Statement Of Cashflows

Question 1

Learn

Answer 1

• Profit is calculated on an accruals basis and is subjective, cash is a matter of fact and therefore objective (LSBF)

LSBF. ACCA F3 Study Manual 2017/18. London School of Business and Finance, 20170501. VitalBook file.

Question 2

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Answer 2

• A business may be very profitable, yet still prone to failure in the event that cash is not collected in time to pay employees, suppliers and government. ( (LSBF)

LSBF. ACCA F3 Study Manual 2017/18. London School of Business and Finance, 20170501. VitalBook file.

Question 3

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Answer 3

• The statement of cash flow enables the user to identify how the business has generated cash e.g. through operating activities or by the owners having to inject additional cash. (LSBF)

LSBF. ACCA F3 Study Manual 2017/18. London School of Business and Finance, 20170501. VitalBook file.

Question 4

Learn

Answer 4

• The statement of cash flow enables the user to identify how the business has spent cash e.g. paid out in the form of dividends, or reinvested in new machinery (LSBF)

LSBF. ACCA F3 Study Manual 2017/18. London School of Business and Finance, 20170501. VitalBook file.

Question 5

Learn

Answer 5

Thus the statement of cash flow provides an indication as to the businesses likely future success. (LSBF)

LSBF. ACCA F3 Study Manual 2017/18. London School of Business and Finance, 20170501. VitalBook file.

Question 6

Know that

Answer 6

In exam questions always consider the direction of the cash flow, namely cash in or cash out of the business, if in doubt write out the double entry for a given transaction. (LSBF)

LSBF. ACCA F3 Study Manual 2017/18. London School of Business and Finance, 20170501. VitalBook file.

Question 7

Know that

Answer 7

• The statement of cash flow comprises:

– Cash flows from operating activities

– Cash flows from investing activities

– Cash flows from financing activities

– Cash and cash equivalents (F5e) (LSBF)

LSBF. ACCA F3 Study Manual 2017/18. London School of Business and Finance, 20170501. VitalBook file.

Question 8

Methods of calculating cashflows

Answer 8

• Cash flows from operating activities may be calculated using the direct or indirect method. (LSBF)

LSBF. ACCA F3 Study Manual 2017/18. London School of Business and Finance, 20170501. VitalBook file.

Question 9

Indirect method of calculating cashflows

Answer 9

• Using the indirect method, the starting point is always profit before tax (PBT), in some cases the examiner may only provide the following information eg:

Profit before interest and tax (PBIT)
X
Finance cost
(X)
Tax
(X)
Profit after tax (PAT)
X (LSBF)


Based on the above you are expected to either deduct the finance cost from PBIT, or add back the tax to PAT to so as to calculate PBT.

Question 10

Whats cash equivalents

Answer 10

• Cash equivalents are short term highly liquid assets e.g. government bonds (LSBF)

LSBF. ACCA F3 Study Manual 2017/18. London School of Business and Finance, 20170501. VitalBook file.

Question 11

Overdrafts

Answer 11

• An overdraft should be included as part of cash and cash equivalents rather than financing activities (LSBF)

LSBF. ACCA F3 Study Manual 2017/18. London SchBusiness and Finance, 20170501.

Question 12

Direct method for cashflow from operating activities..

Answer 12

Used when given info from ledger accounts and not just fin statements:

Cash sales  x
Cash received from credit customers x
Cash purchases -x
Cash paid to credit suppliers -x
Cash expenses -x
Cash wages -x
TOTAL
Cash generated from operations x

Question 13

Cash flows from investing activities comprise of

Answer 13

• purchase of non current assets
  + proceeds from sale of non current assets

+ interest received
+ dividends

Note: in exam can be asked to figure out the purchased non current assets

Or sale proceeds from disposal of assets

Question 14

How to calculate the sale from non current assets

NBV of NC asset account

Opening bal   X
Dep charge. -x
Revaluation. + x
Nbv of disposed -x
Addition of ppe + x
= closing bal   X

Find missing value

Answer 14

As above

Question 15

Direct method of calculating cashflow from operating activities

Answer 15

Cash received from customers

Cash paid to suppliers

Cash paid to employees

Other payments