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FA – L1 – Q104 – Statement of Cash Flows

Explain terms from IAS 7: statement of cash flows, cash, cash equivalents, operating, investing, and financing activities.

Question

ZOE INFANT CO LTD

(a) Explain what is meant by the following terms from IAS 7:

(i) Statement of cash flows

(ii) Cash

(iii) Cash equivalents

(iv) Operating activities

(v) Investing activities

(vi) Financing activities

(b) Calculate the following ratios:

(i) Current Ratio

(ii) Quick Ratio

Answer

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Tags: Current Ratio, Financial Ratios, Liquidity Ratios, Quick Ratio, Working Capital
Level: Level 1

Topic: Interpretation of Financial Statements (Financial Ratios)

FA – L1 – Q103 – Interpretation of Financial Statements

Calculate five financial ratios for KK Enterprises based on its 20X8 financial statements.

Question

KK is the owner of a business supplying goods to other traders. He has just received the financial accounts for his business for the year ended 31st December 20X8 from his accountant. These are reproduced below.

Statement of profit or loss for the year ended 31st December 20X8

GH¢	GH¢
Sales
Cost of sales
Gross profit
Expenses
Net profit

Statement of financial position as at 31st December 20X8

GH¢	GH¢
Non-current assets (net)
Current assets
Inventory	52,000
Receivables	15,000
Cash	100

Total assets
Current liabilities
Payables	6,000
Bank	2,500

Capital
Balance b/d	200,000
Net profit	30,000
Drawings	(21,400)

Total capital and liabilities

Note: Inventory on 1st January 20X8 was valued at GH¢ 48,000.

Required:
Calculate for KK Enterprises each of the following ratios for the year ended 31st December 20X8 (where appropriate, calculations should be approximated to two decimal places):
(i) Net profit margin.
(ii) Return on capital employed (using the closing year-end value for capital employed).
(iii) Current ratio.
(iv) Liquid (acid test) ratio.
(v) Rate of inventory turnover.

Answer

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Tags: Acid Test Ratio, Current Ratio, Financial Ratios, Financial Statement Analysis, Inventory Turnover, Liquidity Ratios, Net Profit Margin, Profitability Ratios, Return on Capital Employed, Sole Trader
Level: Level 1

Topic: Interpretation of Financial Statements (Financial Ratios)

FA – L1 – Q102 – Statement of cash flows

Prepare a statement of cash flows for ZA Ltd for the year ended 31 May 20X9 using the indirect method per IAS 7.

Question

The statements of financial position for the last two years for ZA Ltd are shown below. ZA Ltd implemented an expansion programme during the year ended 31st May 20X9.

	20X8		20X9
	GH¢	GH¢	GH¢	GH¢
Non-current assets (net)		380,000		530,000
Current assets
Inventory	80,000		108,000
Receivables	32,000		37,000
Bank	13,000		–
Cash	1,000		3,000
Total assets		506,000		678,000
Current liabilities
Payables	26,000		30,000
Corporation Tax	22,000		28,000
Overdraft	–		5,000
Dividends	–		21,000
Accruals	–		4,000
Total liabilities		68,000		88,000
Capital and Reserves
Ordinary shares		350,000		490,000
General reserve		62,000		62,000
Revaluation reserve		–		10,000
Retained earnings		26,000		28,000
Total capital and liabilities		506,000		678,000

Additional information:
(i) The total depreciation provision incorporated in the statements of financial position was GH¢48,000 at 31st May 20X8 and GH¢122,000 at 31st May 20X9.
(ii) During the year ended 31st May 20X9 a non-current asset costing GH¢22,000 with a carrying amount of GH¢6,000 was sold for GH¢1,000. No other disposals took place.
(iii) The revaluation surplus represents a revaluation of premises during the year ended 31st May 20X9.

Required:
(a) Prepare a statement of cash flows for ZA Ltd for the year ended 31st May 20X9 in accordance with IAS 7. (Use the indirect method).

(b) State the effects of the expansion policy on ZA Ltd.

Answer:

Answer

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Tags: Cash Flows, Depreciation, Dividends, Financing Activities, Indirect Method, Investing Activities, Non-current Assets, Operating Activities, Share Issue, Statement of Cash Flows
Level: Level 1

Topic: IAS 7: Statement of cash flows

FA – L1 – Q101 – Statement of cash flows

Prepare a statement of cash flows for StarPharma Ltd for the year ended 30 June 20X9 using the indirect method.

Question

The financial statements of StarPharma Ltd, a limited liability company that operates in the pharmaceuticals sector, at 30 June were as follows.

	20X9		20X8
	GH¢000	GH¢000	GH¢000	GH¢000
Assets
Non-current assets
Property cost	22,000		12,000
Depreciation	(4,000)		(1,000)
Plant and equipment		18,000		11,000
Cost	5,000		5,000
Depreciation	(2,250)		(2,000)
		2,750		3,000
		20,750		14,000
Current assets
Inventories	16,000		11,000
Trade receivables	9,950		2,700
Cash and cash equivalents	–		1,300
		25,950		15,000
Total assets		46,700		29,000
Equity and liabilities
Capital and reserves
Equity capital		3,000		3,000
Accumulated profits		16,200		3,800
		19,200		6,800
Non-current liabilities
Loan		6,000		10,000
Current liabilities
Operating overdraft	11,000
Trade payables	8,000		11,000
Income tax payable	1,800		1,000
Accrued interest	700		200
		21,500		12,200
Total equity and liabilities		46,700		29,000

Statement of profit or loss (extracts)
Operating profit
Financing cost (Interest)
Profit before tax
Income tax expense
Net profit for the year

Equipment of carrying amount GH¢250,000 was sold at the beginning of 20X9 for GH¢350,000. This equipment had originally cost GH¢1,000,000.
In recent years, no dividends have been paid.

Required
Prepare a statement of cash flows, under the indirect method, for the year ended 30 June 20X9.

Answer

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Level: Level 1

Topic: IAS 7: Statement of cash flows

FA – L1 – Q100 – Statement of cash flows

Prepare a statement of cash flows for SpicyFlare Limited for the year ended 31 December 20X9 using provided financial data.

Question

SpicyFlare Limited
SpicyFlare Limited summarised final accounts are as follows:

Statements of financial position

	31 December 20X8		31 December 20X8
	GH¢000	GH¢000	GH¢000
Non-current assets:
Plant and machinery at cost		2,700
Accumulated depreciation		(748)
Carrying amount		1,952
Current assets:
Inventory	203
Receivables	147
Bank	51
		401
Total assets		2,353
Ordinary share capital (GH¢1 shares)		740
Share premium account
Retained earnings		671
		1,411
Non-current liabilities:
Loans
Current liabilities:
Bank overdraft
Trade payables and accruals	152
Current taxation	470
Total equity and liabilities		2,353

Statement of profit or loss for year ended 31 December 20X9
Profit before tax
Taxation
Profit after tax
Dividend payments during the year were GH¢230,000.

The following information is also available:
(1) The only new loan raised during the year was a five-year bank loan amounting to GH¢65,000.
(2) Interest charged during the year was GH¢156,000. Interest accrued was GH¢24,000 last year and GH¢54,000 this year.
(3) Depreciation charged during the year amounted to GH¢401,000. This does not include any profit or loss on disposal of non-current assets.
(4) During the year plant which originally cost GH¢69,000 was disposed of for GH¢41,000.
(5) During the year the company issued 200,000 new shares.

Required
Prepare a statement of cash flows.

Answer

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Level: Level 1

Topic: IAS 7: Statement of cash flows

FA – L1 – Q99 – Statement of Cash Flows

Prepare a statement of cash flows for Nordex Limited for 20X9 using financial statements and non-current asset details.

Question

The following information has been extracted from the draft financial information of Nordex Limited.

Statement of Profit or Loss for the Year Ended 31 December 20X9

GH¢’000	GH¢’000
Sales revenue	1,350
Administration costs	(346)
Distribution costs	(246)
Operating profit	758
Interest expense	(110)
Profit before tax	648
Taxation	(208)
Profit after tax	440
Dividends paid	(120)
Retained profit for the year	320

Statements of Financial Position

	31 December 20X9		31 December 20X8
	GH¢’000	GH¢’000	GH¢’000	GH¢’000
Non-current assets		1,145		957
Current assets
Inventory	157		142
Receivables	203		184
Cash and cash equivalents	41		10
	401	401	336	336
Total assets		1,546		1,293
Equity and liabilities
Equity
Share capital	200		200
Revaluation surplus	170		100
Retained earnings	604		404
	974	974	704	704
Non-current liabilities
Loans		350		450
Current liabilities
Trade payables	43		43
Taxation	29		36
Accruals	150		100
	222	222	179	179
Total equity and liabilities		1,546		1,293

Note on Non-Current Assets

	Land and Buildings	Machinery	Fixtures & Fittings	Total
	GH¢’000	GH¢’000	GH¢’000	GH¢’000
Cost or Valuation
At 31 December 20X8	830	470	197	1,497
Additions	–	43	55	98
Disposals	–	(18)	–	(18)
Adjustment on revaluation	70	–	–	70
At 31 December 20X9	900	495	252	1,647
Depreciation
At 31 December 20X8	(90)	(270)	(180)	(540)
Charge for the year	(10)	(56)	(8)	(74)
Disposals	–	12	–	12
Adjustment on revaluation	100	–	–	100
At 31 December 20X9	0	(314)	(188)	(502)
Carrying Amount
At 31 December 20X8	740	200	17	957
At 31 December 20X9	900	181	64	1,145

You have been informed that included within distribution costs is GH¢4,000 relating to the loss on a disposal of a non-current asset.

Required
Prepare a statement of cash flows for Nordex Limited for the year ended 31 December 20X9.

Answer

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Level: Level 1

Topic: IAS 7: Statement of cash flows

FA – L1 – Q98 – Statement of cash flows

Prepare a statement of cash flows for Tango Limited for 20X9 using the direct method, based on provided financial statements.

Question

The following information has been extracted from the financial statements of Tango Limited for the year ended 31 December 20X9.

Statement of profit or loss for the year ended 31 December 20X9

GH¢	GH¢
Sales
Cost of sales
Gross profit
Loss on disposal of non-current asset	(4,000)
Wages and salaries	(137,000)
Other expenses (including depreciation GH¢46,000)	(193,000)
Interest charges	(19,000)
Profit before tax
Tax on profit
Profit after tax

The asset disposed of had a carrying amount of GH¢31,000 at the time of the sale.

Extracts from the statements of financial position:

	At 1 January 20X9	At 31 December 20X9
	GH¢	GH¢
Non-current assets	157,000	142,000
Inventory	42,000	45,000
Receivables	43,600	51,000
Cash and cash equivalents	4,000	11,200
Trade payables	45,000	41,000
Taxation payable	10,000	12,000
Interest payable	3,000	2,000

Note on non-current assets

	Land and buildings	Machinery	Fixtures & fittings	Total
	GH¢000	GH¢000	GH¢000	GH¢000
Cost or valuation
At 31 December 20X8	830	470	197	1,497
Additions	–	43	55	98
Disposals	–	(18)	–	(18)
Adjustment on revaluation	70	–	–	70
At 31 December 20X9	900	495	252	1,647
Depreciation
At 31 December 20X8	(90)	(270)	(180)	(540)
Charge for the year	(10)	(56)	(8)	(74)
Disposals	–	12	–	12
Adjustment on revaluation	100	–	–	100
At 31 December 20X9	0	(314)	(188)	(502)
Carrying amount:
At 31 December 20X8	740	200	17	957
At 31 December 20X9	900	181	64	1,145

You have been informed that included within distribution costs is GH¢4,000 relating to the loss on a disposal of a non-current asset.

Required
Prepare a statement of cash flows for Tango Limited for the year ended 31 December 20X9.

Answer

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Level: Level 1

Topic: IAS 7: Statement of cash flows

FA – L1 – Q97 – Preparation of accounts from incomplete records

Prepare statement of profit or loss, statement of affairs, and statement of financial position for Ansah Ventures for 20X9 using incomplete records.

Question

ANSAH VENTURES

Kwame Ansah is a vehicle spare parts dealer in Kumawu. He pays into his bank account the amount of his cash takings after keeping an amount of GH¢2,000 per week for personal use and after payment of wages and other expenses, which for the accounting period ending 31st December 20X9, were as follows:

Expenses	GH¢
Staff wages	1,440
Goods	120,580
Cleaning	1,200
Carriage	600
Sundry	5,000

The following are his bank transactions:

Bank Transactions	GH¢
Income tax	3,000
Telephone	650
Bank lodgements	15,000
Cash sales	6,000
Bulk sales (cheques)	10,000
Treasury bill interest	5,000
Payments to suppliers	15,000
Rent	11,000
Electricity	650
Balance as at 1st January 20X9	6,000

The following additional information was also provided:

Assets and Liabilities	01/01/20X9 (GH¢)	31/12/20X9 (GH¢)
Furniture & fittings	1,200	1,200
Stocks in trade	10,500	7,650
Payables – Goods purchased	1,670	2,750
Payables – Rent	5,000	6,000
Payables – Electricity	500	650
Payables – Telephone	150	200
Payables – Accountancy fee	–	750
Treasury bills	10,000	15,000
Receivables – Bulk sales	8,000	15,000

Required:
(i) Prepare statement of profit or loss for the year ending 31st December 20X9. (10 marks)
(ii) Prepare statement of affairs as at 1st January 20X9. (2 marks)
(iii) Prepare statement of financial position as at 31st December 20X9. (8 marks)

Answer

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Level: Level 1

Topic: Preparation of accounts from incomplete records

FA – L1 – Q96 – Preparation of accounts from incomplete records

Prepare statement of profit or loss and financial position for Kofi's business for 20X9 using incomplete records.

Question

Kofi is in business but does not keep proper books of account. In order to prepare his income and expenditure account for the year ended 31 December 20X9 you are given the following information.

| | 1 Jan 20X9 | 31 Dec 20X9 | | | GH¢000 | GH¢000 | | Inventory on hand | 1,310 | 1,623 | | Receivables | 268 | 412 | | Payables for goods | 712 | 914 | | Payables for expenses | 116 | 103 |

In addition you are able to prepare the following summary of his cash and bank transactions for the year.

| Cash account | | | | | — | GH¢000 | — | GH¢000 | | Balance 1 January | 62 | Payments into bank | 3,050 | | Shop takings | 4,317 | Purchases | 316 | | Cheques cashed | 200 | Expenses | 584 | | | | Drawings | 600 | | | | Balance 31 December | 29 | | | 4,579 | | 4,579 |

| Bank account | | | | GH¢000 | | Balance 1 January | 840 | Cash withdrawn | 200 | | Cheques from customers | 1,416 | Purchases | 2,715 | | Cash paid in | 3,050 | Expenses | 519 | | | | Drawings | 400 | | | | Delivery van (purchased 1 September) | 900 | | | | Balance 31 December | 572 | | | 5,306 | | 5,306 |

In addition Kofi says that he had taken goods for personal consumption and estimates that those goods cost GH¢100,000.
In considering accounts receivable Kofi suggests that a provision is to be made of 5% of amounts due after writing off a specific irrecoverable debt of GH¢30,000.
Depreciation on the delivery van is to be recognised at 20% per annum.

Required:
Prepare the statement of profit or loss and a statement of financial position at 31 December 20X9.

Answer

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Level: Level 1

Topic: Preparation of accounts from incomplete records

FA – L1 – Q95 – Preparation of accounts from incomplete records

Prepare Kofi Mensah's statement of profit or loss and financial position for 20X9 using incomplete records and bank summary.

Question

Kofi Mensah retired from his employment abroad and returned to this country, where he purchased a small kiosk.
He took over the business on 1 July 20X8, acquiring the existing inventory at a valuation of GH¢1,142,000. The rest of the purchase price was apportioned as to GH¢1,500,000 for fixtures and fittings and the balance for goodwill.
The following day he acquired a second-hand computer and accounts package at a price of GH¢80,000. Unfortunately, Kofi Mensah made an error when printing his year-end accounts causing him to lose all data except for printed a summary listing of payments from the till. Other than this, the only records available were his bank statements and a number of vouchers. Surplus cash was banked during the year.
A summary of his bank account for the year ended 30 June 20X9 shows the following.

Receipts	GH¢000	Payments	GH¢000
Cash introduced	5,000	Purchase of business	3,192
Bankings from shop	16,427	Purchase of accounts computer	80
Loan from mother (long-term) (interest at 5% pa)	1,000	Rent (15 months to 30 September 20X9)	500
		Rates (9 months to 31 March 20X9)	84
		Electricity	92
		Purchases for resale	14,700
		Private cheques	1,122
		Balance 30 June 20X9	2,657
	22,427		22,427

The computer print-out was as follows.

	GH¢000
Cash purchases for resale	1,606
Staff wages	742
Sundry shop expenses	156
Cash drawings	520

On 30 June 20X9 inventory, measured at cost, amounted to GH¢1,542,000, amounts due from customers GH¢74,000, and cash in hand amounted to GH¢54,000. Depreciation is to be recognised on fixtures and fittings at a rate of 10%.
Accounts outstanding on 30 June 20X9 were purchases of GH¢470,000 and rates of GH¢120,000 for the year ended 31 March 20Y0.

Required:
Prepare Kofi Mensah’s statement of profit or loss for the year ended 30 June 20X9 and a statement of financial position at that date.

Answer

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Tags: Accruals, Depreciation, Incomplete records, Inventory, Sole Trader, Statement of Financial Position, Statement of profit or loss
Level: Level 1

Topic: Preparation of accounts from incomplete records

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FA – L1 – Q104 – Statement of Cash Flows

Explain terms from IAS 7: statement of cash flows, cash, cash equivalents, operating, investing, and financing activities.

FA – L1 – Q103 – Interpretation of Financial Statements

Calculate five financial ratios for KK Enterprises based on its 20X8 financial statements.

FA – L1 – Q102 – Statement of cash flows

Prepare a statement of cash flows for ZA Ltd for the year ended 31 May 20X9 using the indirect method per IAS 7.

FA – L1 – Q101 – Statement of cash flows

Prepare a statement of cash flows for StarPharma Ltd for the year ended 30 June 20X9 using the indirect method.

FA – L1 – Q100 – Statement of cash flows

Prepare a statement of cash flows for SpicyFlare Limited for the year ended 31 December 20X9 using provided financial data.

FA – L1 – Q99 – Statement of Cash Flows

Prepare a statement of cash flows for Nordex Limited for 20X9 using financial statements and non-current asset details.

FA – L1 – Q98 – Statement of cash flows

Prepare a statement of cash flows for Tango Limited for 20X9 using the direct method, based on provided financial statements.

FA – L1 – Q97 – Preparation of accounts from incomplete records

Prepare statement of profit or loss, statement of affairs, and statement of financial position for Ansah Ventures for 20X9 using incomplete records.

FA – L1 – Q96 – Preparation of accounts from incomplete records

Prepare statement of profit or loss and financial position for Kofi's business for 20X9 using incomplete records.

FA – L1 – Q95 – Preparation of accounts from incomplete records

Prepare Kofi Mensah's statement of profit or loss and financial position for 20X9 using incomplete records and bank summary.

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FA – L1 – Q104 – Statement of Cash Flows

Explain terms from IAS 7: statement of cash flows, cash, cash equivalents, operating, investing, and financing activities.

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FA – L1 – Q103 – Interpretation of Financial Statements

Calculate five financial ratios for KK Enterprises based on its 20X8 financial statements.

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FA – L1 – Q102 – Statement of cash flows

Prepare a statement of cash flows for ZA Ltd for the year ended 31 May 20X9 using the indirect method per IAS 7.

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FA – L1 – Q101 – Statement of cash flows

Prepare a statement of cash flows for StarPharma Ltd for the year ended 30 June 20X9 using the indirect method.

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FA – L1 – Q100 – Statement of cash flows

Prepare a statement of cash flows for SpicyFlare Limited for the year ended 31 December 20X9 using provided financial data.

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FA – L1 – Q99 – Statement of Cash Flows

Prepare a statement of cash flows for Nordex Limited for 20X9 using financial statements and non-current asset details.

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FA – L1 – Q98 – Statement of cash flows

Prepare a statement of cash flows for Tango Limited for 20X9 using the direct method, based on provided financial statements.

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FA – L1 – Q97 – Preparation of accounts from incomplete records

Prepare statement of profit or loss, statement of affairs, and statement of financial position for Ansah Ventures for 20X9 using incomplete records.

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FA – L1 – Q96 – Preparation of accounts from incomplete records

Prepare statement of profit or loss and financial position for Kofi's business for 20X9 using incomplete records.

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FA – L1 – Q95 – Preparation of accounts from incomplete records

Prepare Kofi Mensah's statement of profit or loss and financial position for 20X9 using incomplete records and bank summary.

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