Cash Flow Statement1
Cash Flow Statement1
Advantages
Cash flow balances are a matter of fact and are not distorted by accounting policies
Cash flow balances are objective, unlike profit which is subjective
Users of financial statements can establish exactly the cash generation of a business
Users can identify exactly how this cash has been utilised
Users can assess the liquidity of a business and assess its ability to repay debts as they fall due
Loans repaid and received are clearly listed in the cash flow statement
Users can assess management attitude to capital expenditure
Interest payments are highlighted in the cash flow
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.
Cash flows are inflows and outflows of cash and cash equivalents.
Operating activities are the principal revenue-producing activities of the enterprise and other
activities that are not investing or financing activities.
Investing activities are the acquisition and disposal of non-current assets and other investments
not included in cash equivalents.
Financing activities are activities that result in changes in the size and composition of the equity
capital and borrowings of the entity
Performa (IAS-7)
Important
RE at start + profit for the year – dividend paid – transfer to GR = RP at end Profit for the
If Operating Profit (PBIT) is to be calculated then add Interest Expense and Tax in Net Profit
$
Profit for the year X
Add: Interest Expense X
Tax X
Profit before Interest & Tax (PBIT) X
ON/22/33
XY plc makes all of its sales and purchases on credit.
It provided the following summarised information for the year ended 31 December 2021.
Income statement
$ $ 722
Revenue 500
Sales returns (12 100)
710 400
Inventory at 1 January 2021 40 100
Purchases 426 800
466 900
Inventory at 31 December 2021 (50 000)
Cost of sales 416 900
Gross profit 293 500
Expenses (215 800)
Finance costs (11 200)
Profit for the year 66 500
Bank account
$ $
Credit customers 701 600 Balance b/d 22 600
Refunds from credit Dishonoured cheques 4 100
suppliers 1 900 Credit suppliers 431 700
Proceeds of sale of motor Fittings 3 700
vehicle 17 600 Interest 8 600
Dividend 24 000
Expenses 181 800
Loan repayment 32 000
Balance c/d 12 600
721 100 721 100
The company had considerable sales ledger balances and purchases ledger balances at both the start and the end
of the year.
1 An irrecoverable debt of $5000 had been written off during the year.
2 Fittings had a net book value of $44 000 at the start of the year and $40 600 at the end.
3 Expenses in the income statement included the depreciation charge on motor vehicles of $20 800. The
balance on the accumulated depreciation of motor vehicles was $53 200 at the start of the year and $66 800
at the end.
4 The original cost of the motor vehicle sold during the year was $25 900.
Answer the following questions in the question paper. Questions are printed here for reference
only.
(a) State three reasons why a business prepares a statement of cash flows. [3]
(b) Prepare the statement of cash flows for XY plc for the year ended 31 December 2021 in
accordance with IAS 7. [22]
ON/20/32
The books of account of RF plc for the year ended 31 December 2019 showed the following.
During the year ended 31 December 2019 the following had taken place.
3 The bank balance had gone from an overdraft of $7000 to a positive balance.
4 The company had issued 72 000 ordinary shares of $0.50 each at par value.
(a) Prepare the statement of cash flows for the year ended 31 December 2019. (Ignore taxation.)
[19]
(b) Explain how a premium on an issue of shares is dealt with differently in a statement of
cash flows as compared to the books of account of a company. [3]
(c) State three reasons why a company might prepare a statement of cash flows.
[3]
ON/20/33
The books of account of PM Limited contained the following summarised ledger accounts for the
year ended 31 March 2020.
Answer the following questions in the question paper. Questions are printed here
for reference only.
(a) Prepare a schedule of non-current assets for the year ended 31 March 2020 in
accordance with the provisions of IAS16, suitable for inclusion in the notes to the
accounts. [9]
(b) Identify the total figures from the summarised ledger accounts which would appear in
the statement of cash flows for the year ended 31 March 2020. State the section of the
statement of cash flows in which each figure would be recorded. [10]
(c) Explain how your answer to (a) would be different if the premises had been revalued
upwards at the end of the year. [2]
(d) Explain how your answer to (b) would be different if the premises had been revalued
upwards at the end of the year. [2]
(e) State two items (other than the initial purchase price) which can be included in the total
cost of a non-current asset when following IAS16. [2]
MJ/20/32
The statements of financial position of P plc at 31 December were as follows.
2019 2018
$ $
Non-current assets
Plant and machinery 344 250 225 000
Motor vehicles 90 000 136 000
434 250 361 000
Current assets
Inventory 34 650 44 600
Trade receivables 49 700 38 900
Cash and cash equivalents Nil 12 400
84 350 95 900
Current liabilities
Trade payables 21 600 20 100
Other payables 6 800 8 600
Bank overdraft 8 500 Nil
36 900 28 700
The following information relating to the year ended 31 December 2019 is also available.
1 A motor vehicle with net book value of $7000 was sold for $8300.
Answer the following questions in the Question Paper. Questions are printed here
for reference only.
[3]
(b) Calculate the profit from operations for the year ended 31 December 2019.
[5]
(c) Prepare a reconciliation of the profit from operations to the cash from operations or
cash used in operations for the year ended 31 December 2019. [7]
(d) Prepare an extract of statement of cash flows for the year ended 31 December 2019,
showing the net cash from or used in:
Additional information
‘We have to make our shareholders happy. Even though the bank overdraft has increased
since 31 December 2019, we still have to pay cash dividends for 2020 to our shareholders.’
(e) Discuss whether or not it is appropriate for P plc to pay out cash dividends to
shareholders in 2020. Justify your answer. [5]
MJ/20/31
The following are the statements of financial position for W Limited at 31 December.
2019 2018
$ $
Non-current assets
Premises 380 000 320 000
Machinery 203 000 202 000
Motor vehicles 113 200 118 000
696 200 640 000
Current assets
Inventory 32 550 36 500
Trade receivables 49 300 46 200
Cash at bank 16 400 8 100
98 250 90 800
Current liabilities
Trade payables 41 000 36 700
Tax payable 13 400 12 600
Accrued interest 750 2 500
55 150 51 800
1 Premises were revalued at $400 000 on 1 January 2019. There were no purchases or
2 Additional machines costing $28 000 were purchased during the year.
3 A motor vehicle costing $65 000, with an accumulated depreciation of $26 000, was sold
during the year for $32 500. It was replaced by a new motor vehicle at a cost of $74 000.
4 Tax and interest charged for the year amounted to $13 400 and $8250 respectively.
5 Interim dividend of $0.11 per share was paid in August 2019 before 40 000 additional
ordinary shares were issued for cash.
6 Profit from operations for the year ended 31 December 2019 was $55 950.
Answer the following questions in the Question Paper. Questions are printed here
for reference only.
(a) State three differences between a statement of cash flows and a cash budget. [3]
(b) Prepare a statement reconciling the profit from operations with the cash from
operations for the year ended 31 December 2019. [9]
(c) Prepare a statement of cash flows for the year ended 31 December 2019. Start your
answer with cash from operations from (b). [7]
(d) Discuss the effect of an increase in general reserve during the year on cash flow. [2]
Additional information
The bank loan of $100 000 was to be repaid in 2022. The directors made an early repayment
in part on 30 September 2019.
(e) Discuss whether or not the directors were right in repaying part of the bank loan
during the year ended 31 December 2019. Justify your answer. [4]
MJ/20/33
he following are the statements of financial position for W Limited at 31 December.
2019 2018
$ $
Non-current assets
Premises 380 000 320 000
Machinery 203 000 202 000
Motor vehicles 113 200 118 000
696 200 640 000
Current assets
Inventory 32 550 36 500
Current liabilities
Trade payables 41 000 36 700
Tax payable 13 400 12 600
Accrued interest 750 2 500
55 150 51 800
1 Premises were revalued at $400 000 on 1 January 2019. There were no purchases or
disposals of premises during the year.
2 Additional machines costing $28 000 were purchased during the year.
3 A motor vehicle costing $65 000, with an accumulated depreciation of $26 000, was sold
during the year for $32 500. It was replaced by a new motor vehicle at a cost of $74 000.
4 Tax and interest charged for the year amounted to $13 400 and $8250 respectively.
5 Interim dividend of $0.11 per share was paid in August 2019 before 40 000 additional
ordinary shares were issued for cash.
6 Profit from operations for the year ended 31 December 2019 was $55 950.
Answer the following questions in the Question Paper. Questions are printed here
for reference only.
(a) State three differences between a statement of cash flows and a cash budget. [3]
(b) Prepare a statement reconciling the profit from operations with the cash from
operations for the year ended 31 December 2019. [9]
(c) Prepare a statement of cash flows for the year ended 31 December 2019. Start your
answer with cash from operations from (b). [7]
(d) Discuss the effect of an increase in general reserve during the year on cash flow. [2]
Additional information
The bank loan of $100 000 was to be repaid in 2022. The directors made an early repayment
in part on 30 September 2019.
(e) Discuss whether or not the directors were right in repaying part of the bank loan
during the year ended 31 December 2019. Justify your answer. [4]