University of Iringa
Tumaini University CPA Review Classes
Financial Accounting
IAS 7: Statement of Cash Flows Tutorial Questions
Format
IAS 7 contains a standard format that should always be used in answering examination
questions, which is as follows:-
Indirect Method statement of cash flows
Tshs Tshs
Cash flows from operating activities
Profit before taxation X
Adjustments for:
Depreciation X
Investment income X
Interest expense X
X
Increase/Decrease in trade and other receivables X
Increase/Decrease in inventories X
Increase/Decrease in trade payables X
Cash generated from operations X
Interest paid X
Income taxes paid X
Net cash from operating activities X
Cash flows from investing activities
Purchase of property, plant and equipment X
Proceeds from sale of equipment X
Interest received X
Dividends received X
Net cash used in investing activities X
Cash flows from financing activities
Proceeds from issue of share capital X
Proceeds from long-term borrowings X
Payment of finance lease liabilities X
Dividends paid* X
Net cash used in financing activities X
Net increase in cash and cash equivalents X
Cash and cash equivalents at beginning of period X
Cash and cash equivalents at end of period X
* This could also be shown as an operating cash flow.
Question 1
From the following information, construct a statement of cash flows:
Tshs
Operating profit for the year, after charging depreciation of Tshs 22,300 215,500
Purchase of non-current assets during the year 80,000
Repayment of non-current loan 45,000
Issue of shares at par 100,000
Changes in working capital during the year
Increase in inventories 22,500
Decrease in receivables 18,000
Decrease in payables 14,500
Taxation paid 25,000
Dividends paid 5,000
Question 2
A company had the following items on its statements of financial position at the end of year 1
and year 2:
Year 1 (Tshs) Year 2 (Tshs)
Inventories 35,000 25,000
Receivables 24,000 28,000
Payables 31,000 33,000
In addition, the statement of comprehensive income for year 2 included the following items:
Tshs Tshs
Gross profit 90,000
Less:
General expenses 17,000
Depreciation on plant 10,000
Loss on disposal of plant 4,000
(31,000)
Operating profit 59,000
Add: interest receivable (13,000)
Less: interest payable (3,000)
Profit before tax 69,000
Required
Calculate the amount of cash generated from operations, as it would be shown in a statement
of cash flows using the indirect method.
1
Question 3
Cuthbert’s statement of comprehensive income for the year ended 31 December 1993 and
statements of financial position at 31 December 1992 and 31 December 1993 were as follows:
Cuthbert – Statement of comprehensive income for the year ended 31 December 1993
Tshs ’000 Tshs ’000
Sales revenue 360
Raw materials consumed (35)
Staff costs (47)
Depreciation (59)
Loss on disposal (9)
(150)
Operating profit 210
Interest payable (14)
Profit before tax 196
Income tax expense (62)
Profit after tax 134
Cuthbert – Statements of financial position as at 31 December
1993 1992
Tshs’000 Tshs’ 000 Tshs’ 000 Tshs’ 000
Non-current assets
Cost 798 780
Depreciation (159) (112)
639 668
Current assets
Inventory 12 10
Trade receivables 33 25
Bank 24 28
69 63
708 731
Capital and reserves
Share capital 180 170
Share premium 18 12
Retained earnings 358 257
556 439
Non-current Liabilities
Long-term loans 100 250
Current liabilities
Trade payables 6 3
Income tax 46 39
52 42
708 731
2
During the year, the entity paid Tshs 45,000 for a new piece of machinery.
A dividend of Tshs 33,000 was paid during the year.
Requirement
Prepare a statement of cash flows for Richmond for the year ended 31 December 1993 in
accordance with the requirements of IAS 7.
Question 4
The summarized financial statements of Bridgette for 2004 and 2005 are given below:
Balance sheets as at
31 December 31 December
2005 2004
Tsh000 Tsh000 Tsh000 Tsh000
Non-current assets: cost 3,400 2,100
less Accumulated depreciation (720) 2,680 (550) 1,550
–––––– ––––––
Current assets
Inventory 600 400
Receivables 1,500 1,700
Cash 80 2,180 50 2,150
–––––– –––––– –––––– –––––
4,860 3,700
–––––– ––––––
Equity and liabilities
Ordinary share capital 900 600
Share premium account 500 320
Retained earnings 920 1,420 500 820
–––––– –––––– –––––– ––––––
2,320 1,420
Net current liabilities
10% loan notes 1,200 1,000
Current liabilities
Bank overdraft 140 280
Trade payables 900 800
Current tax payable 300 1,340 200 1,280
–––––– –––––– –––––– –––––
4,860 3,700
–––––– –––––
3
Notes
a. Non-current assets that had cost Tshs 200,000 with a written down value of Tshs 60,000
were sold for Tshs 80,000 during the year.
b. The increase in the retained earnings is made up as follows:
Tshs 000 Tshs 000
Opening balance 500
Operating profit 1,090
less: Finance costs paid (120)
––––––
Profit before taxation 970
Income tax expense (300)
Dividends paid (250)
Retained profit for year –––––– 420
––––––
Closing balance 920
––––––
Required:
Prepare a cash flow statement for Bridgette for the year ended 31 December 2005, using the
format in IAS 7 Cash flow statements.
Question 5
It has been suggested that ‘cash is king’ and that readers of an entity’s accounts should pay
more attention to information concerning its cash flows and balances than to its profits and
other assets. It is argued that cash is more difficult to manipulate than profit and that cash
flows are more important.
Requirements
a. Explain whether you agree with the suggestion that cash flows and balances are more
difficult to manipulate than profit and non-cash assets.
b. Explain why it might be dangerous to concentrate on cash to the exclusion of profit
when analyzing a set of financial statements.
Question 6
From the following details you are to draft a cash flow statement for Happy for the year ended
31 December 20X5 using the IAS 7 layout.
4
Happy - Profit and Loss Account for the year ending 31 December 2005
Tshs Tshs
Gross profit 44,700
Add Discounts received 410
Profit on sale of van 620 1,030
45,730
Less Expenses
Motor expenses 1,940
Wages 17,200
General expenses 830
Bad debts 520
Increase in doubtful debt provision 200
Depreciation: Van 1,800 22,490
23,240
Happy - Balance Sheets as at 31 December
2004 2005
Tshs Tshs Tshs Tshs
Fixed assets
Vans at cost 15,400 8,200
Less Depreciation to date ( 5,300) (3,100)
10,100 5,100
Current assets
Stock 18,600 24,000
Debtors less provision* 8,200 6,900
Bank 410 720
27,210 31,620
Less Current liabilities
Creditors (5,900) (7,200)
21,310 24,420
31,410 29,520
Less Long-term liability
Loan from J Fry (10,000) (7,500)
21,410 22,020
Capital
Opening balance b/d 17,210 21,410
Add Net profit 21,200 23,240
38,410 44,650
Less Drawings (17,000) (22,630)
21,410 22,020
*Debtors 2004 Tshs 8,800 – provision Tshs 600.
Debtors 2005 Tshs 7,700 – provision Tshs 800.
Note: A van was sold for Tshs 3,820 during 2005. No new vans were purchased during the year.
