Test 3

Question 1

Journal entry for issue of shares

Answer 1

Dr bank
Cr share application account

Dr share application account
Cr share capital (Owners Equity)

Question 2

Journal entry for share issue costs

Answer 2

Dr Share issue costs
Cr bank

Cr share issue costs
Dr share capital

Question 3

Operating activities

Answer 3

Relate to the principal revenue producing activities of the entity

Question 4

Operating activities comprised of

Answer 4

Cash receipts from (sale of goods and rendering of services, commisions and other income)
Cash payments to ( suppliers, employers, tax authority)

Question 5

Investing activities

Answer 5

Relate to the acquisition and disposal of non-current assets

Question 6

Investing activities: cash receipts from

Answer 6

Cash receipts from:
- Sale of property, plant & equipment, intangibles and long term assets
- Sale of shares and debentures of other enterprises
- Repayment of loans made to others

Question 7

Investing activities: cash payments to

Answer 7

• Acquire PP&E, intangibles and long term assets
• Acquire shares or debentures
• Advance loans to others

Question 8

Financing activities

Answer 8

Relate to equity and borrowings

Question 9

Financing actives comprises of

Answer 9

Cash proceeds from:
- increases in equity
- long term borrowing

Cash payments to:
- owners repayment for equity
- repay amount borrowed

Question 10

Movement of cash equation

Answer 10

A = O+L
Cash + other assets = Equity + Liabilities
Cash = Equity + Liabilities - other assets
Movement in cash = movement in non-cash items

Question 11

Activity type for non current asset

Answer 11

Investing

Question 12

Current assets (minus bank) activity type

Answer 12

Operating activities

Question 13

Equity and non current liabilities (loan from bank) activity type

Answer 13

Financing activities

Question 14

Current liabilities activity type

Answer 14

Operating activities

Question 15

Preparation steps of operating activities section

Answer 15

Profit before tax
Step 1 +/- Non-cash items
Step 2 +/- Non-operating items
= Operating cash flow before working capital changes
Step 3 +/- Working capital changes
= Cash generated from operations
Step 4 +/- Cash effects of non-operating items, dividends and tax
= Net cash flow from operating activities

Question 16

Non cash items formula

Answer 16

Profit before tax
- Income items that do not result in inflow of cash
+ Expense items that do not result in outflow of cash

Question 17

Non operating items formula

Answer 17

Reverse non-operating income and expense items included in
determination of profit for the period
• Examples of non-operating items include
• Investment income received
• Interest paid

Question 18

Working capital changes formula

Answer 18

Profit before tax
-Increases in current assets
+Decreases in current assets
+Increases in current liabilities
- Decreases in current liabilities

Question 19

Cash effects of non-operating items, taxation and dividends formula

Answer 19

Investment income received
Interest paid
Taxation paid
Dividends paid

Question 20

Cash effects of non-operating items, taxation and dividends formula

Answer 20

Investment income received
Interest paid
Taxation paid
Dividends paid

Question 21

Where are dividends found

Answer 21

Statement of changes in equity
Dividends are not an expense
Debit balance