Indirect Method – Knowsia

FR – L2 – Q74 – Statement of Cash Flows

List four advantages of cash flow accounting as per IAS 7.

Question

IAS 7 Statement of Cash Flows states that additional information may be relevant to users in understanding the financial position and liquidity of an entity.

(a) State FOUR advantages of cash flow accounting.

(b) Highlight THREE of the disclosures which are required by the Standard (with comments) by the management of the entity when preparing the statement of cash flow

(c) Nexis Limited’s statement of profit or loss for the year ended 31 December 20X4 and statement of financial position as at 31 December 20X3 and 20X4 are as follows:

NEXIS LIMITED
Statement of profit or loss for the year ended 31 December 20X4

	GH¢’m
Revenue	360
Raw Materials consumed	35
Staff costs	47
Depreciation	59
Loss on disposal of non-current assets	9
	150
Operating profit before interest and tax	210
Interest payable	14
Profit before tax	196
Taxation	62
	134

NEXIS LIMITED
Statement of Financial Position as at 31 December 20X4

	20X4 GH¢’m	20X3 GH¢’m
Non-Current Assets
Cost	798
Depreciation	159
	639
Current Assets
Inventory	12	10
Trade receivable	38	29
Bank	24	28
	74	67
Total Assets	713
Equity and liabilities
Share capital	198	182
Retained earnings	358	291
	556	473
Non-current liabilities
Long-term loans	100	250
Current liabilities
Trade payables	6	3
Taxation	51	43
	57	46
Total equity and liabilities	713

Dividend paid was GH¢33 million.
During the year, the company paid GH¢45 million for a new piece of machinery.

Required
Prepare a Statement of Cash Flows for Nexis Limited for the year ended 31 December 20X4, in accordance with the requirements of IAS 7, using the indirect method.

Answer

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Tags: Cash Flow Statement, Financial Reporting, Financing Activities, IAS 7, Indirect Method, Investing Activities, Operating Activities
Level: Level 2

Topic: Statement of Cash Flows (IAS 7)

FR – L2 – Q72 – Statement of Cash Flows

Prepare a cash flow statement for Model Ltd for 20X4 per IAS 7, using trial balance and additional information.

Question

MODEL LTD
The following trial balance relates to Model Ltd as at 31 December 20X4.

	GH¢’000	GH¢’000
Freehold property at cost	5,700
Plant and machinery at cost	36,000
Fixtures and fittings at cost	12,000
Inventories	14,000
Trade receivables	15,200
Long-term investments	4,600
Cash at bank	11,400
Accumulated depreciation: Plant and machinery		12,000
Accumulated depreciation: Fixtures and fittings		7,000
10% Long-term loan		1,800
Ordinary share capital		20,000
Share premium		2,500
Retained earnings		14,000
Revenue		92,000
Cost of sales	60,000
Operating expenses	7,200
Corporation tax		21,500
Trade payables		14,440
Long-term investment income		450
Government stock	3,000
	169,250	169,250

The following information is relevant.
(a) There had been no disposal of freehold property in the year.
(b) A machine tool which had cost GH¢8,000,000 (in respect of which GH¢6,000,000 depreciation had been provided) was sold for GH¢3,000,000, and fixtures which had cost GH¢5,000,000 (in respect of which depreciation of GH¢2,000,000 had been provided) were sold for GH¢1,000,000. Profits and losses on those transactions had been dealt with through the statement of profit or loss.
(c) The statement of profit or loss charge in respect of tax was GH¢22,000,000.
(d) The premium paid on redemption of the long-term loan was GH¢2,000,000, which has been written off to the statement of profit or loss.
(e) The proposed dividend for 20X3 had been paid during the year.
(f) Interest received during the year was GH¢450,000. Interest charged in the statement of profit or loss for the year was GH¢6,400,000. Accrued interest of GH¢440,000 is included in payables at 31 December 20X3 (nil at 31 December 20X4).
(g) The government stock is a long-term investment.

Required
Prepare a cash flow statement for the year ended 31 December 20X4, together with notes as required by IAS 7.

Answer

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Tags: Cash Flow Statement, Financing Activities, IAS 7, Indirect Method, Investing Activities, Operating Activities
Level: Level 2

Topic: Statement of Cash Flows (IAS 7)

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

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FR – L2 – Q74 – Statement of Cash Flows

List four advantages of cash flow accounting as per IAS 7.

FR – L2 – Q72 – Statement of Cash Flows

Prepare a cash flow statement for Model Ltd for 20X4 per IAS 7, using trial balance and additional information.

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.

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FR – L2 – Q74 – Statement of Cash Flows

List four advantages of cash flow accounting as per IAS 7.

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FR – L2 – Q72 – Statement of Cash Flows

Prepare a cash flow statement for Model Ltd for 20X4 per IAS 7, using trial balance and additional information.

You're reporting an error for "FR – L2 – Q72 – Statement of Cash Flows"

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.

You're reporting an error for "FA – L1 – Q102 – 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.

You're reporting an error for "FA – L1 – Q101 – Statement of cash flows"

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