Presentation of Financial Statements (IAS 1) Chapter 4. Net cash from/used in financing activities. As latest ACCA F3 past exam questions are not available anymore we recommend ACCA F3 students to use our FREE ACCA F3 Practice Kit to best prepare ACCA F3 Financial Accounting exams. You may be asked to prepare a statement of cash flows. Objective of IAS 7 Statement of Cash Flows. The Statement of Cash Flows describes the cash inflows and outflows for the firm based upon three categories of activities. More information on these question types will be available on the ACCA website. Preparation of the statement of cash flows in accordance with IAS 7 The statement of cash flows is one of the financial statements required to be prepared by an entity in terms of IAS 1 Presentation of financial statements. The Cash Flow Statement (AS 3) provides information about the Net Assets of an Enterprise its Financial Structure and Its Ability to Affect the Amounts and timing of Cash Flows. Financing activity cash flows relate to cash flows arising from the way the entity is financed. that the Auditor has found nothing to suggest that the cash flow projections are inaccurate. During the year the tax charged in the statement of profit or loss was $100. Here as we start with profit before tax we have to add back all the non-cash expenses charged, deduct the non-cash income and adjust for the changes in working capital. (20,000 – 26,000). (b) Using the indirect method determine the operating activities section of the statement of cash flows. 1. Please visit our global website instead. Provisions, contingent assets and liabilities (IAS 37), Chapter 14. The importance of statements of cash flow. A cash flow statement is used as a Conjunction with the other Financial Statements. T 5. Please visit our global website instead, Can't find your location listed? This working is in effect an extract from the statement of changes in equity. This is the cash receipts from customers. It is relevant to the FA (Financial Accounting) and FR (Financial Reporting) exams. The opposite is applicable for trade payables. Under both of these methods the interest paid and taxation paid are then presented as cash outflows deducted from the cash generated from operations. Deprecation reduces the carrying amount of the PPE without being a cash flow. testing question (OTQ) format. This is the proforma that could be produced for a big, cashflow forecast question, though there has not been one yet, it is a minor topic so far Additional information Consolidated statement of financial position, Chapter 24. Accounting policies, changes in accounting estimate and errors (IAS 8), Chapter 11. Cash flows are usually calculated as a missing figure. F 8. Financial instruments (IFRS 9), Chapter 13. Chartered Education IFRS MCQs have more than 1,100 questions like these covering all subjects. Intangible assets (IAS 38) Chapter 7. Problem 1: From the following summary of Cash Account of X Ltd., prepare Cash Flow Statement for the year ended 31st March 2007 in accordance with AS-3 using the direct method. The changes in inventory, trade receivables and trade payables (working capital) do not impact on the measurement profit but these changes will have impacted on cash and so further adjustments are made. It purchased fixed assets for […] We will have more to say about this in a later chapter. Required: In that initial reconciliation the profit before tax is adjusted for expenses that have been charged against profit that are not cash out flows; for example depreciation and losses on disposal of non-current assets, have to be added back, and non-cash income; for example, investment income and profits on disposal of non-current assets are deducted. Solution Note that the cash proceeds ffrom the disposal of PPE ($20) would be shown separately as a cash inflow under investing activities. cash flow statement to assess the impact of these activities on the financial position of an enterprise and also on its cash and cash equivalents. changes in Cash Flow from it like Equity capital, Pref. Here we can take the opening balance of PPE and reconcile it to the closing balance by adjusting it for the changes that have arisen in period that are not cash flows. It is necessary to reconcile the opening tax liability to the closing tax liability to reveal the cash flow – the tax paid - as the balancing figure. Alternatively, the indirect method starts with profit before tax rather than a cash receipt. Thus, in the reconciliation process, the increases in inventory and trade receivables are deducted from profit before tax. Problem 1: The bank balance of a business firm has increased during the last financial year by Rs.1,50,000. IAS 7 requires an entity to present the information about changes in the cash and cash equivalents by a statement of cash flows, these cash flows will be classified under operating, investing and financing activities. Events after the reporting date (IAS 10), Chapter 20. The profit for the year is a credit and increases the retained earnings, This sub-total represents the balance on retained earnings in the event that no dividends have been paid, This is the last figure written in the reconciliation. Question 5: Mocca . Non-current assets held for sale and discontinued operations (IFRS 5), Chapter 9. ... 19 IAS 7 (Revised): Statements of Cash Flows 103 20 Interpretation of Accounts – Ratio Analysis 113 21 IAS 33 Earnings Per Share 119 ... Free ACCA notes t Free ACCA lectures t Free ACCA tests t Free tutor support t Studyuddies t ACCA forums OTQs will only appear in computer-based exams but these questions will still provide valuable practice for all During the same period it issued shares of Rs.2,00,000 and redeemed debentures of Rs.1,50,000. Required: Calculate the cash paid to buy new PPE. A ‘script dividend’ is where a company: A. Answer (a) direct method The statement of cash flow reports cash transactions associated with the purchase or sale of fixed assets (Investing Activities) and cash paid The revaluation gain increases PPE without being a cash flow. Group statement of profit and loss. IAS 7 Statement of Cash Flows applied on the statements after 1 January 1994. Non-current assets (IAS40) Chapter 6. This simple technique of taking the opening balance of an item (in this case the tax liability) and adding (or subtracting) the non-cash transactions that have caused it to change, to then reveal the actual cash flow as the balancing figure, has wide application. The profit before tax is then reconciled to the cash that it has generated. The direct method is relatively straightforward in that all the data are cash flows so it is really just a case of listing the receipts as positive and the payments as negative. There are two different ways of starting the cash flow statement, as IAS 7, Statement of Cash Flows permits using either the 'direct' or 'indirect' method for operating activities. Here we can take the opening balance of PPE and reconcile it to the closing balance by adjusting it for the changes that have arisen in period that are not cash flows. Free IAS 7 multiple choice quiz. Only then are the two actual cash flows of interest paid and tax paid presented. Common cash flow calculations include the tax paid, which is an operating activity cash out flow, the payment to buy property plant and equipment (PPE) which is an investing activity cash out flow and dividends paid, which is a financing activity cash out flow. Market values can never be negative. 14. The balancing figure is the cash spent to buy new PPE. During the reporting period a profit for the year of $450 was reported. This FREE practice kit is updated according to latest syllabus and questions format and serves as a large exam level question bank for preparation, practice and revision of each and every topic of the syllabus. Solution FR, however, is more likely to ask for an extract from the statement of cash flows using more complex transactions (for example, the purchase of PPE using right-of-use asset leases). Financial Reporting ACCA questions and solution 2002 - 2010 Cash Forecast for the Three Months Ended 31 March 20X1. The double entry for depreciation is a debit to statement of profit or loss to reflect the expense and to credit the asset to reflect its consumption. This is the cash receipts from customers. This balancing figure of dividends paid explains why the actual year-end retained earnings is less. The first is the direct method which shows the actual cash flows from operating activities – for example, the receipts from customers and the payments to suppliers and staff. T 9. The operating cash out flows are payments for wages, to suppliers and for other operating expenses which are deducted. F 4. Here is a compilation of top three accounting problems on cash flow statement with its relevant solutions. Chapter 3. Question 3: Bengal. T 6. Imagine a … Having a good understanding of the format of the statement of cash flows is key to a successful attempt at these questions. 3(b) Interpret cash flow statement to assess performance and position of an entity. A company can reward investors through script dividends without paying out any cash. ACTIVITY 23.3 State whether you believe, given your knowledge so far, that cash flow is understandable, relevant, reliable and complete. The direct method is intuitive as it means the statement of cash flow starts with the source of operating cash flows. Answer (b) indirect method 5. Examples of financing cash flows include the cash received from new borrowings or the cash repayment of debt as well as the cash flows with shareholders in the form of cash receipts following a new share issue or the cash paid to them in the form of dividends. At the start of the accounting period the company has PPE with a carrying amount of $100. Cash flows are either receipts (ie cash inflows and so are represented as a positive number in a statement of cash flows) or  payments (ie cash out flows and so are represented as a negative number using brackets in a statement of cash flows). 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