For Live Classes, Recorded Lectures, Notes & Past Papers visit:

www.megalecture.com
Resource Pack/Accounting/A Level (Paper 3)

Chapter 7
Cash Flow Statement

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

Difference between cash flow statement and cash budget

re
Cash flow statements are:

tu
 Statutory requirements of plc
 Historic
 Prepared for external users

c
Prepared to show resources and uses of cash
Le
Cash budgets are:

 Prepared for internal users

 Forecasts
 Used to plan and control cash flows and to obtain finances when needed
a

I.A.S. 7 Cash Flow Statement

eg

 Cash comprises cash on hand and demand deposits.

 Cash equivalents are short-term, highly liquid investments that are readily convertible to known
M

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

Make Accounting easy with Sir Muzammil

135
youtube.com/c/MegaLecture/
+92 336 7801123
For Live Classes, Recorded Lectures, Notes & Past Papers visit:
www.megalecture.com
Resource Pack/Accounting/A Level (Paper 3)

Performa (IAS-7)

Statement of Cash Flow for the year ended …….

$ $
Cash flows from operating activities
Operating profit (PBIT) X
Adjustments:
Goodwill written off X
Current year Depreciation (calculation) X
(Profit) / loss on the disposal of a non current asset (X)/X
(Increase) / Decrease in inventories (X)/X
(Increase) / Decrease in receivables (X)/X
Increase / (Decrease) in payables X /(X)
Interest paid (P & L Interest + Op. Payables – Cl. Payables)

re
(X)
Taxation paid (P & L Tax + Op. Payables – Cl. Payables) (X)
Net Cash Flow from Operating Activities X

Cash flow from investing activities

Purchase of a non-current asset

c tu (X)
Le
Sale of a non-current asset X
Interest received X
Net Cash Flow from Investing Activities X
a

Cash flow from financing activities

eg

Proceeds from the issue of shares with Premium X

Issue/Repayment of Debentures/Bank loan X/(X)
Dividends paid (X)
M

Cash Flow from Financing Activities X

Net increase/decrease in cash X/(X)

Cash and cash equivalents at the beginning of the period X
Cash and cash equivalents at the end of the period X

Make Accounting easy with Sir Muzammil

136
youtube.com/c/MegaLecture/
+92 336 7801123
For Live Classes, Recorded Lectures, Notes & Past Papers visit:
www.megalecture.com
Resource Pack/Accounting/A Level (Paper 3)

If operating Profit is not given in the question then it is to be calculated by the opening and
closing retained earning
$
Retained earnings (opening) X
Profit for the year X
X
Dividends paid (X)
Transfer to General Reserve (If any) (X)
Retained earnings (closing) X

Important

RE at start + profit for the year – dividend paid – transfer to GR = RP at end

Profit for the year = RE at end – RE at start – dividend paid – transfer to GR (if any)

re
If Operating Profit (PBIT) is to be calculated then add Interest Expense and Tax in Net Profit

$
Profit for the year
Add: Interest Expense
Tax
Profit before Interest & Tax (PBIT)
c X
X
X
X tu
Le
PBIT – interest paid – tax paid = profit for the year

Calculation of depreciation/new NCA bought

Method 1
a

Non-Current Asset (NBV)

eg

Balance b/d (NBV) XXX Disposal (NBV) XXX

Bank (Addition at cost) XXX Depreciation XXX
M

Balance c/d (NBV) XXX

Method 2

Provision for Depreciation

Disposal Depreciation XXX Balance b/d XXX

Balance c/d XXX Income Statement XXX
XXX XXX

Make Accounting easy with Sir Muzammil

137
youtube.com/c/MegaLecture/
+92 336 7801123
For Live Classes, Recorded Lectures, Notes & Past Papers visit:
www.megalecture.com
Resource Pack/Accounting/A Level (Paper 3)

Past Paper Questions

Q # 1 Swamp Circus plc provides the following information:

re
c tu
Le
a
eg
M

Additional information:

1 During the year the directors transferred $200 000 to the general reserve and paid dividends of
$300000.

Make Accounting easy with Sir Muzammil

138
youtube.com/c/MegaLecture/
+92 336 7801123
For Live Classes, Recorded Lectures, Notes & Past Papers visit:
www.megalecture.com
Resource Pack/Accounting/A Level (Paper 3)

2 At 31 March 2011 equipment had cost $905 000 and was shown after the provision of $295 000
depreciation. At 31 March 2012 equipment had cost $1 240 000 and depreciation of $320 000 had
been provided.

3 During the year equipment which had cost $172 000 was sold for $90 000.
Depreciation of $101 000 had been provided on it.

4 Other payables include $21 000 unpaid interest at 31 March 2012 and $11 000 unpaid interest at 31
March 2011.

5 During the year an issue of both ordinary shares and debentures had taken place, and the property
had been re-valued.

REQUIRED

Prepare a statement of cash flows in accordance with the provisions of IAS 7 for the year ended 31

re
March 2012. [21]
June 2012

tu
Q # 2 Smilbo Smaggins plc has been manufacturing cutlery for many years. It provided the
following financial statements: c
Le
a
eg
M

Make Accounting easy with Sir Muzammil

139
youtube.com/c/MegaLecture/
+92 336 7801123
For Live Classes, Recorded Lectures, Notes & Past Papers visit:
www.megalecture.com
Resource Pack/Accounting/A Level (Paper 3)

Additional information:

re
1 The debentures were redeemed at par.

tu
2 Plant and machinery costing $27 500 was sold during the year for $10 000. It had been depreciated
by $19 600. c
3 Additional machinery was purchased at a cost of $35 000. There is no depreciation charge in the
year of acquisition.
Le
4 There were no acquisitions or disposals of office equipment during the year.

REQUIRED
a

(a) Prepare a statement to show the net cash flow from operating activities. [16]
eg

(b) Prepare a statement of cash flows for the year ended 30 April 2012 in accordance with IAS 7.
[13]
June 2012
M

Make Accounting easy with Sir Muzammil

140
youtube.com/c/MegaLecture/
+92 336 7801123
For Live Classes, Recorded Lectures, Notes & Past Papers visit:
www.megalecture.com
Resource Pack/Accounting/A Level (Paper 3)

Q # 3 Hyung Ltd has the following statements of financial position

re
c tu
Le
a
eg
M

2. Proceeds from the sale of noncurrent assets

$
Motor Vehicles 30 000

3. No dividends were paid during the year.

Make Accounting easy with Sir Muzammil

141
youtube.com/c/MegaLecture/
+92 336 7801123
For Live Classes, Recorded Lectures, Notes & Past Papers visit:
www.megalecture.com
Resource Pack/Accounting/A Level (Paper 3)

REQUIRED

(a) Prepare, in accordance with IAS 7, a statement of cash flows for the year ended 31 March 2012.
[24]

(b) Explain the difference between cash and profit. [2]

November 2012

Q # 4 Winston is a sole trader. He provides the following financial information in respect of his
business.
Income statement for the year ended 31 December 2012

$000
Sales 3380
Cost of sales (2000)
Expenses (1200)

re
Profit for the year 180

Statements of financial position at:

c tu
Le
a
eg
M

Additional information

1 During the year the land was revalued by a professional valuer.

Make Accounting easy with Sir Muzammil

142
youtube.com/c/MegaLecture/
+92 336 7801123
For Live Classes, Recorded Lectures, Notes & Past Papers visit:
www.megalecture.com
Resource Pack/Accounting/A Level (Paper 3)

2 During the year Winston purchased new plant at a cost of $200 000. He also sold some plant that
had a net book value of $20 000 and had been depreciated by $60 000. This resulted in a loss on
disposal of $2000.

REQUIRED

(a) Calculate Winston’s drawings for the year ended 31 December 2012. [4]

(b) Prepare a statement of cash flows for the year ended 31 December 2012. [16]

(c) Explain why Winston has an overdraft at the end of 2012, despite making a profit for the year. [5]
June 2013

Q # 5 The following extract from the income statement has been prepared for Asteroid plc for the
year ended 30 June 2014

re
c tu
Le
On 1 May 2014 the directors issued $5625000 8% debentures redeemable in 2022.
The estimated tax liability for the year was $782000.
a

REQUIRED
eg

(a) Calculate the finance costs which would be entered in the income statement. [3]

(b) Calculate the profit before taxation and profit attributable to equity holders. [2]
M

Additional information

The last two statements of financial position were as follows:

Make Accounting easy with Sir Muzammil

143
youtube.com/c/MegaLecture/
+92 336 7801123
For Live Classes, Recorded Lectures, Notes & Past Papers visit:
www.megalecture.com
Resource Pack/Accounting/A Level (Paper 3)

re
c tu
Le
a
eg

Other information is as follows:

M

1 During the year the company paid total dividends of $150000.

2 During the year property, plant and equipment costing $840 000 was sold. The accumulated
depreciation on this property, plant and equipment was $715000.

3 The total depreciation charge for the year was $2050000.

REQUIRED

(c) Prepare a statement to show the net cash from operating activities for the year ended 30 June
2014. [12]

(d) Prepare a statement of cash flows for the year ended 30 June 2014 in accordance with IAS 7.[16]
Nov 2014

Make Accounting easy with Sir Muzammil

144
youtube.com/c/MegaLecture/
+92 336 7801123
For Live Classes, Recorded Lectures, Notes & Past Papers visit:
www.megalecture.com
Resource Pack/Accounting/A Level (Paper 3)

Q # 6 The directors of Hank Limited provide the following statements of financial position at 31
March:

re
c tu
Le
a

Additional information
eg

The following information relates to the year ended 31 March 2016:

1 The profit from operations was $30 000.

2 During the year non-current assets with a cost of $24 000 and accumulated depreciation of $19000
M

were sold for $8000.

3 The depreciation charge for the year was $12 000. All non-current assets held at the end of the
financial year are depreciated over 25 years using the straight-line method.
4 Interest paid for the year was $9000.
5 Dividends paid during the year were $25 000. A dividend of $30 000 had been proposed at the end
of the year.
6 The taxation charge was $20 000.

REQUIRED

(a) Explain the difference between a statement of cash flows and a cash budget. [2]
(b) Prepare a statement of cash flows for Hank Limited for the year ended 31 March 2016 in
accordance with IAS 7. [10]
(c) Explain with reference to the statement of cash flows whether Hank Limited has a strong or a
weak cash position. [4]
Make Accounting easy with Sir Muzammil
145
youtube.com/c/MegaLecture/
+92 336 7801123
For Live Classes, Recorded Lectures, Notes & Past Papers visit:
www.megalecture.com
Resource Pack/Accounting/A Level (Paper 3)

(d) Prepare a summarised schedule of non-current assets as it would appear as a note in the published
accounts for the year ended 31 March 2016. [5]
(e) Advise the directors whether or not they should apply the International Accounting Standards
when preparing the published accounts. Justify your answer. [4]
Nov 2016
Q # 7 R Limited does not hold any inventory.
The non-current assets schedule of R Limited for the year ended 31 December 2018 was as follows

re
c tu
Le
a

The statement of changes in equity of R Limited for the year ended 31 December 2018 was as
eg

follows
M

The following information is also available.

1 Finance charges for the year amounted to $16 000. All had been paid by the year-end.
2 Proceeds from the sale of the motor vehicle were $30 000.

Make Accounting easy with Sir Muzammil

146
youtube.com/c/MegaLecture/
+92 336 7801123
For Live Classes, Recorded Lectures, Notes & Past Papers visit:
www.megalecture.com
Resource Pack/Accounting/A Level (Paper 3)

3 During the year trade receivables increased by $22 000 and trade payables decreased by $18 000.

4 The net increase in cash and cash equivalents during the year was three times the amount of the
overdraft at the start of the year

Required

(a) Identify the type of business which keeps no inventory of goods for resale. [1]

(b) Prepare the statement of cash flows for R Limited for the year ended 31 December 2018 in
accordance with IAS 7. (Ignore taxation.) [18]

(c) State why the revaluation of a non-current asset is not disclosed in a statement of cash flows. [1]
Additional information

The finance director of R Limited has produced the cash budget for the year ending 31 December

re
2019. This show at that date the company will again have an overdraft.

(d) Discuss the possible reasons for this. [5]

tu
Nov 2019
c
Le
a
eg
M

Make Accounting easy with Sir Muzammil

147
youtube.com/c/MegaLecture/
+92 336 7801123