Question 1

What does the statement of cash flows allow management to assess?

Accepted Answer

A)  efficiency in earning profit.
B)  efficiency in controlling expenses.
C)  efficiency in managing cash flows.
D)  efficiency in managing industrial relations. C

Question 2

Calculate net cash flow from operating activities if: $$\begin{array}{l}
\text { Statement of financial performance (extract) }\
\begin{array} { l r r } 
\text { Sales (credit) } & \$ 80,000 & \
\text { Less Expenses (cash) } & \$ 48,000 & \
 { \text { Profit } } & \$ 32,000 & \
& & \
\text { Ledger account (extract) } & & \
& \text { Start of } & \text { End of } \
& \text { Period } & \text { Period } \
& & \
\text { Accounts } &  & \
\text { Receivable } &\$ 6,000 & \$ 9,000
\end{array}
\end{array}$$

Accepted Answer

A)  $19,000.
B)  $29,000.
C)  $25,000.
D)  $22,000.  B

Question 3

If credit sales for the year are $120,000 and the accounts receivable balance has increased by $10,500 over the year, how much cash was received from accounts receivable during the year?

Accepted Answer

A)  $130,500.
B)  $109,500.
C)  $120,000.
D)  $10,500. B

Question 4

From the following information calculate the cash received from customers. $$\begin{array} { l r } 
\text { Accounts receivable opening balance } & \$ 20,000 \
\text { Credit Sales } & \$ 860,000 \
\text { Accounts receivable closing balance } & \$ 40,000
\end{array}$$

Accepted Answer

A)  $840,000.
B)  $900,000.
C)  $840,000
D)  $820,000.

Question 5

In the statement of cash flows, the total of net cash flows from operating activities, net cash flows from investing activities and net cash flows from financing activities for the period equals:

Accepted Answer

A)  the cash balances at the beginning of the period.
B)  the cash balances at the end of the period.
C)  profit.
D)  total net increase or decrease in cash held for the period.

Question 6

Royal Plastics provides the following information about its moulding machinery: $$\begin{array} { l r } 
\text { Opening balance of machinery account } & \$ 500,000 \
\text { Closing balance of machinery account } & \$ 650,000 \
\text { Depreciation expense for the year } & \$ 50,000 \
\text { Depreciation charged on machinery sold } & \$ 130,000 \
\text { Profit on sale of machinery } & \$ 20,000 \
\text { Carrying value of machinery sold } & \$ 90,000
\end{array}$$ How much cash was received from the disposal of machinery?

Accepted Answer

A)  $100,000.
B)  $20,000.
C)  $110,000.
D)  $90,000.

Question 7

The purpose of the statement of cash flows is to provide information on:

Accepted Answer

A)  profits.
B)  net worth.
C)  losses.
D)  cash inflows and outflows.

Question 8

Which of the following statements is not true?

Accepted Answer

A)  If a firm is operating profitably, it will automatically have plenty of cash.
B)  The concept of cash underpinning the statement of cash flows is 'cash and cash equivalents.'
C)  A bank overdraft is an example of a 'cash equivalent.'
D)  Cash is the pre-eminent asset as it is the medium with which claims are normally settled.

Question 9

When preparing the note attached to the statement of cash flows reconciling operating profit with cash flow from operations, which statement is not true?

Accepted Answer

A)  An increase in current assets is deducted from profit.
B)  A decrease current assets is added to profit.
C)  An increase in current liabilities is deducted from profit.
D)  All of the above are true.

Question 10

Motor vehicles are shown in the statement of financial position of Yong Ltd as: $$\begin{array} { l r r } 
& 2017 & 2018 \
\text { Motor Vehicles at Cost } & \$ 83,000 & \$ 95,000 \
\text { Less Accumulated Depreciation } & \$ 10,000 & \$ 15,000 \
\text { Carrying Value } & \$ 73,000 & \$ 80,000
\end{array}$$ Assuming that no vehicles were sold, the value of vehicles purchased during 2015 was:

Accepted Answer

A)  $7,000.
B)  $12,000.
C)  $5,000.
D)  $17,000.

Question 11

Company W received $10,000 in cash in repayment of a loan made to B Free. In the statement of cash flows of Company W, the $10,000 would appear as:

Accepted Answer

A)  an investing outflow.
B)  an investing inflow.
C)  a financing outflow.
D)  a financing inflow.

Question 12

Which of these factors could cause operating profit to be more than cash flow from operations?

Accepted Answer

A)  An increase in the balance of accounts receivable over the period.
B)  An increase in the balance of inventory over the period.
C)  An increase in the balance of accounts payable over the period.
D)  Both A and B.

Question 13

What does the tax payment appearing in the statement of cash flows of a company reflect?

Accepted Answer

A)  a prepayment for next year's tax liability.
B)  last year's tax liability (due to the lag in payment to tax office) .
C)  this year's tax liability.
D)  an estimate of this year's tax liability.

Question 14

Which of the following is a warning sign of problems in managing cash flows?

Accepted Answer

A)  proceeds of borrowing that are continually greater than repayments of borrowings.
B)  dividends paid to shareholders that are greater than profit.
C)  cash flow from operating activities that is significantly lower than profit.
D)  all of the above.

Question 15

The cash flow statement was added to reporting requirements because it was believed that the income statement and statement of financial position didn't concentrate enough on

Accepted Answer

A)  profitability.
B)  liquidity.
C)  depreciation.
D)  bad debt.

Question 16

H Company's accounting records show: $$\begin{array} { l r } &\$\
\text { Credit sales for the year } & 650,000 \
\text { Discounts provided for early payment } & 15,000 \
\text { Opening balance of accounts receivable } & 100,000 \
\text { Closing balance of accounts receivable } & 90,000
\end{array}$$ The cash received from customers is:

Accepted Answer

A)  $595,000.
B)  $590,000.
C)  $645,000.
D)  $610,000.

Question 17

The statement of cash flows must include a note reconciling:

Accepted Answer

A)  profit and cash flow from operations.
B)  the business bank balance with the bank statement balance.
C)  accrual accounting and historical cost accounting.
D)  opening equity with closing equity.

Question 18

Oriole Company had a long-term debt of $1,500,000. To extinguish this debt the company issued $1,500,000 of fully paid shares to the lender. This transaction would have the following impact on the statement of cash flows:

Accepted Answer

A)  increase cash flow from financing activities by $1,500,000.
B)  decrease cash by $1,500,000.
C)  increase cash by $1,500,000.
D)  nil impact.

Question 19

In the reconciliation attached to the statement of cash flows, operating cash flow is reconciled to:

Accepted Answer

A)  operating profit after tax.
B)  operating profit before tax.
C)  operating profit before interest and tax.
D)  gross profit.

Question 20

Which item is not classified as a cash flow from investing activities?

Accepted Answer

A)  payment for shares to be held as an investment.
B)  cash purchase of office furniture.
C)  receipt from the sale of premises.
D)  dividends paid to investors.

Exam 6: Measuring and Reporting Cash Flows