3b. Pearson Qs

Question 1

Which ONE of the following items would be shown under the heading​ ‘cash flows from financing​ activities’ in a statement of cash​ flows?

A. Depreciation of​ non-current assets
B. Repayment of loan notes
C. Loan interest paid
D. Tax paid

Answer 1

B. Repayment of loan notes

Question 2

What is the immediate effect of making a repayment on a loan on cash flow and​ profits?

A. Profit​ decreases, cash no effect
B. Profit​ increases, cash decreases
C. Profit no​ effect, cash decreases
D. Profit​ decreases, cash decreases

Answer 2

C. Profit no​ effect, cash decreases

Question 3

Which ONE of the following changes in working capital items will be added back to profit before taxation​ (after interest), when calculating the cash flows from operating​ activities?

A. a decrease in inventories and a decrease in trade payables
B. a decrease in inventories and an increase in trade receivables
C. a decrease in inventories and a decrease in trade receivables
D. an increase in inventories and a decrease in trade payables

Answer 3

C. a decrease in inventories and a decrease in trade receivables

A decrease in inventories would indicate an increase in available cash as would a decrease in trade payables.

Question 4

In a statement of cash​ flows, the cash generated from​ day-to-day trading activities is known as which ONE of the​ following?

A. Cash flows from ordinary activities
B. Cash flows from normal activities
C. Cash flows from trading activities
D. Cash flows from operating activities

Answer 4

D. Cash flows from operating activities

Question 5

The cost of​ non-current assets as at 1 January 2015 was 842,000 and as at 31 December 2015 was 948,600. An asset which cost 18,000 in 2013 had been disposed of during the year ended 31 December 2015. The carrying amount of the asset at the time of disposal was ​12,000. What is the cash outflow from investing activities during the year ended 31 December​ 2015?

Answer 5

​(Adjusted cost of​ non-current assets at 1 January 2015 Cost of​ non-current assets as at 31 December ​2015) Cash outflow from investing activities.
Please try again.

842,000 - 18,000 - 948,600 == 124,600 outflow

Question 6

During the year Dartington Ltd sold a machine for ​3,000 that cost ​5,000 and had a carrying amount of ​2,300. Under which of the following headings would the profit from the sale of the machine be​ shown?

A. cash flows from​ non-operating activities
B. cash flows from investing activities
C. cash flows from operating activities
D. cash flows from financing activities

Answer 6

C. cash flows from operating activities

Question 7

Which of the following is the best explanation of why depreciation is added back to profit before taxation​ (after interest) when calculating the cash flow from​ operations?

A. Depreciation is a subjective amount in the profit calculation and so must be taken out to leave only objective measures
B. Depreciation must be removed from the income statement because it belongs with the relevant asset in the capital expenditure section
C. Depreciation is an expense in the profit calculation but does not involve a flow of cash and so must be taken out of the profit calculation
D. Depreciation has been reported once in the income​ statement; there is no need to report it a second time in the cash flow statement

Answer 7

C. Depreciation is an expense in the profit calculation but does not involve a flow of cash and so must be taken out of the profit calculation

Question 8

Consider the following statements concerning the two methods employed to derive the figure for net cash flows from operating activities.

1. The direct method is more widely used in practice than the indirect method.
2. The direct method and the indirect method should produce the same figure.

Are the above statements true or​ false?

Answer 8

1. False
2. True

Question 9

The essential difference between the statement of cash flows and the income statement is​ that:

A. the statement of cash flows only deals with items measurable in money​ terms, whereas the income statement also includes​ non-monetary items
B. the income statement is based on the accruals​ concept, whereas the statement of cash flows reports cash received and paid
C. the statement of cash flows is a forecast of the​ future, whereas the income statement reports on historical events
D. the income statement is prepared for external​ users, whereas the statement of cash flows is prepared for internal users

Answer 9

B. the income statement is based on the accruals​ concept, whereas the statement of cash flows reports cash received and paid

Question 10

Which ONE of the following changes in working capital items will be deducted from profit before taxation​ (after interest), when calculating the cash flows from operating​ activities?

What could be the reason for this?

Answer 10

High depreciation charges