Question 1

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

Accepted Answer

A

Question 2

In the statement of cash flows, 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 equals 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. Therefore, option D is the correct choice. Option A and B are incorrect as they refer to cash balances only, without considering the changes that occurred during the period. Option C is incorrect as profit does not necessarily equal cash flows, as there may be non-cash items included in the profit calculation.

Question 3

Which transaction would not appear in the body of a statement of cash flows?

Accepted Answer

Transactions that do not involve cash flows, such as acquiring assets through share issues, purchasing buildings by incurring mortgages, and converting liabilities to equity, do not appear in the body of a statement of cash flows. These are non-cash transactions and are usually disclosed in the notes to the financial statements or in a separate schedule.

Question 4

How would these items be classified in a statement of cash flows prepared for a hairdressing franchise?

i)Payment of $600 for hairdressing supplies.
Ii)Takings from customers for the month.
Iii)Capital paid into the business by the owner.

Accepted Answer

Payment for supplies is an operating outflow, takings from customers are operating inflows, and capital paid by the owner is a financing inflow.

Question 5

Which item is not classified as a cash flow from investing activities?

Accepted Answer

Dividends paid to investors are classified as a cash flow from financing activities, not investing activities. Investing activities involve the acquisition and disposal of long-term assets and investment securities.

Question 6

Cash inflows and outflows associated with changes in non-current liabilities and equity, not arising from profit, are included in which section of the statement of cash flows?

Accepted Answer

Cash inflows and outflows associated with changes in non-current liabilities and equity, not arising from profit, are classified as financing activities in the statement of cash flows.

Question 7

Which statement is correct?

Accepted Answer

The statement of comprehensive income and statement of financial position are prepared on an accrual basis, while the statement of cash flows is prepared on a cash basis. This means that the former two statements recognise transactions when they occur, regardless of whether cash has been received or paid, while the latter statement only takes into account actual cash flows during the period.

Question 8

Cash received from the issue of shares will appear in which section of the statement of cash flows?

Accepted Answer

Cash received from the issue of shares represents a form of raising capital and is therefore classified as a financing activity in the statement of cash flows. The financing activities section relates to cash inflows and outflows from the issuance and repayment of long-term liabilities and equity, including borrowings, dividends paid, and share issuances.

Question 9

The item that would not be included in the operating section of a statement of cash flows is:

Accepted Answer

The sale of surplus machinery would be included in the investing section of the statement of cash flows, not the operating section. The operating section includes cash received from sales (choice C), cash payment of expenses (choice D), and cash interest received (choice A).

Question 10

The cash flow statement was added to reporting requirements because it was believed that the income statement and statement of financial position didn't concentrate enough on

Accepted Answer

The cash flow statement provides information about the inflows and outflows of cash, which is important for assessing a company's liquidity - its ability to meet its short-term obligations. The income statement and statement of financial position focus more on profitability and the overall financial position of the company, respectively. Depreciation and bad debt are both typically included in the income statement, but they are not the primary reason for the addition of the cash flow statement.

Question 11

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

Accepted Answer

Proceeds from the sale of a fixed asset will appear in the statement of cash flows under the cash flows from investing activities section. The carrying value of an asset sold and adjustment in the balance of an asset account caused by revaluation do not directly affect the cash flow and will not appear in the statement of cash flows.

Question 12

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.

Question 13

With what are operating activities concerned?

Accepted Answer

Operating activities are concerned with the day-to-day trading and/or service operations of the business. This includes activities such as sales, purchasing, production, and any transactions related to the primary business operations. Options A and B are more relevant to financing and investing activities, respectively. Option D is incorrect as operating activities are a key area of concern for businesses.

Question 14

The income statement tends to obscure cash movements because it is

Accepted Answer

The income statement is typically prepared on an accrual basis, which means it records revenues and expenses when they are earned or incurred, regardless of when the cash is actually received or paid. This makes it difficult to track actual cash movements, since revenue and expenses may not always correspond to cash inflows and outflows.

Question 15

Which of the following are not operating cash flows?

Accepted Answer

Dividends paid to shareholders are considered financing cash flows, not operating cash flows.

Question 16

The purpose of the statement of cash flows is to provide information on:

Accepted Answer

The statement of cash flows provides information about the cash inflows and outflows of a company, including operating activities, investing activities, and financing activities. It does not directly provide information on profits, net worth, or losses.

Question 17

Oriole Company had a long-term debt of $1,500,000. To extinguish this debt the company issued $1,500,000 of fully paid shares to the lender. This transaction would have the following impact on the statement of cash flows:

Accepted Answer

This transaction involves exchanging shares for debt, which does not involve any cash movement. Therefore, it has no impact on the statement of cash flows.

Question 18

The difference between operating profit or loss after tax and net cash provided by operating activities is due to:

Accepted Answer

The difference between operating profit or loss after tax and net cash provided by operating activities is primarily due to changes in working capital items such as accounts receivable, accounts payable, and inventories. Changes in non-current liabilities, non-current assets or equity items would affect net income but would not necessarily impact cash flows from operating activities.

Question 19

Which of the following statements is not true?

Accepted Answer

A firm can be profitable but may not have cash on hand due to various reasons such as slow-paying customers, high inventory levels, and large investments in fixed assets. Profitability and cash flow are two distinct concepts, and one does not guarantee the other.

Question 20

What is the report prepared to summarise the entity's cash transactions for the period?

Accepted Answer

The statement of cash flows is prepared to summarise the entity's cash transactions for the period, showing the inflows and outflows of cash and cash equivalents. The statement of comprehensive income shows the entity's revenue, expenses, gains, and losses during the period. The statement of changes in equity summarises the changes in equity during the period, including capital contributions, dividends, and changes in profit or loss. The statement of financial position shows the entity's assets, liabilities, and equity as of a specific date.

Quiz 6: Measuring and Reporting Cash Flows