Question Tag: Cash Flows

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  • 8 Marks

CR – May 2017 – L3 – Q3b – Impairment of Assets (IAS 36)

Identify indicators of impairment and discuss how to test for impairment of assets with dependent cash flows.

IAS 36 stipulates how a company should test for impairment of assets. A multinational oil marketing company operating in Nigeria is not sure how to test for impairment of its assets, especially those that do not generate cash flows that are independent of other assets.

Required:

(i) Identify TWO external and TWO internal indicators that an asset of the multinational oil company may have been impaired. (2 Marks)

(ii) Briefly discuss how the multinational oil company should test for impairment of assets that do not generate independent cash flows. (6 Marks)

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  • 9 Marks

FR – Nov 2022 – L2 – Q2 – Statement of Cash Flows

Prepare a statement of cash flows using the direct method for Obudu Nigeria Limited based on the given financial statements.

Financial statements and extract from the cashbook of Obudu Nigeria Limited for the year ended December 31, 2020 are summarised below:
Obudu Nigeria Limited Statement of profit or Loss for the year ended December 31, 2020

Obudu Nigeria Limited Statement of financial position as at December 31



Other Information
(i) The 8% loan notes have been partly redeemed. It is expected that the full redemption will be made in five years time.
(ii) A cash payment for insurance of N1million was omitted in the cash book and other records.
(iii) The investments are not easily realisable.
Required:
a. Prepare the statement of cash flows for the year ended December 31, 2020 using the direct method in accordance with IAS 7. (9 Marks)
b. Prepare a statement of reconciliation of the operating profit to cash flow from operations. (5 Marks)
c. Discuss the benefits of statement of cash flows information to users of financial statements.

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  • 20 Marks

PSAF – Nov 2021 – L2 – Q1a – Introduction to Public Sector Accounting

Prepare a statement of cash flows using the direct method for Harmony State Government for the year ending December 31, 2020.

The following information was extracted from the records of the Accountant-General of Harmony State for the year ended December 31, 2020:

The following additional information was made available:
(i) Owing to the inability of the State to fulfill its obligation towards the
payment of the salaries of local government staff, a federal government
bailout of N301,024,000 was received after fulfilling all necessary
criteria set for accessing the fund.
(ii) During the year, the state government made claims for the repayment
of N65,483,000 relating to funds spent on the rehabilitation of federal
roads and was granted.
(iii) Details emerging from the Federation Accounts and Allocation
Committee (FAAC) showed the following:

(iv) Capital expenditure funded from aids and grants and external loan
amounted to N15,387,748,000
(v) During the year, the federal government made a transfer for the refund
on reconciliation of Paris Club account amounting to N41,310,000
(vi) Refund of bank charges to the Ministry of Finance in the state amounted
to N51,112,000.
(vii) Cash and cash equivalents as at January 1, 2020 and December 31, 2020
N1,546,699 and N301,657,000 respectively.
(viii) Other revenue sources of the state government during the year also
included an exchange difference amounting to N490,575,000.
(ix) Details of capital expenditure are categorised as follows:

Required:
a. Prepare statement of cash flows using direct method for the Harmony
State government for the year ended December 31, 2020.

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  • 15 Marks

FR – Nov 2021 – L2 – Q5 – Statement of Cash Flows (IAS 7)

Prepare a statement of cash flows using the indirect method and analyze current ratios and overdraft reasons for Dongo Limited.

Dongo Limited statement of profit or loss for the year ended December 31, 2020:

Item N’000
Revenue 420,000
Cost of goods sold (99,000)
Gross profit 321,000
Administrative cost (140,800)
Operating profit 180,200
Investment income 8,100
Interest paid (17,120)
Profit before taxation 171,180
Income tax expense (37,000)
Profit for the year 134,180

Dongo Limited statement of financial position as at December 31,

Additional information:
(i) During the year ended December 31, 2020; other comprehensive income was nil.
(ii) A dividend of N85,870,000 was paid during the year ended December 31, 2020.
(iii) There was no disposal of non-current assets during the year.

You are required to:
a. Prepare the statement of cash flows using the indirect method under IAS 7. (10 Marks)
b. Calculate the company’s current ratio as at the year ended December 31, 2019 and 2020. (2 Marks)
c. State THREE technical reasons which accounted for the company’s rise in overdrafts for the TWO years.

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  • 20 Marks

BMF – May 2015 – L1 – SB – Q4 – Basics of Business Finance and Financial Markets

Discuss major cash flow items in capital investment projects and explain the payback period investment appraisal method.

a. List and explain FOUR major cashflow items to be included in a capital investment project. (8 Marks)
b.
i. Explain the payback period technique of investment appraisal. (4 Marks)
ii. State TWO advantages and TWO disadvantages of payback period. (8 Marks)

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  • 20 Marks

FR – May 2018 – L2 – Q3 – Statement of Cash Flows (IAS 7)

Prepare a statement of cash flows using the indirect method and reconcile cash equivalents with the statement of financial position.

The statement of financial position of Abagana Plc as at July 31, 2016, and 2017 is shown below

Statement of Financial Position as at July 31

Additional Information:

  1. Equipment costing N45,000 was sold in February 2017 for N15,000. The company depreciates equipment at 20% per annum on cost, with a full charge in the year of acquisition and none in the year of disposal.
  2. Non-current asset investments costing N38,000 were sold during the year for N31,500.
  3. Dividends received during the year amounted to N7,500. Dividends paid during the year totaled N150,000.
  4. The 14% loan notes were redeemed in January 2017, and 12% loan notes were issued in July 2017.
  5. The company issued N75,000 ordinary shares at a premium of 60 kobo per share in January 2017.
  6. The net cash flow from operating activities using the indirect method is a deficit of N187,000.

Required: a. Prepare a statement of cash flows for the year ended July 31, 2017, in accordance with IAS 7, using the indirect method. (12 Marks)

b. Reconcile the total cash and cash equivalents shown by the statement of cash flows to the equivalent figures shown in the opening and closing statements of financial position. (5 Marks)

c. Comment briefly on the significance of the information provided by the statement of cash flows. (3 Marks)

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  • 1 Marks

BMF – Nov 2022 – L1 – SA – Q8 – Basics of Business Finance and Financial Markets

This question asks about the concept of perpetuity in finance.

A constant annual cash-flow to infinity is called:
A. Perpetuity
B. Sinking funds
C. Compound interest
D. Loan
E. Annuity

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  • 20 Marks

BMF – May 2021 – L1 – SB – Q3 – Investment Decisions

Calculate payback periods for two investment projects and decide based on company policy.

CASHIO Limited must choose between two investments, Project ABUWA and Project BRIWA. It cannot undertake both investments. The expected cash flows for each project are:

Year Project ABUWA (₦) Project BRIWA (₦)
0 (800,000) (800,000)
1 200,000 600,000
2 360,000 240,000
3 360,000 20,000
4 170,000 –

The company has a policy that the maximum permissible payback period for an investment is three years and if a choice has to be made between the two projects, the project with the earlier payback will be chosen.

a. Calculate the payback period for each project:
i. Assuming that cash flows occur at year-end
ii. Assuming that cash flows after Year 0 occur at a constant rate throughout each year (16 Marks)

b. Which project should be selected according to the company’s payback rule? (2 Marks)

c. State the reasons for your decision in (b) above. (2 Marks)

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  • 1 Marks

BMF – Nov 2023 – L1 – SA – Q6 – Investment Decisions

Identify the incorrect feature of the payback period appraisal method.

Which of the following features is INCORRECT in respect of the payback period investment appraisal method?

A. It can be used to eliminate projects that will take too long to pay back
B. Often used by companies that have liquidity problems
C. Ignores the total cash returns from the project
D. Analyses accounting profits
E. Simple to calculate

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  • 1 Marks

FA – MAY 2015 – L1 – SA – Q1 – Scope and Purpose of Accounting

Identify the transaction that is not a financing activity in the statement of cash flows.

Which of the following will NOT be included as financing activities in the statement of cash flows of a business entity?
A. Proceeds from the issue of shares
B. Cash dividend paid to shareholders
C. Loan from the bank
D. Proceeds from disposal of non-current assets
E. Proceeds from the issue of debentures

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  • 8 Marks

CR – May 2017 – L3 – Q3b – Impairment of Assets (IAS 36)

Identify indicators of impairment and discuss how to test for impairment of assets with dependent cash flows.

IAS 36 stipulates how a company should test for impairment of assets. A multinational oil marketing company operating in Nigeria is not sure how to test for impairment of its assets, especially those that do not generate cash flows that are independent of other assets.

Required:

(i) Identify TWO external and TWO internal indicators that an asset of the multinational oil company may have been impaired. (2 Marks)

(ii) Briefly discuss how the multinational oil company should test for impairment of assets that do not generate independent cash flows. (6 Marks)

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  • 9 Marks

FR – Nov 2022 – L2 – Q2 – Statement of Cash Flows

Prepare a statement of cash flows using the direct method for Obudu Nigeria Limited based on the given financial statements.

Financial statements and extract from the cashbook of Obudu Nigeria Limited for the year ended December 31, 2020 are summarised below:
Obudu Nigeria Limited Statement of profit or Loss for the year ended December 31, 2020

Obudu Nigeria Limited Statement of financial position as at December 31



Other Information
(i) The 8% loan notes have been partly redeemed. It is expected that the full redemption will be made in five years time.
(ii) A cash payment for insurance of N1million was omitted in the cash book and other records.
(iii) The investments are not easily realisable.
Required:
a. Prepare the statement of cash flows for the year ended December 31, 2020 using the direct method in accordance with IAS 7. (9 Marks)
b. Prepare a statement of reconciliation of the operating profit to cash flow from operations. (5 Marks)
c. Discuss the benefits of statement of cash flows information to users of financial statements.

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  • 20 Marks

PSAF – Nov 2021 – L2 – Q1a – Introduction to Public Sector Accounting

Prepare a statement of cash flows using the direct method for Harmony State Government for the year ending December 31, 2020.

The following information was extracted from the records of the Accountant-General of Harmony State for the year ended December 31, 2020:

The following additional information was made available:
(i) Owing to the inability of the State to fulfill its obligation towards the
payment of the salaries of local government staff, a federal government
bailout of N301,024,000 was received after fulfilling all necessary
criteria set for accessing the fund.
(ii) During the year, the state government made claims for the repayment
of N65,483,000 relating to funds spent on the rehabilitation of federal
roads and was granted.
(iii) Details emerging from the Federation Accounts and Allocation
Committee (FAAC) showed the following:

(iv) Capital expenditure funded from aids and grants and external loan
amounted to N15,387,748,000
(v) During the year, the federal government made a transfer for the refund
on reconciliation of Paris Club account amounting to N41,310,000
(vi) Refund of bank charges to the Ministry of Finance in the state amounted
to N51,112,000.
(vii) Cash and cash equivalents as at January 1, 2020 and December 31, 2020
N1,546,699 and N301,657,000 respectively.
(viii) Other revenue sources of the state government during the year also
included an exchange difference amounting to N490,575,000.
(ix) Details of capital expenditure are categorised as follows:

Required:
a. Prepare statement of cash flows using direct method for the Harmony
State government for the year ended December 31, 2020.

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  • 15 Marks

FR – Nov 2021 – L2 – Q5 – Statement of Cash Flows (IAS 7)

Prepare a statement of cash flows using the indirect method and analyze current ratios and overdraft reasons for Dongo Limited.

Dongo Limited statement of profit or loss for the year ended December 31, 2020:

Item N’000
Revenue 420,000
Cost of goods sold (99,000)
Gross profit 321,000
Administrative cost (140,800)
Operating profit 180,200
Investment income 8,100
Interest paid (17,120)
Profit before taxation 171,180
Income tax expense (37,000)
Profit for the year 134,180

Dongo Limited statement of financial position as at December 31,

Additional information:
(i) During the year ended December 31, 2020; other comprehensive income was nil.
(ii) A dividend of N85,870,000 was paid during the year ended December 31, 2020.
(iii) There was no disposal of non-current assets during the year.

You are required to:
a. Prepare the statement of cash flows using the indirect method under IAS 7. (10 Marks)
b. Calculate the company’s current ratio as at the year ended December 31, 2019 and 2020. (2 Marks)
c. State THREE technical reasons which accounted for the company’s rise in overdrafts for the TWO years.

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  • 20 Marks

BMF – May 2015 – L1 – SB – Q4 – Basics of Business Finance and Financial Markets

Discuss major cash flow items in capital investment projects and explain the payback period investment appraisal method.

a. List and explain FOUR major cashflow items to be included in a capital investment project. (8 Marks)
b.
i. Explain the payback period technique of investment appraisal. (4 Marks)
ii. State TWO advantages and TWO disadvantages of payback period. (8 Marks)

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  • 20 Marks

FR – May 2018 – L2 – Q3 – Statement of Cash Flows (IAS 7)

Prepare a statement of cash flows using the indirect method and reconcile cash equivalents with the statement of financial position.

The statement of financial position of Abagana Plc as at July 31, 2016, and 2017 is shown below

Statement of Financial Position as at July 31

Additional Information:

  1. Equipment costing N45,000 was sold in February 2017 for N15,000. The company depreciates equipment at 20% per annum on cost, with a full charge in the year of acquisition and none in the year of disposal.
  2. Non-current asset investments costing N38,000 were sold during the year for N31,500.
  3. Dividends received during the year amounted to N7,500. Dividends paid during the year totaled N150,000.
  4. The 14% loan notes were redeemed in January 2017, and 12% loan notes were issued in July 2017.
  5. The company issued N75,000 ordinary shares at a premium of 60 kobo per share in January 2017.
  6. The net cash flow from operating activities using the indirect method is a deficit of N187,000.

Required: a. Prepare a statement of cash flows for the year ended July 31, 2017, in accordance with IAS 7, using the indirect method. (12 Marks)

b. Reconcile the total cash and cash equivalents shown by the statement of cash flows to the equivalent figures shown in the opening and closing statements of financial position. (5 Marks)

c. Comment briefly on the significance of the information provided by the statement of cash flows. (3 Marks)

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  • 1 Marks

BMF – Nov 2022 – L1 – SA – Q8 – Basics of Business Finance and Financial Markets

This question asks about the concept of perpetuity in finance.

A constant annual cash-flow to infinity is called:
A. Perpetuity
B. Sinking funds
C. Compound interest
D. Loan
E. Annuity

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  • 20 Marks

BMF – May 2021 – L1 – SB – Q3 – Investment Decisions

Calculate payback periods for two investment projects and decide based on company policy.

CASHIO Limited must choose between two investments, Project ABUWA and Project BRIWA. It cannot undertake both investments. The expected cash flows for each project are:

Year Project ABUWA (₦) Project BRIWA (₦)
0 (800,000) (800,000)
1 200,000 600,000
2 360,000 240,000
3 360,000 20,000
4 170,000 –

The company has a policy that the maximum permissible payback period for an investment is three years and if a choice has to be made between the two projects, the project with the earlier payback will be chosen.

a. Calculate the payback period for each project:
i. Assuming that cash flows occur at year-end
ii. Assuming that cash flows after Year 0 occur at a constant rate throughout each year (16 Marks)

b. Which project should be selected according to the company’s payback rule? (2 Marks)

c. State the reasons for your decision in (b) above. (2 Marks)

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  • 1 Marks

BMF – Nov 2023 – L1 – SA – Q6 – Investment Decisions

Identify the incorrect feature of the payback period appraisal method.

Which of the following features is INCORRECT in respect of the payback period investment appraisal method?

A. It can be used to eliminate projects that will take too long to pay back
B. Often used by companies that have liquidity problems
C. Ignores the total cash returns from the project
D. Analyses accounting profits
E. Simple to calculate

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  • 1 Marks

FA – MAY 2015 – L1 – SA – Q1 – Scope and Purpose of Accounting

Identify the transaction that is not a financing activity in the statement of cash flows.

Which of the following will NOT be included as financing activities in the statement of cash flows of a business entity?
A. Proceeds from the issue of shares
B. Cash dividend paid to shareholders
C. Loan from the bank
D. Proceeds from disposal of non-current assets
E. Proceeds from the issue of debentures

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