Edexcel A-Level Accounting: Statement of cash flows (YAC11) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover topic 2.3, Statement of cash flows (outcomes 2.3.1 and 2.3.2), in Unit 2 of the Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting (XAC11/YAC11) specification, Issue 2, September 2018. This is Unit 2 (A2) only content, assessed for the full International A Level. All businesses and figures are invented; amounts are in dollars. Give ratios to two decimal places.

Learn the content first with the study guide and the revision notes. Course links: Edexcel A-Level Accounting hub, printable checklist and the free 10-minute diagnostics.

Questions

1. State two features an investment must have to be classed as a cash equivalent under IAS 7. [2]

2. State the IAS 7 heading for each item: (i) proceeds from an issue of debentures; (ii) purchase of delivery vehicles; (iii) payments to suppliers of raw materials. [3]

3. Corrisande Lighting plc had tax payable of 18,400 at the start of the year and 20,700 at the end. The tax charge in the statement of profit or loss was 23,900. Calculate the tax paid. [2]

4. Pellingham Tools Ltd’s property, plant and equipment at cost was 460,000 at the start of the year and 525,000 at the end. During the year it sold a machine that cost 38,000 and had a carrying value of 11,000, making a loss on disposal of 2,500.

(a) Calculate the purchases of property, plant and equipment. [2] (b) Calculate the proceeds from the sale of the machine. [2]

5. Retained earnings of Corrisande Lighting plc were 96,000 at the start of the year and 121,300 at the end. Profit for the year was 58,500. There were no transfers to reserves. Calculate the dividends paid. [2]

6. Kelvane Marine plc’s ordinary share capital rose from 200,000 to 300,000, including a bonus issue of 50,000 funded from share premium. Share premium fell from 60,000 to 45,000. All other shares were issued for cash. Calculate the cash raised from share issues. [4]

7. Kelvane Marine plc reports the following for the year:

Item	Amount
Profit from operations	84,200
Depreciation	31,500
Profit on disposal of a boat trailer	3,600
Inventory: start 42,800, end 39,100
Trade receivables: start 35,600, end 44,900
Trade payables: start 28,400, end 25,300
Interest paid	4,800
Tax paid	16,900

Prepare the operating activities section of the statement of cash flows using the indirect method. [6]

8. Halvara Foods Ltd sells only on credit and buys only on credit. For the year:

• Revenue 684,000; trade receivables start 57,000, end 63,500.
• Purchases 412,000; trade payables start 38,200, end 34,700.
• Wages and other expenses (excluding depreciation) 148,300; accrued expenses start 2,400, end 3,100.

(a) Calculate the cash received from customers. [2] (b) Calculate the cash paid to suppliers. [2] (c) Calculate cash generated from operations using the direct method. [2]

9. Kelvane Marine plc made a profit for the year, yet its bank balance fell. Explain two reasons why this could happen. [4]

10. The following information relates to Mellbrook Optics plc for the year ended 31 January 2026.

Statement of financial position extracts at 31 January	2026	2025
Property, plant and equipment at cost	1,200,000	1,050,000
Accumulated depreciation	430,000	380,000
Inventory	131,200	118,600
Trade receivables	88,100	94,300
Cash and cash equivalents	102,500	(26,500) overdraft
Trade payables	79,800	71,500
Tax payable	31,800	29,400
8% debentures	120,000	120,000
Bank loan (non-current)	60,000	–
Ordinary shares of 1 each	480,000	400,000
Share premium	82,000	50,000

Additional information:

• Profit from operations was 168,400. Finance costs (debenture interest, all paid) were 9,600. The tax charge was 34,100.
• Equipment costing 90,000, with accumulated depreciation of 62,000, was sold for 33,500. Depreciation for the year was 112,000.
• The bank loan was received on 31 January 2026. Dividends paid were 72,000.

Prepare Mellbrook Optics plc’s statement of cash flows for the year ended 31 January 2026, in accordance with IAS 7. [12]

11. Oscombe Textiles plc’s statement of cash flows for the year ended 30 September 2026 shows net cash used in operating activities 12,400 (2025: inflow 58,900), investing 146,000 outflow, and financing 95,000 inflow (new long-term loan 120,000 less dividends paid 25,000). It had no cash or overdraft at 1 October 2025. At 30 September 2026: inventory 188,000; trade receivables 142,000; trade payables 121,000; bank overdraft 63,400; tax payable 15,600. In 2025 the current ratio was 1.92 : 1 and the liquid ratio 1.08 : 1. Profit for the year rose in 2026.

(a) Calculate the current ratio and the liquid (acid test) ratio at 30 September 2026. [2] (b) Evaluate Oscombe Textiles plc’s liquidity and recommend two actions the directors could take. [6]

Answers

1. Any two: short-term [1]; highly liquid, readily convertible to a known amount of cash, or subject to an insignificant risk of changes in value [1]. [2] Examiner insight: Give two distinct features; the same idea reworded counts once.

2. (i) Financing activities [1]; (ii) investing activities [1]; (iii) operating activities [1]. [3] Examiner insight: Use the exact IAS 7 heading names, not loose labels such as “capital”.

3. Tax paid = opening payable + charge − closing payable = 18,400 + 23,900 − 20,700 [1] = 21,600 [1]. [2] Examiner insight: Show the three-figure working; a bare wrong answer gives the examiner nothing to reward.

4. (a) Purchases = closing cost − (opening cost − cost of disposal) = 525,000 − (460,000 − 38,000) [1] = 103,000 [1]. (b) Proceeds = carrying value − loss = 11,000 − 2,500 [1] = 8,500 [1]. [4] Examiner insight: Mixing cost and carrying value in one working is a common cause of a wrong purchases figure.

5. Dividends paid = 96,000 + 58,500 − 121,300 [1] = 33,200 [1]. [2] Examiner insight: Deduct any transfer to general reserve before finding dividends; here there was none.

6. Cash from share capital = 100,000 − 50,000 bonus = 50,000 [1]. The bonus issue used 50,000 of share premium, so premium before cash issues = 60,000 − 50,000 = 10,000 [1]. Premium from cash issues = 45,000 − 10,000 = 35,000 [1]. Total cash raised = 50,000 + 35,000 = 85,000 [1]. [4] Examiner insight: A bonus issue is a book entry only, so it never counts as cash raised.

7.

Profit from operations 84,200 + depreciation 31,500 [1] − profit on disposal 3,600 [1] + decrease in inventory 3,700 [1] − increase in trade receivables 9,300 − decrease in trade payables 3,100 [1] = cash generated from operations 103,400 [1]. Less interest paid 4,800 and tax paid 16,900 = net cash from operating activities 81,700 [1]. [6] Examiner insight: Label each adjustment as an increase or decrease so your reasoning is visible.

8. (a) Receipts = 57,000 + 684,000 − 63,500 [1] = 677,500 [1]. (b) Payments = 38,200 + 412,000 − 34,700 [1] = 415,500 [1]. (c) Expenses paid = 2,400 + 148,300 − 3,100 = 147,600 [1]; cash generated from operations = 677,500 − 415,500 − 147,600 = 114,400 [1]. [6] Examiner insight: A rising accrual means less was paid than charged; adding the closing accrual is the usual slip.

9. Any two explained, for example:

• The company bought non-current assets [1]; the spending is a cash outflow but only depreciation reduces profit, so cash falls more than profit suggests [1].
• Inventory or trade receivables increased [1]; profit includes sales not yet paid for and goods bought but not yet sold, so cash is tied up in working capital [1]. [4]

Examiner insight: For each point, link the cause to what happened to cash; naming “capital expenditure” alone is only half an explanation.

10. Workings: profit on disposal = 33,500 − (90,000 − 62,000) = 5,500 [1]. Purchases = 1,200,000 − (1,050,000 − 90,000) = 240,000 [1]. Tax paid = 29,400 + 34,100 − 31,800 = 31,700 [1]. Share issue = 80,000 + 32,000 = 112,000 [1].

Mellbrook Optics plc
Statement of cash flows for the year ended 31 January 2026

Cash flows from operating activities
Profit from operations                              168,400
Depreciation                                        112,000
Profit on disposal of equipment                      (5,500)
Increase in inventory                               (12,600)
Decrease in trade receivables                         6,200
Increase in trade payables                            8,300
Cash generated from operations                      276,800
Interest paid                                        (9,600)
Tax paid                                            (31,700)
Net cash from operating activities                  235,500

Cash flows from investing activities
Purchase of property, plant and equipment          (240,000)
Proceeds from sale of equipment                      33,500
Net cash used in investing activities              (206,500)

Cash flows from financing activities
Proceeds from issue of ordinary shares              112,000
Bank loan received                                   60,000
Dividends paid                                      (72,000)
Net cash from financing activities                  100,000

Net increase in cash and cash equivalents           129,000
Cash and cash equivalents at 1 February 2025           (26,500)
Cash and cash equivalents at 31 January 2026          102,500

Non-cash adjustments [1]; working capital [1]; 276,800 [1]; 235,500 [1]; investing [1]; financing [1]; net increase 129,000 [1]; reconciliation to 102,500 [1]. [12] Examiner insight: Finish with the reconciliation to opening and closing cash and cash equivalents; it proves the statement and is easy credit to lose by stopping at the net increase.

11. (a) Current ratio = (188,000 + 142,000) / (121,000 + 63,400 + 15,600) = 330,000 / 200,000 = 1.65 : 1; liquid ratio = 142,000 / 200,000 = 0.71 : 1 [1] [1]. (b) Operating cash moved from an inflow of 58,900 to an outflow of 12,400 although profit rose, so profit is not turning into cash, probably because inventory and receivables grew [1]. Investing of 146,000 plus the operating outflow far exceeded the 95,000 of net financing, and the shortfall of 63,400 became a bank overdraft [1]. Both ratios fell; the liquid ratio of 0.71 : 1 means liquid assets cover under three-quarters of current liabilities [1]. Long-term assets were partly financed by an overdraft repayable on demand, and dividends of 25,000 were paid during a cash shortage [1]. Two recommendations with drawbacks, such as: tighten credit control, though customers may leave; replace the overdraft with long-term finance, at a cost in interest [1]. Judgement: liquidity has weakened sharply; fix working capital first, as operating cash flow is the root problem [1]. [8] Examiner insight: “Evaluate” needs a conclusion that weighs the evidence; listing ratio changes without saying whether liquidity is acceptable stops short.

Where marks are usually lost

• Using the tax charge or finance cost instead of the amount actually paid.
• Treating a profit on disposal as an add-back, or showing carrying value instead of proceeds.
• Reversing the sign of a trade payables change.
• Counting a bonus issue as cash raised, or forgetting the share premium on a cash issue.
• Missing out the opening overdraft, or adding it as positive cash.
• Liquidity answers that quote ratios but never use the cash flow figures.

Next steps

• Revision notes
• Study guide
• Edexcel IAL Accounting exam preparation
• Edexcel A-Level Accounting hub
• Printable checklist
• All free 10-minute diagnostics
• Book a free trial class

Official syllabus

Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting (XAC11/YAC11) specification, Issue 2, September 2018, first teaching September 2015, published by Pearson Education Limited. Unit 2, topic 2.3 Statement of cash flows (outcomes 2.3.1 and 2.3.2).