Question 1

Roberta Limited has an operating profit for the year ended 28 February 2020 of £25,000. During the year, £40,000 depreciation was charged on the company's non-current assets. Inventory at 28 February 2019 was £10,000, while inventory at 28 February 2020 was £15,000. Roberta Limited trades for cash and had no trade receivables at either 28 February 2019 or 28 February 2020. Trade payables at 28 February 2019 stood at £20,000 while trade payables at 28 February 2020 amounted to £35,000. During the year, Roberta Limited sold non-current assets realising a profit on disposal of £3,000. What is Roberta Limited's cash inflow from operating activities for the year ended 28 February 2020 using the indirect method?

Accepted Answer

To calculate cash inflow from operating activities using the indirect method, start with the operating profit (£25,000), add back non-cash expenses like depreciation (£40,000), adjust for changes in working capital (increase in inventory decreases cash flow by £5,000, increase in trade payables increases cash flow by £15,000), and subtract the profit on disposal of non-current assets (£3,000). The calculation is: £25,000 + £40,000 - £5,000 + £15,000 - £3,000 = £72,000.

Question 2

Jonathan Limited bought plant and machinery costing £24,000 3 years ago. The plant and machinery was estimated to have a residual value of £4,000 and an estimated useful life of 4 years. The plant and machinery has been depreciated on the straight line basis. At the end of the third year, the plant and machinery was sold for £12,000. What is the profit or loss on disposal to deduct or add back to operating profit in the statement of cash flows?

Accepted Answer

The annual depreciation is (£24,000 - £4,000) / 4 = £5,000. After 3 years, accumulated depreciation is 3 * £5,000 = £15,000. The net book value is £24,000 - £15,000 = £9,000. The sale price is £12,000, resulting in a profit of £12,000 - £9,000 = £3,000.

Question 3

Luigi Limited has an operating profit for the year ended 30 June 2019 of £84,000. During the year, £65,000 depreciation was charged on the company's non-current assets. Inventory at 30 June 2018 was £20,000, while inventory at 30 June 2019 was £25,000. Trade receivables at 30 June 2019 were £35,000 compared to trade receivables at 30 June 2018 of £38,000. Trade payables at 30 June 2019 totalled £29,000 compared to trade payables at 30 June 2018 of £31,000. What is Luigi Limited's cash inflow from operating activities for the year ended 30 June 2019 using the indirect method?

Accepted Answer

B

Question 4

Andreas Limited has the following figures in the financial statements for the year ended 30 November 2019:
$\begin{array}{|l|c|c|}
\hline & 2019 & 2018 \
\hline & £ & £ \
\hline \text { Operating profit } & 42,000 & 35,000 \
\hline \text { Depreciation charged in year } & 28,000 & 25,000 \
\hline \text { Inventories } & 35,000 & 40,000 \
\hline \text { Trade receivables } & 29,000 & 32,000 \
\hline \text { Trade payables } & 25,000 & 19,000 \
\hline
\end{array}$ What is Andreas Limited's cash inflow from operating activities for the year ended 30 November 2019 using the indirect method?

Accepted Answer

The answer of Andreas Limited has the following figures in...

Question 5

Jana Limited has the following figures in the financial statements for the year ended 31 August 2019:
$\begin{array}{|l|c|c|}
\hline & 2019 & 2018 \
\hline & £ & £ \
\hline \text { Operating (loss)/proft } & (5,000) & 15,000 \
\hline \text { Depreciation charged in year } & 45,000 & 42,000 \
\hline \text { Inventories } & 28,000 & 35,000 \
\hline \text { Trade receivables } & 43,000 & 32,000 \
\hline \text { Trade payables } & 38,000 & 30,000 \
\hline
\end{array}$ What is Jana Limited's cash inflow from operating activities for the year ended 31 August 2019 using the indirect method?

Accepted Answer

The answer of Jana Limited has the following figures in...

Question 6

Barry Limited has the following figures in the financial statements for the year ended 31 March 2019:
$\begin{array}{|l|r|r|}
\hline & {2019} & {2018} \
\hline & £ & £ \
\hline \text { Operating profit } & 225,000 & 200,000 \
\hline \text { Loss on disposal of property } & 15,000 & \text { Nil } \
\hline \text { Depreciation charged in year } & 115,000 & 130,000 \
\hline \text { Inventories } & 175,000 & 158,000 \
\hline \text { Trade receivables } & 238,000 & 252,000 \
\hline \text { Trade payables } & 365,000 & 342,000 \
\hline
\end{array}$ What is Barry Limited's cash inflow from operating activities for the year ended 31 March 2019 using the indirect method?

Accepted Answer

The answer of Barry Limited has the following figures in...

Question 7

Boris Limited has the following figures in the financial statements for the year ended 31 December 2019:
$\begin{array}{|l|r|r|}
\hline & 2019 & 2018 \
\hline & £ & £ \
\hline \text { Operating profit } & 110,000 & 130,000 \
\hline \text { Profit on disposal of property } & 20,000 & 5,000 \
\hline \text { Depreciation charged in year } & 65,000 & 62,000 \
\hline \text { Inventories } & 75,000 & 70,000 \
\hline \text { Trade receivables } & 92,000 & 85,000 \
\hline \text { Trade payables } & 88,000 & 100,000 \
\hline
\end{array}$ What is Boris Limited's cash inflow from operating activities for the year ended 31 December 2019 using the indirect method?

Accepted Answer

The correct answer is A.The cash inflow from operating activities for the year ended 31 December 2019 using the indirect method is £131,000. This is calculated by adding back the non-cash expenses (depreciation) and subtracting the increase in working capital (inventories + trade receivables - trade payables).

Question 8

Which one of the following is not a cash outflow from operating activities?

Accepted Answer

Interest payments are typically classified as cash outflows from financing activities, not operating activities.

Question 9

A profit on disposal of a non-current asset is added to the operating profit when calculating the cash inflow or outflow from operating activities.

Accepted Answer

A profit on disposal of a non-current asset is not added to operating profit; it is adjusted out because it is a non-cash item and relates to investing activities, not operating activities.

Question 10

Increases in provisions and accruals are added to the operating profit when calculating the cash inflow or outflow from operating activities.

Accepted Answer

Increases in provisions and accruals are non-cash expenses that reduce operating profit but do not affect cash flow, so they are added back to calculate cash inflow from operating activities.

Question 11

An increase in prepayments is added to the operating profit when calculating the cash inflow or outflow from operating activities.

Accepted Answer

An increase in prepayments is deducted from the operating profit when calculating cash flow from operating activities, as it represents cash paid out that has not yet been expensed.

Question 12

Which one of the following is not a cash flow from investing activities?

Accepted Answer

The answer of Which one of the following is not...

Question 13

Cash flows from investing activities consist of cash paid out to acquire new non-current assets, cash paid to acquire non-current asset investments, cash received from the sale of non-current assets, cash received from the sale of non-current asset investments, interest received and dividends received.

Accepted Answer

Cash flows from investing activities include cash paid out to acquire new non-current assets, cash paid to acquire non-current asset investments, cash received from the sale of non-current assets, and cash received from the sale of non-current asset investments.

Question 14

'Interest paid' appears under cash flows from investing activities.

Accepted Answer

Interest paid typically appears under cash flows from operating activities, not investing activities, as it relates to the cost of borrowing money for business operations.

Question 15

The J Organization has cash inflows from operating activities of £14.5m, cash inflows from financing activities of £2.6m and a net decrease in cash and cash equivalents of £4.2m. What is the cash outflow from investing activities?

Accepted Answer

The answer of The J Organization has cash inflows from...

Question 16

Big Finance Corporation has cash inflows from operating activities of £20.5m, cash outflows from financing activities of £5.2m and a net increase in cash and cash equivalents of £6.7m. What is the cash outflow from investing activities?

Accepted Answer

The net increase in cash is the sum of cash flows from operating, investing, and financing activities. Thus, £20.5m (inflows from operating) - cash outflow from investing - £5.2m (outflows from financing) = £6.7m (net increase). Solving for the cash outflow from investing gives £8.6m.

Question 17

Investing Limited has a net increase in cash and cash equivalents of £22m, cash inflows from financing activities of £7m and cash inflows from operating activities of £39m. What is the cash outflow from investing activities?

Accepted Answer

The answer of Investing Limited has a net increase in...

Question 18

Murky Limited has a net decrease in cash and cash equivalents of £5m, cash inflows from financing activities of £30m and cash outflows from operating activities of £10m. What is the cash outflow from investing activities?

Accepted Answer

The net decrease in cash and cash equivalents is the result of cash flows from operating, investing, and financing activities. Given the net decrease is £5m, cash inflows from financing are £30m, and cash outflows from operating are £10m, the cash outflow from investing activities must be £25m to balance the equation: £30m (financing inflow) - £10m (operating outflow) - £25m (investing outflow) = -£5m (net decrease).

Question 19

Exe Limited acquired plant and machinery for use in its business at a cost of £50,000 two years ago. The plant and machinery was estimated to have a residual value of £10,000 and an estimated useful life of 5 years. The plant and machinery has been depreciated on the straight line basis. At the end of 2 years the plant and machinery was sold and a loss of £4,000 was made on the sale. What is the cash inflow from the sale of the plant and machinery that will be recorded under cash flows from investing activities?

Accepted Answer

The answer of Exe Limited acquired plant and machinery for...

Question 20

Wye Limited acquired plant and machinery for use in its business at a cost of £200,000 three years ago. The plant and machinery was estimated to have a residual value of £33,600 and an estimated useful life of 5 years. The plant and machinery has been depreciated on the reducing balance basis at the rate of 30% per annum. At the end of 3 years the plant and machinery was sold and a profit of £11,400 was made on the sale. What was the cash inflow from the sale of the plant and machinery that will be recorded under cash flows from investing activities?

Accepted Answer

The cash inflow from the sale is calculated by adding the profit on sale (£11,400) to the net book value at the time of sale. The net book value after 3 years of depreciation at 30% reducing balance is £68,600. Therefore, the cash inflow is £68,600 + £11,400 = £80,000.

Quiz 4: The Statement of Cash Flows