105 000.
B) $118 000.
C) $131 000.
D) Cannot be calculated from the information provided.

Question 34

When preparing the note reconciling profit/loss and cash flow from operations, depreciation:

A) is subtracted from a profit.
B) does not appear in the reconciliation.
C) is added back to a loss.
D) is added back to a profit.

Question 35

Under IAS 7/AASB 107 which of the following is required to be disclosed in the notes attached to the statement of cash flows?

A) The opening bank balance
B) The closing bank balance
C) Standby credit arrangements
D) Proceeds from a share issue

Question 36

The statement of profit or loss shows interest revenue for the year of $12 000 and the balance sheet show interest receivable at the beginning of the year of $5 000 and at the end of the year of $8 000. The amount of interest received in cash for the year is:

A) $13 000
B) $17 000
C) $9 000
D) $12 000

Question 37

If wages expense for the year is $480 000, wages accrued at the beginning of the period are $15 600 and wages accrued at the end of the period are $18 200 what amount for wages paid will appear in the statement of cash flows?

A) $477 400
B) $461 800
C) $480 000
D) $482 600

Question 38

A statement of cash flows is being prepared using accrual based information. Using the direct write-off method to calculate cash receipts from customers, bad debts written off is:

A) not adjusted.
B) shown as cash outgoing.
C) added to accrual-basis revenue.
D) subtracted from accrual-basis revenue.

Question 39

When preparing the note attached to the cash flow statement reconciling profit and cash flow from operations, losses incurred from the sale of non-current assets are:

A) added back to the profit.
B) subtracted from the profit.
C) do not appear in the reconciliation.
D) sometimes added back to the profit and sometimes subtracted from the profit depending on whether a loss or profit on disposal is incurred.

Question 40

Pearson Co's cost of sales for the year ended 30 June 2019 was $180 000. During the year, accounts payable and inventory each increased by $18 000. What amount of cash was paid for purchases during the year?

A) $162 000
B) $180 000
C) $198 000
D) $216 000

Question 41

Bender Ltd uses the allowance method of accounting for bad and doubtful debts. Their accounts show:
$$\begin{array}{l}\begin{array} { l r } \text { Sales } & \$ 140000 \\\text { Accounts receivable balance } 1 \text { July } 18 & 20000 \\\text { Accounts receivable balance 30 June } 19 & 28000 \\\text { Bad debts written off * } & 3000 \\\text { Discount allowed } & 9000\end{array}\\\text { [*] The direct write-off method is used. }\end{array}$$
The amount of bad debts actually written off during the year is:

A) $4 000
B) $7 600
C) $18 000
D) $21 600

Question 42

Which statement concerning the interpretation of a statement of cash flows is incorrect?

A) The notes to the statement of cash flows are important in interpreting the firm's cash position.
B) Ways in which cash flows can be manipulated include delaying cash payments and employing finance leases.
C) It is the indirect method rather than the direct method of preparation that is preferred by the standard setters.
D) The statement of cash flows as required under IAS 7/AASB 107 only goes some of the way in enabling users to establish the liquidity/solvency position of an entity.

Question 43

Which statement concerning the indirect method of preparing a cash flow statement is correct?

A) With the indirect method, depreciation is deducted from profit to arrive at net cash from operating activities.
B) The direct, rather than the indirect method of preparation, is the method preferred by standard setters.
C) The indirect method is more expensive to implement that the direct method.
D) The investing and financing sections of a cash flow statement differ depending on whether the direct or indirect method of preparation is used.

Question 44

The balance sheets of Rainbow Ltd show:
$$\begin{array} { c c c } & 31 \text { December 2018 } & 31 \text { December } 2019 \\\text { Current tax liability } & \$ 55000 & \$ 65000\end{array}$$
The statement of profit or loss and other comprehensive income for the year ended 31 December 2019 shows income tax expense of $65 000.
What amount, in respect of income tax paid, will appear in the statement of cash flows for the year ended 31 December 2019? Assume tax is paid annually in arrears and there are no over- or under-provisions of tax.

A) Nil
B) $55 000
C) $65 000
D) $120 000

Question 45

Davis Ltd provided the following information for the year ended 30 June 2020.
$$\begin{array} { l r } \text { Sales } & \$ 345000 \\\text { Accounts receivable 1 July 2019 } & 60000 \\\text { Accounts receivable 30 June 2020 } & 50000 \\\text { Bad debts written off during the year* } & 26000\end{array}$$
Direct method (DR Bad debts expense $26 000; CR Accounts receivable $26 000).
Cash receipts from customers for the year ending 30 June 2020 were:

A) $309 000.
B) $329 000.
C) $361 000.
D) $381 000.

Question 46

Which of the following is not a way in which cash flows may be manipulated?

A) Use of barter
B) Use of lease financing
C) Deferring repayment of debts
D) Charging excessive depreciation

Question 47

Which of the following are non-cash transactions?
I) Share dividend
II) Discount allowed
III) Bad debt write-off
IV) Impairment of goodwill

A) I and IV only
B) II and IV only
C) II, III and IV only
D) I, II, III and IV

Question 48

Which of the following are non-cash transactions or events?
I) Credit sale
II) Barter transaction
III) Purchase of a building partly financed by a mortgage
IV) Takeover paid for with shares in the acquiring company

A) I and II only
B) I, II and IV only
C) II and IV only
D) All of the above are non-cash transactions or events.

Question 49

Which of the following are limitations of a statement of cash flows?
I) Only past cash flows are reported
II) Cash flows can be manipulated,e.g. postponing expenditures
III) Non-cash transactions can be significant in affecting future investing and financing cash flows

A) I and II only
B) II and III only
C) I, II and III
D) None are considered limitations.

Question 50

Which of the following transactions would be reported directly in the statement of cash flows rather than in the notes?

A) Interim dividend paid
B) A bonus share issue
C) Amortisation of goodwill
D) The acquisition of another entity by means of a share issue

Question 51

Which of the following statements is not correct?

A) The statement of cash flows effectively duplicates the function of the cash budget.
B) Analysis of an entity's cash flow position requires an examination of trends in statement of cash flows items over several years.
C) The statement of cash flows can explain the effects of operating activities on the entity's cash position.
D) The statement of cash flows can provide information about the causes of changes in the entity's cash position over the period.

Question 52

Xander Ltd's financial information includes the following.
$$\begin{array}{l}\begin{array} { l r } \text { Sales } & \$ 140000 \\\text { Accounts receivable balance } 1 \text { July } 18 & 20000 \\\text { Accounts receivable balance 30 June } 19 & 28000 \\\text { Bad debts written off * } & 3000 \\\text { Discount allowed } & 9000\end{array}\\\text { [*] The direct write-off method is used. }\end{array}$$
[] The direct write-off method is used.
The cash received from customers for the year ended 30 June 19 was:

A) $120 000.
B) $144 000.
C) $160 000.
D) $138 000.

Question 53

According to AASB's Interpretation 1031, which of the following statements relating to the treatment of GST in the statement of cash flows are correct?
I)All GST outlays and GST collections are regarded as effecting operating activities.
II)Cash flows from operating activities are reported at gross amounts inclusive of GST.
III)Cash flows from investing activities are shown net of GST, with GST on investing activities included as part of operating activities.

A) I and III only
B) I and II only
C) II and III only
D) I, II and III

Question 54

The accrual-basis tax expense in the income statement is $90 000, the beginning balance in the current tax liability account is $130 000 and the ending balance is $150 000. What is the amount of tax paid to be included in the statement of cash flows for the year?

A) $70 000
B) $110 000
C) $130 000
D) $150 000