Topic: IAS 7: Statement of cash flows

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  • 20 Marks

FR – Dec 2022 – L2 – Q3 – IAS 7 Statement of Cash Flows

Prepare Dompa Ltd.'s statement of cash flows for the year ended 31 December 2021, using the indirect method based on the IAS 7 framework.

Dompa Ltd prepares its financial statements in accordance with IFRSs. Below are the statement of profit or loss for the year ended 31 December 2021 and the statement of financial position as at that date, and the comparative statement of financial position as at 31 December 2020.

Statement of Profit or Loss for the year ended 31 December 2021

Description GH¢’000
Revenue 1,656,000
Cost of sales (745,200)
Gross profit 910,800
Other income 15,000
Admin expenses (409,860)
Distribution costs (136,620)
Profit before interest & tax 379,320
Finance cost (3,232)
Profit before tax 376,088
Tax expense (9,462)
Profit for the year 366,626

Statement of Financial Position as at 31 December

Description 2021 (GH¢’000) 2020 (GH¢’000)
Non-current assets:
Property, Plant & Equipment 33,210 23,260
Investment Property 28,500 28,000
Intangible Assets 124 155
Total Non-Current Assets 61,834 51,415
Current assets:
Inventory 15,700 5,680
Trade Receivables 82,800 10,765
Cash 16,712 152
Bank 304,437 5,950
Total Current Assets 419,649 22,547
Total Assets 481,483 73,962
Equity & Liabilities:
Equity:
Share capital 30,000 25,000
Retained earnings 373,526 11,300
Revaluation surplus 862 1,262
Total Equity 404,388 37,562
Non-current liabilities:
15% bond redeemable in 2024 20,432 20,200
Deferred tax 3,762 2,300
Current liabilities:
Trade & other payables 46,401 7,600
Current tax 6,500 6,300
Total Equity & Liabilities 481,483 73,962

Additional Information:

i) Depreciation expense on tangible non-current assets recognised for the year is GH¢8,804,000.
ii) An impairment review has been undertaken on one of the machines of the company that has a carrying value of GH¢1,500,000, but an estimated recoverable amount at the impairment review date was GH¢745,000.
iii) One of the company’s vehicles was involved in an accident in the year and was written off with a carrying value of GH¢562,000.
iv) The company sold a machine for GH¢850,000 with a carrying value of GH¢689,000.
v) The company also issued a 15% bond in January 2020 at a par value of GH¢20,000 with a tenure of 5 years.
vi) The company realized GH¢400,000 in revaluation surplus through excess depreciation charges.

Required:
Using IAS 7: Statement of Cash Flows, prepare the statement of cash flow for Dompa Ltd for the year ended 31 December 2021.

 

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  • 4 Marks

CR – May 2018 – L3 – Q4a – IAS 7: Statement of cash flows

Explain four arguments against the view that historical cash flow is more useful than historical profit in appraising a company.

It is often argued that historical cash flow is more useful in appraising a company than historical profit, particularly because cash flows are factual and do not involve the exercise of judgment.

Required:
Explain FOUR arguments against this view. (4 marks)

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  • 20 Marks

FA – Nov 2023 – L1 – Q4 – IAS 7: Statement of cash flows

Prepare a statement of cash flows for Oti Ltd for the year ended 31 March 2022, including a discussion on cash equivalents.

Extracts from the financial statements for Oti Ltd for the year ended 31 March 2022 are as follows:

Statement of Profit or Loss for the year ended 31 March 2022

Description Amount (GHȼ)
Profit from operations 752,960
Interest payable (60,420)
Profit before tax 692,540
Income tax (210,400)
Profit for the year 482,140

Statements of Financial Position as at 31 March

Description 2022 (GHȼ) 2021 (GHȼ)
Non-current assets
Property, plant, and equipment 1,480,000 1,297,570
Current assets
Inventories 440,000 295,000
Trade receivables 385,840 197,750
Bank – 4,120
Total assets 2,305,840 1,794,440
Equity and liabilities
Share capital 640,800 540,200
Retained earnings 641,340 301,200
Non-current liabilities
10% Loan note 604,200 604,200
Current liabilities
Trade payables 154,700 150,300
Income tax payable 204,600 198,540
Bank overdraft 60,200 –
Total equity and liabilities 2,305,840 1,794,440

Additional information:

i) The depreciation charged for the year was GHȼ200,000.
ii) Dividends of GHȼ142,000 were paid during the year.
iii) During the year, plant with an original cost of GHȼ450,000 and a carrying amount at the date of disposal of GHȼ315,000 was sold for GHȼ412,000, which was received in cash.

Required:

a) In accordance with IAS 7: Statement of Cash Flows, prepare a Statement of Cash Flows for Oti Ltd for the year ended 31 March 2022. (18 marks)
b) Explain what is meant by the term ‘cash equivalents’ in relation to cash flow statements. (2 marks)

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  • 20 Marks

FA – Aug 2022 – L1 – Q4 – IAS 7: Statement of cash flows | Interpretation of financial statements (Financial Ratios)

Preparation of a Statement of Cash Flows using IAS 7, including cash flows from operating, investing, and financing activities, with an analysis of the benefits of preparing cash flow statements.

a) The following information relates to the activities of Chemu Ltd:

Statement of Financial Position as at 31 December

Account 2021 (GHȼ’000) 2020 (GHȼ’000)
Assets
Non-current assets 1,295 810
Current assets
Inventory 1,500 500
Receivables 2,680 890
Bank – 740
Total assets 5,475 2,940
Equity and liabilities
Equity
Share capital 600 400
Retained earnings 1,625 600
Total equity 2,225 1,000
Non-current liabilities
10% Debentures 160 360
Current liabilities
Bank overdraft 1,810 –
Payables 1,000 680
Taxation 280 900
Total liabilities 3,250 1,940
Total equity and liabilities 5,475 2,940

Additional information:

i) The Statement of Profit or Loss for the year ended 31 December 2021 shows the following:

Account Amount (GHȼ’000)
Operating profit 1,531
Interest payable (26)
Profit before taxation 1,505
Taxation (480)
Profit for the period 1,025

ii) Payables consist of trade payables and accrued interest. The accrued interest as at 31 December 2021 was GHȼ45,000 and as at 2020 was GHȼ80,000.

iii) Profit before taxation had been arrived at after charging GHȼ395,000 for depreciation on non-current assets.

iv) During the year, non-current assets with a carrying amount of GHȼ200,000 were sold for GHȼ190,000.

Required:
Prepare a Statement of Cash Flows for Chemu Ltd for the year ended 31 December 2021, in accordance with IAS 7: Statement of Cash Flows.
(16 marks)

b) Identify FOUR (4) benefits Chemu Ltd may derive from preparing a Statement of Cash Flows.
(4 marks)

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  • 20 Marks

FA – Nov 2020 – L1 – Q5 – IAS 7: Statement of cash flows | Interpretation of financial statements (Financial Ratios)

Analysis of financial performance using ratios and calculation of additional liquidity ratios and explanation of the importance of the statement of cash flows.

The following financial information relates to Mawoekpor Ltd. for the year ended 31 December 2019 (with comparative figures for the year ended 31 December 2018):

Statement of Financial Position as at 31 December 2019

Required:
a) Select THREE (3) of the ratios listed above and briefly outline what information each ratio provides to users of financial information, commenting specifically on the financial results of Mawoekpor Ltd.
(9 marks)

b) Calculate TWO (2) additional ratios for both 2018 and 2019 that would provide further evidence of the liquidity of the company.
(5 marks)

c) Explain THREE (3) importance of preparing a statement of cash flows.
(6 marks)

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  • 20 Marks

FA – Nov 2018 – L1 – Q2 – IAS 7: Statement of cash flows

Prepare a statement of cash flows using the indirect method and differentiate between the direct and indirect methods.

a) Mensah & Co. Ltd
Statement of Financial Position as at 31 December 2017

Required:
a) Prepare a statement of cash flow as at 31 December 2017 for Mensah & Co. Ltd using the indirect method. (17 marks)

b) Differentiate between the Direct and Indirect Method of reporting cash flow from operating activities. (3 marks)

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  • 20 Marks

FA – May 2018 – L1 – Q4 – IAS 7: Statement of cash flows

Prepare the statement of cash flows for a company based on provided financial data.

New World Company Limited is a large manufacturer of electrical goods. You are a trainee accountant working for the company. The following statement of profit or loss and other comprehensive income and statement of financial position extracts relate to New World Company Limited.

Required:
Prepare the statement of cash flows for New World Company Limited for the year ended 31 December 2017. (20 marks)

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  • 20 Marks

FA – May 2017 – L1 – Q5 – IAS 7: Statement of cash flows

Preparation of statement of cash flows for Saasa Company Ltd using the indirect method, with adjustments for various transactions and working capital changes.

Below are the statement of financial position for Saasa Company Limited at 31 December 2015 and 31 December 2016 and the income statement for the year ended 31 December, 2016.

Income Statement for the year ended 31 December 2016

GH¢’000
Revenue 900
Cost of sales (550)
Gross profit 350
Expenses (245)
Finance costs (9)
Profit on sale of equipment 7
Profit before tax 103
Income tax expense (30)
Profit for the period 73

Additional information
i) Deferred development expenditure amortized during 2016 was GH¢25,000.
ii) Additions to property, plant, and equipment totaling GH¢167,000 were made. Proceeds from the sale of equipment were GH¢58,000, giving rise to a profit of GH¢7,000. No other items of property, plant, and equipment were disposed of during the year.
iii) Finance costs represent interest paid on the new 6% debentures (2016-2022) issued on 1 January 2016.
iv) Current asset investments represent treasury bills acquired. The company deems these to represent cash equivalents.
v) Dividends paid during the year amounted to GH¢65,000.

Required:
Prepare a statement of cash flows for Saasa Company for the year ended 31 December 2016, using the indirect method in accordance with IAS 7: Statement of Cash Flows.

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  • 20 Marks

FA – May 2016 – L1 – Q4 -Preparation of financial statements of a sole trader | IAS 7: Statement of cash flows

Prepare an adjusted cash book, a bank reconciliation statement, and discuss the benefits of reconciling cash book and bank statement balances.

The Statements of Financial Position for the last two years for AO Ltd are shown below. AO Ltd implemented an expansion programme during the year ended 31st May 2015.

Additional information:
i) The total depreciation provision incorporated in the statements of financial position was GH¢48,000 at 31st May 2014 and GH¢122,000 at 31st May 2015.
ii) During the year ended 31st May 2015, 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 2015.

Required:
a) Prepare a Statement of Cash Flows for AO Ltd for the year ended 31st May 2015 in accordance with IAS 7. (Use the indirect method). (12 marks)
b) State the effects of the expansion policy on AO Ltd. (8 marks)

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  • 20 Marks

FA – Nov 2015 – L1 – Q3 -Interpretation of financial statements (Financial Ratios) | IAS 7: Statement of cash flows

Define key terms related to cash flow and calculate liquidity ratios using given financial data.

(a) Explain what is meant by the following terms as per IAS 7:
i. Statement of Cash flow (3 marks)
ii. Cash (1 mark)
iii. Cash equivalents (1½ marks)
iv. Operating activities (1½ marks)
v. Investing activities (1½ marks)
vi. Financing activities (1½ marks)

(b)
(i) Yaa Baby Company Ltd. has the following items in its Statement of Financial Position as at 31st December, 2014:

Item GH¢
Inventories 130,000
Trade Receivables 60,500
Cash in hand 3,453
Trade Payables 96,750

The company belongs to a Trade Association that has recently published industry averages for key financial ratios based upon a survey of its members. The industry averages for current and quick ratios applicable to the business of Yaa Baby Co. Ltd are:

  • Current ratio = 1.55: 1
  • Quick ratio = 0.95: 1

Required:
Calculate Current and Quick ratios of Yaa Baby Co. Ltd. and briefly comment on the result with reference to the industry averages. (5 marks)

(ii) Financial Ratios can be grouped under three (3) broad categories i.e. Profitability, Liquidity/Working capital, and Debt and Gearing/Leverage ratios. List all the ratios under Liquidity or Working capital ratios. (5 marks)

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  • 20 Marks

FR – Dec 2022 – L2 – Q3 – IAS 7 Statement of Cash Flows

Prepare Dompa Ltd.'s statement of cash flows for the year ended 31 December 2021, using the indirect method based on the IAS 7 framework.

Dompa Ltd prepares its financial statements in accordance with IFRSs. Below are the statement of profit or loss for the year ended 31 December 2021 and the statement of financial position as at that date, and the comparative statement of financial position as at 31 December 2020.

Statement of Profit or Loss for the year ended 31 December 2021

Description GH¢’000
Revenue 1,656,000
Cost of sales (745,200)
Gross profit 910,800
Other income 15,000
Admin expenses (409,860)
Distribution costs (136,620)
Profit before interest & tax 379,320
Finance cost (3,232)
Profit before tax 376,088
Tax expense (9,462)
Profit for the year 366,626

Statement of Financial Position as at 31 December

Description 2021 (GH¢’000) 2020 (GH¢’000)
Non-current assets:
Property, Plant & Equipment 33,210 23,260
Investment Property 28,500 28,000
Intangible Assets 124 155
Total Non-Current Assets 61,834 51,415
Current assets:
Inventory 15,700 5,680
Trade Receivables 82,800 10,765
Cash 16,712 152
Bank 304,437 5,950
Total Current Assets 419,649 22,547
Total Assets 481,483 73,962
Equity & Liabilities:
Equity:
Share capital 30,000 25,000
Retained earnings 373,526 11,300
Revaluation surplus 862 1,262
Total Equity 404,388 37,562
Non-current liabilities:
15% bond redeemable in 2024 20,432 20,200
Deferred tax 3,762 2,300
Current liabilities:
Trade & other payables 46,401 7,600
Current tax 6,500 6,300
Total Equity & Liabilities 481,483 73,962

Additional Information:

i) Depreciation expense on tangible non-current assets recognised for the year is GH¢8,804,000.
ii) An impairment review has been undertaken on one of the machines of the company that has a carrying value of GH¢1,500,000, but an estimated recoverable amount at the impairment review date was GH¢745,000.
iii) One of the company’s vehicles was involved in an accident in the year and was written off with a carrying value of GH¢562,000.
iv) The company sold a machine for GH¢850,000 with a carrying value of GH¢689,000.
v) The company also issued a 15% bond in January 2020 at a par value of GH¢20,000 with a tenure of 5 years.
vi) The company realized GH¢400,000 in revaluation surplus through excess depreciation charges.

Required:
Using IAS 7: Statement of Cash Flows, prepare the statement of cash flow for Dompa Ltd for the year ended 31 December 2021.

 

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  • 4 Marks

CR – May 2018 – L3 – Q4a – IAS 7: Statement of cash flows

Explain four arguments against the view that historical cash flow is more useful than historical profit in appraising a company.

It is often argued that historical cash flow is more useful in appraising a company than historical profit, particularly because cash flows are factual and do not involve the exercise of judgment.

Required:
Explain FOUR arguments against this view. (4 marks)

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  • 20 Marks

FA – Nov 2023 – L1 – Q4 – IAS 7: Statement of cash flows

Prepare a statement of cash flows for Oti Ltd for the year ended 31 March 2022, including a discussion on cash equivalents.

Extracts from the financial statements for Oti Ltd for the year ended 31 March 2022 are as follows:

Statement of Profit or Loss for the year ended 31 March 2022

Description Amount (GHȼ)
Profit from operations 752,960
Interest payable (60,420)
Profit before tax 692,540
Income tax (210,400)
Profit for the year 482,140

Statements of Financial Position as at 31 March

Description 2022 (GHȼ) 2021 (GHȼ)
Non-current assets
Property, plant, and equipment 1,480,000 1,297,570
Current assets
Inventories 440,000 295,000
Trade receivables 385,840 197,750
Bank – 4,120
Total assets 2,305,840 1,794,440
Equity and liabilities
Share capital 640,800 540,200
Retained earnings 641,340 301,200
Non-current liabilities
10% Loan note 604,200 604,200
Current liabilities
Trade payables 154,700 150,300
Income tax payable 204,600 198,540
Bank overdraft 60,200 –
Total equity and liabilities 2,305,840 1,794,440

Additional information:

i) The depreciation charged for the year was GHȼ200,000.
ii) Dividends of GHȼ142,000 were paid during the year.
iii) During the year, plant with an original cost of GHȼ450,000 and a carrying amount at the date of disposal of GHȼ315,000 was sold for GHȼ412,000, which was received in cash.

Required:

a) In accordance with IAS 7: Statement of Cash Flows, prepare a Statement of Cash Flows for Oti Ltd for the year ended 31 March 2022. (18 marks)
b) Explain what is meant by the term ‘cash equivalents’ in relation to cash flow statements. (2 marks)

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  • 20 Marks

FA – Aug 2022 – L1 – Q4 – IAS 7: Statement of cash flows | Interpretation of financial statements (Financial Ratios)

Preparation of a Statement of Cash Flows using IAS 7, including cash flows from operating, investing, and financing activities, with an analysis of the benefits of preparing cash flow statements.

a) The following information relates to the activities of Chemu Ltd:

Statement of Financial Position as at 31 December

Account 2021 (GHȼ’000) 2020 (GHȼ’000)
Assets
Non-current assets 1,295 810
Current assets
Inventory 1,500 500
Receivables 2,680 890
Bank – 740
Total assets 5,475 2,940
Equity and liabilities
Equity
Share capital 600 400
Retained earnings 1,625 600
Total equity 2,225 1,000
Non-current liabilities
10% Debentures 160 360
Current liabilities
Bank overdraft 1,810 –
Payables 1,000 680
Taxation 280 900
Total liabilities 3,250 1,940
Total equity and liabilities 5,475 2,940

Additional information:

i) The Statement of Profit or Loss for the year ended 31 December 2021 shows the following:

Account Amount (GHȼ’000)
Operating profit 1,531
Interest payable (26)
Profit before taxation 1,505
Taxation (480)
Profit for the period 1,025

ii) Payables consist of trade payables and accrued interest. The accrued interest as at 31 December 2021 was GHȼ45,000 and as at 2020 was GHȼ80,000.

iii) Profit before taxation had been arrived at after charging GHȼ395,000 for depreciation on non-current assets.

iv) During the year, non-current assets with a carrying amount of GHȼ200,000 were sold for GHȼ190,000.

Required:
Prepare a Statement of Cash Flows for Chemu Ltd for the year ended 31 December 2021, in accordance with IAS 7: Statement of Cash Flows.
(16 marks)

b) Identify FOUR (4) benefits Chemu Ltd may derive from preparing a Statement of Cash Flows.
(4 marks)

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  • 20 Marks

FA – Nov 2020 – L1 – Q5 – IAS 7: Statement of cash flows | Interpretation of financial statements (Financial Ratios)

Analysis of financial performance using ratios and calculation of additional liquidity ratios and explanation of the importance of the statement of cash flows.

The following financial information relates to Mawoekpor Ltd. for the year ended 31 December 2019 (with comparative figures for the year ended 31 December 2018):

Statement of Financial Position as at 31 December 2019

Required:
a) Select THREE (3) of the ratios listed above and briefly outline what information each ratio provides to users of financial information, commenting specifically on the financial results of Mawoekpor Ltd.
(9 marks)

b) Calculate TWO (2) additional ratios for both 2018 and 2019 that would provide further evidence of the liquidity of the company.
(5 marks)

c) Explain THREE (3) importance of preparing a statement of cash flows.
(6 marks)

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  • 20 Marks

FA – Nov 2018 – L1 – Q2 – IAS 7: Statement of cash flows

Prepare a statement of cash flows using the indirect method and differentiate between the direct and indirect methods.

a) Mensah & Co. Ltd
Statement of Financial Position as at 31 December 2017

Required:
a) Prepare a statement of cash flow as at 31 December 2017 for Mensah & Co. Ltd using the indirect method. (17 marks)

b) Differentiate between the Direct and Indirect Method of reporting cash flow from operating activities. (3 marks)

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  • 20 Marks

FA – May 2018 – L1 – Q4 – IAS 7: Statement of cash flows

Prepare the statement of cash flows for a company based on provided financial data.

New World Company Limited is a large manufacturer of electrical goods. You are a trainee accountant working for the company. The following statement of profit or loss and other comprehensive income and statement of financial position extracts relate to New World Company Limited.

Required:
Prepare the statement of cash flows for New World Company Limited for the year ended 31 December 2017. (20 marks)

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  • 20 Marks

FA – May 2017 – L1 – Q5 – IAS 7: Statement of cash flows

Preparation of statement of cash flows for Saasa Company Ltd using the indirect method, with adjustments for various transactions and working capital changes.

Below are the statement of financial position for Saasa Company Limited at 31 December 2015 and 31 December 2016 and the income statement for the year ended 31 December, 2016.

Income Statement for the year ended 31 December 2016

GH¢’000
Revenue 900
Cost of sales (550)
Gross profit 350
Expenses (245)
Finance costs (9)
Profit on sale of equipment 7
Profit before tax 103
Income tax expense (30)
Profit for the period 73

Additional information
i) Deferred development expenditure amortized during 2016 was GH¢25,000.
ii) Additions to property, plant, and equipment totaling GH¢167,000 were made. Proceeds from the sale of equipment were GH¢58,000, giving rise to a profit of GH¢7,000. No other items of property, plant, and equipment were disposed of during the year.
iii) Finance costs represent interest paid on the new 6% debentures (2016-2022) issued on 1 January 2016.
iv) Current asset investments represent treasury bills acquired. The company deems these to represent cash equivalents.
v) Dividends paid during the year amounted to GH¢65,000.

Required:
Prepare a statement of cash flows for Saasa Company for the year ended 31 December 2016, using the indirect method in accordance with IAS 7: Statement of Cash Flows.

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  • 20 Marks

FA – May 2016 – L1 – Q4 -Preparation of financial statements of a sole trader | IAS 7: Statement of cash flows

Prepare an adjusted cash book, a bank reconciliation statement, and discuss the benefits of reconciling cash book and bank statement balances.

The Statements of Financial Position for the last two years for AO Ltd are shown below. AO Ltd implemented an expansion programme during the year ended 31st May 2015.

Additional information:
i) The total depreciation provision incorporated in the statements of financial position was GH¢48,000 at 31st May 2014 and GH¢122,000 at 31st May 2015.
ii) During the year ended 31st May 2015, 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 2015.

Required:
a) Prepare a Statement of Cash Flows for AO Ltd for the year ended 31st May 2015 in accordance with IAS 7. (Use the indirect method). (12 marks)
b) State the effects of the expansion policy on AO Ltd. (8 marks)

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  • 20 Marks

FA – Nov 2015 – L1 – Q3 -Interpretation of financial statements (Financial Ratios) | IAS 7: Statement of cash flows

Define key terms related to cash flow and calculate liquidity ratios using given financial data.

(a) Explain what is meant by the following terms as per IAS 7:
i. Statement of Cash flow (3 marks)
ii. Cash (1 mark)
iii. Cash equivalents (1½ marks)
iv. Operating activities (1½ marks)
v. Investing activities (1½ marks)
vi. Financing activities (1½ marks)

(b)
(i) Yaa Baby Company Ltd. has the following items in its Statement of Financial Position as at 31st December, 2014:

Item GH¢
Inventories 130,000
Trade Receivables 60,500
Cash in hand 3,453
Trade Payables 96,750

The company belongs to a Trade Association that has recently published industry averages for key financial ratios based upon a survey of its members. The industry averages for current and quick ratios applicable to the business of Yaa Baby Co. Ltd are:

  • Current ratio = 1.55: 1
  • Quick ratio = 0.95: 1

Required:
Calculate Current and Quick ratios of Yaa Baby Co. Ltd. and briefly comment on the result with reference to the industry averages. (5 marks)

(ii) Financial Ratios can be grouped under three (3) broad categories i.e. Profitability, Liquidity/Working capital, and Debt and Gearing/Leverage ratios. List all the ratios under Liquidity or Working capital ratios. (5 marks)

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