Week 7

Question 1

What is the definition of Cash?

Answer 1

1. “Cash comprises cash on hand and demand deposits.”
2. “Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.”

Question 2

What is the definition of Operating Activities?

Answer 2

1. The principal REVENUE-PRODUCING ACTIVITIES of the entity and
2. other activities that are NOT INVESTING or FINANCING,

i.e. relate to the provision of goods and services

Question 3

What are Operating Activities?

Answer 3

Cash flows from operating activities
– Receipts from customers
– Payments to suppliers and employees
– Dividends received
– Cash generated from operations
– Interest paid
– Income taxes paid

Question 4

What is the definition of Investing Activities?

Answer 4

The ACQUISITION and/or DISPOSAL of

1. LONG TERM ASSETS (including property, plant and equipment) and
2. other INVESTMENTS (such as securities) not included in cash equivalents

Question 5

What are Investing Activities?

Answer 5

Cash flows from investing activities
– Acquisition of subsidiary, net of cash acquired
– Purchase of property, plant and equipment
– Proceeds from the sale of equipment
– Interest received
– Dividends received

Question 6

What is the definition of Financing Activities?

Answer 6

Cashflows relating to CHANGING the SIZE and/or COMPOSITION of the FINANCIAL STRUCTURE of
the entity, including equity and borrowings not following within the definition of cash.

Question 7

What are Financing Activities?

Answer 7

Cash flows from financing activities
– Proceeds from the issue of shares
– Proceeds from borrowings
– Repayment of borrowings
– Dividends paid

Question 8

What times are disclosed separately in a Cashflow Statement?

Answer 8

1. Interest
2. Dividend received
   3 Taxes

Question 9

What are the sources of information for Operating Activities?

Answer 9

1. Income Statement - Operating items exl. those relating to non-current asset disposal
2. Balance Sheet - Changes in current assets and current liabilities

Question 10

What are the sources of information for Investing Activities?

Answer 10

1. Income Statement - Items related tonon-current asset disposal
2. Balance Sheet - Changes in non-current assets

Question 11

What are the sources of information for Financing Activities?

Answer 11

1. Balance Sheet - Changes in non-current assets and equity

Question 12

What is a limitation of a Balance Sheet?

Answer 12

It is a “snapshot” of financial position is at a given point in time, and may or may not be indicative of the cash situation over a period of time.