Question 1

The report prepared to summarise an entity's cash transactions for the period is the:

Accepted Answer

The cash flow statement is specifically prepared to provide information about an entity's cash inflows and outflows during a period, categorised into operating, investing, and financing activities. The other options (A, B, and C) provide information about the entity's financial position, performance, and changes in equity, but do not specifically focus on cash transactions.

Question 2

The tax payment appearing in the cash flow statement of a company reflects:

Accepted Answer

The tax payment appearing in the cash flow statement reflects last year's tax liability due to the lag in payment to the Inland Revenue Department. Tax payments are often made in the year following the year in which the liability is incurred.

Question 3

Which of these is a reason why a cash flow statement could show a negative cash flow from operating activities even though the statement of comprehensive income showed a profit?

Accepted Answer

An increase in inventory held means that the company has spent cash to acquire more inventory, which does not immediately translate into income until the inventory is sold. This can result in a negative cash flow from operating activities even if the company is showing a profit on the statement of comprehensive income.

Question 4

In a growing business that keeps its asset base up-to-date, total cash flow from investing activities will normally be:

Accepted Answer

In a growing business that is continually updating its asset base, total cash flow from investing activities is typically negative. This is because the company is likely spending more on acquiring new assets or upgrading existing ones than it is receiving from any sale of assets, reflecting an investment in the business's growth and operational capacity.

Question 5

The cash flow statement allows management to assess:

Accepted Answer

The cash flow statement is a financial statement that shows the inflows and outflows of cash in a business. By analyzing this statement, management can assess the efficiency in managing cash flows, such as identifying areas where cash is being used inefficiently or where additional cash inflows can be generated. The other options listed are not directly related to the information provided by the cash flow statement.

Question 6

Which of these items will appear in a cash flow statement?

Accepted Answer

Proceeds from the sale of a fixed asset will appear in the cash flow statement as it is a cash inflow from investing activities. The carrying value of an asset sold and adjustment in the balance of an asset account caused by a revaluation will not appear in the cash flow statement as they are non-cash transactions.

Question 7

If credit sales for the year are $120,000 and the trade receivables balance has increased by $10,500 over the year, how much cash was received from trade receivables during the year?

Accepted Answer

The increase in trade receivables means that not all credit sales were collected in cash. Therefore, the amount of cash received from trade receivables during the year is the credit sales ($120,000) minus the increase in trade receivables ($10,500), which is $109,500 (option D).

Question 8

Calculate the cash from operating activities using the following information: Profit $142,000 Depreciation $46,000
Accounts receivable increased by $10,000 Accrued expense increased by $12,000 Inventory increased by $14,000

Accepted Answer

To calculate cash from operating activities, start with the profit and adjust for non-cash and working capital changes. Here, add back depreciation ($46,000) since it's a non-cash expense. Then, adjust for changes in working capital: decrease for accounts receivable increase ($10,000), increase for accrued expenses increase ($12,000), and decrease for inventory increase ($14,000). So, the calculation is $142,000 + $46,000 - $10,000 + $12,000 - $14,000 = $176,000.

Question 9

Which of these correctly shows the effect of charging depreciation on equipment for the period?

Accepted Answer

Charging depreciation on equipment reduces the carrying value of the equipment and increases the accumulated depreciation account. This is because depreciation represents the decrease in the value of the equipment over time due to wear and tear, obsolescence or any other factors that reduce its usefulness or value. As a result, the carrying value of the equipment on the balance sheet is reduced, since it reflects the net value of the equipment after accounting for depreciation. At the same time, the accumulated depreciation account on the balance sheet is increased, as it represents the total amount of depreciation charged over the life of the equipment.

Question 10

Under accrual accounting, the receipt of cash from a trade debtor will:

Accepted Answer

Under accrual accounting, revenue is recognized when earned, not when cash is received. Therefore, receiving cash from a trade debtor will not affect profit (since the revenue was already recognized) but will increase cash.

Question 11

If the opening balance of rent accrued at the beginning of the year was $1,000, rent expense for the year was $20,000 and the closing balance of rent accrued at the end of the year was $1,200, the amount paid in cash for rent during the year is:

Accepted Answer

The total rent expense for the year includes the opening balance of rent accrued and the rent paid during the year. Therefore, rent paid during the year can be calculated as follows:
Rent paid = Rent expense - Opening balance of rent accrued + Closing balance of rent accrued
Rent paid = $20,000 - $1,000 + $1,200
Rent paid = $19,200
Therefore, the correct option is B) $19,800.

Question 12

State the effect on profit and cash of a firm paying a trade payable.

Accepted Answer

When a firm pays a trade payable, it has no impact on the profit as it is not an expense. However, it will result in a decrease in cash as cash is being used to make the payment.

Question 13

Baltimore Company had a long-term debt of $1,000,000. To extinguish this debt the company issued $1,000,000 of fully paid shares to the lender. This transaction would have the following impact on the cash flow statement:

Accepted Answer

The transaction involves exchanging shares for debt, not involving cash movement, thus no impact on the cash flow statement.

Question 14

An extract from the trial balance of RRR Ltd as at 30 June 2011 shows: Income tax expense $20,000 If the income tax provided for at the end of 2013 was $16,000 and taxation is paid in arrears in a lump sum, what amount will appear in the cash flow statement for taxation paid by RRR Ltd for the year ended 30 June 2014?

Accepted Answer

The cash flow statement will show the amount of tax paid during the year. Since taxation is paid in arrears, the amount provided for at the end of 2013 ($16,000) would be paid in the year ended 30 June 2014.

Question 15

Royal Plastics provides the following information about its moulding machinery:  What is the total cost of machinery purchased during the year?

Accepted Answer

The answer of Royal Plastics provides the following information about...

Question 16

The effect on profit and cash of depreciating a non-current asset is:

Accepted Answer

Depreciation is a non-cash expense that reduces profit because it reflects the decrease in value of the non-current asset over its useful life. However, since no cash is actually leaving the business, there is no effect on cash.

Question 17

A motor vehicle was purchased for $25,000, depreciated using the reducing-balance method for 3 years at 20% p.a., and was then sold for a price that was $1,600 more than the carrying amount of the vehicle. The cash received on the sale of the motor vehicle was:

Accepted Answer

The answer of A motor vehicle was purchased for $25,000,...

Question 18

If prepaid interest at the beginning of the period was zero and at the end of the period was $4,000, and interest expense appears in the income statement for the year as $17,300, how much was paid out in cash for interest during the year?

Accepted Answer

The total cash paid out for interest during the year is calculated by adding the interest expense for the year to the increase in prepaid interest, then subtracting any interest that was prepaid at the beginning of the year. Since the prepaid interest at the beginning was $0 and it increased to $4,000 by the end of the year, and the interest expense for the year was $17,300, the total cash paid out for interest is $17,300 + $4,000 = $21,300.

Question 19

In the cash flow statement, the total of net cash flows from operating activities, net cash flows from investing activities and net cash flows from financing activities for the period equals:

Accepted Answer

The total of net cash flows from operating activities, net cash flows from investing activities, and net cash flows from financing activities for the period represents the total net increase or decrease in cash held for the period, which is reflected in the cash balances at the beginning and end of the period. It is not the same as profit or the cash balances at the beginning or end of the period alone.

Question 20

Depreciation of plant and equipment will appear in which section of the cash flow statement?

Accepted Answer

The answer of Depreciation of plant and equipment will appear...

Quiz 5: Measuring and Reporting Cash Flows