Summer Exam

Question 1

Reason for decline in cash balance

Answer 1

1. Purchase of fixed assets by€220,000 does not reduce profit
2. Purchase of government securities €56,000 reduce cash not profit
3. Payments of dividend and cash €112,000 reduce cash not profit
4. Increase in stock, debtors and decrease in creditors reduced cash by €148,000 but didn’t reduce profit

Question 2

Why profit does not always result in increase in cash balances

Answer 2

1. Credit sales/purchases affect profit but do not affect cash.
2. Non-cash losses and gains affect profit but not cash.
3. Purchase and sale of fixed assets by cash affect cash but not profit. 4. Introduction or withdrawal of capital in cash affect cash but not profit.

Question 3

Write an note on the accounting standards board

Answer 3

The Accounting Standards Board issues new accounting standards called Financial Reporting Standards (FRS).
It also amends and withdraws old accounting standards.

Question 4

How accounting board influenced accounts

Answer 4

FRS 1, which was issued by the ASB in 1991 and revised in 1996 requires large companies
to prepare a Cash Flow Statement for each activity period.
It requires that individual cash flows should be entered under standard headings according to the activity that gives rise to them.

Question 5

Step 1

Answer 5

Calculate net change incash

Question 6

Step2

Answer 6

Calculate the amount of taxation divends or interest

Question 7

Step3

Answer 7

Calculate the adjustments of debtors creditors

Question 8

Step 4

Answer 8

Calculate fixed assets and financial assets

Question 9

Step 5

Answer 9

Calculate change of capital structure in the firm

Question 10

Rec 1

Answer 10

Reconciliation of operating profit from net cash flow to operating activities

Question 11

Rec 2

Answer 11

Reconciliation of net cash flow to movement in net debt

Question 12

Reason for a cash flow

Answer 12

1. Planning finance
2. Predict cash flow
3. To comply with legal requirements
4. To show cash does not always equal finance
   5 for loan application

Question 13

Frs

Answer 13

Financial reporting standards