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Flashcards · YAC11 · A Level Topic 2.3

Statement of cash flows (A Level) flashcards

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Topic 2.3: Statement of cash flows

The three headings of an IAS 7 statement of cash flows
Operating activities, investing activities and financing activities.
Cash equivalents
Short-term, highly liquid investments, readily convertible to known amounts of cash, with an insignificant risk of changes in value.
Indirect method: adjustments for increases in inventory, trade receivables and trade payables
Increase in inventory: deduct. Increase in trade receivables: deduct. Increase in trade payables: add. (Decreases have the opposite sign.)
Profit from operations 46,300; depreciation 12,800; profit on disposal 1,900; inventory up 2,400; receivables down 3,100; payables up 1,700
46,300 + 12,800 − 1,900 − 2,400 + 3,100 + 1,700 = 59,600 cash generated from operations.
Tax payable 9,500 at the start and 11,000 at the end; tax charge 12,300. Tax paid?
Opening + charge − closing = 9,500 + 12,300 − 11,000 = 10,800.
Debenture interest for the year 7,200; interest accrued 600 at the start and 1,800 at the end. Interest paid?
600 + 7,200 − 1,800 = 6,000.
Retained earnings rose from 64,000 to 81,500; profit for the year 39,500; no transfers. Dividends paid?
64,000 + 39,500 − 81,500 = 22,000.
A machine with carrying value 14,000 is sold for 10,500. Entries in the statement of cash flows?
Add back the loss of 3,500 in operating activities; show proceeds of 10,500 as an inflow under investing activities.
Share capital rose from 150,000 to 180,000 and share premium from 20,000 to 41,000, with no bonus issue. Cash raised?
30,000 + 21,000 = 51,000, shown under financing activities.
Where does a bonus issue, a revaluation or a transfer to general reserve appear in the statement of cash flows?
Nowhere: none of them involves cash.
Opening cash and cash equivalents: overdraft of 7,200. Net increase 15,900. Closing figure?
−7,200 + 15,900 = 8,700.
Warning signs of poor liquidity in a statement of cash flows
Negative operating cash flow while profit is positive; a growing overdraft; inventory and receivables rising faster than revenue (overtrading); long-term assets bought with short-term borrowing.

Revise Statement of cash flows further