Acca f3 Financial Accounting (int) Study Text

Part F  Preparing basic financial statements 

  23:  Statements of cash flows

401

One of the competences you require to fulfil performance objective 11 of the PER is the ability to analyse 

and interpret financial data. You can apply the knowledge you obtain from this chapter to help to 

demonstrate this competence. 

Chapter Roundup 

Statements of cash flows are a useful addition to the financial statements of companies because it is 

recognised that accounting profit is not the only indicator of a company's performance. 

 

Statements of cash flows concentrate on the sources and uses of cash and are a useful indicator of a 

company's

liquidity and solvency.

 

You need to be aware of the 

format of the statement as laid out in IAS 7. Setting out the format is the first 

step. Then follow the 

step-by-step preparation procedure.

Quick Quiz 

1 

What is the objective of IAS 7? 

A 

To provide additional information about profit and losses 

B 

To provide additional information about generation of cash 

2 

What are the benefits of cash flow information according to IAS 7?  

3 

Define cash and cash equivalents according to IAS 7.  

4 

Which of the following headings is not a classification of cash flows in IAS 7? 

A Operating 

B Investing 

C Administration 

D Financing 

5 

A company has the following information about property, plant and equipment. 

20X7

20X6

$'000

$'000

Cost

750

600

Accumulated depreciation

250

150

Net book value

500

450

Plant with a net book value of $75,000 (original cost $90,000) was sold for $30,000 during the year. 

What is the cash flow from investing activities for the year? 

A $95,000 

inflow 

B $210,000 

inflow 

C $210,000 

outflow 

D $95,000 

outflow 

6 

A company has the following extract from a statement of financial position. 

20X7 20X6 

$'000

$'000

Share capital 

2,000 

1,000 

Share premium 

500

–

Loan stock 

750 

1,000 

What is the cash flow from financing activities for the year? 

A $1,250 

inflow 

B $1,750 

inflow 

C $1,750 

outflow 

D $1,250 

outflow 

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402

23: Statements of cash flows    Part F  Preparing basic financial statements 

7 

When adjusting profit before tax to arrive at cash generated from operations, a decrease in receivables is 

added to profit before tax. Is this statement 

A True 

B False 

Answers to Quick Quiz 

1 

B 

To provide information to users about the company's ability to generate cash and cash equivalents. 

2 

Further information is available about liquidation and solvency, of the change in net assets, the ability to 

adapt to changing circumstances and comparability between entities. 

3 

See Para 

1.5

, Key Terms. 

4 

C 

Administration costs are a classification in the income statement, not the statement of cash flows. 

5 

C 

PROPERTY, PLANT AND EQUIPMENT 

$'000

$'000

Opening balance

600

Disposals

90

Purchases (balancing figure)

240

Closing balance

750

840

840

Purchase of property, plant and equipment 

240,000

Proceeds of sale of property, plant and equipment

(30,000)

Net cash outflow

210,000

6 A  

$'000

Issue of share capital (2,000 + 500 – 1,000) 

1,500

Repayment of loan stock (1,000 – 750)

(250)

Net cash inflow

1,250

7 A True 

Now try the questions below from the Exam Question Bank

Number

Level

Marks

Time

Q48

Examination

2

2 mins 

Q49

Examination

2

2 mins 

Q50

Examination

2

2 mins 

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403

Miscellaneous topics

P

A

R

T

G

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404

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405

Information

technology

Introduction

We have referred briefly to computerised accounting systems earlier in the text. 

These days, most accounting systems are computerised and anyone training to 

be an accountant should be able to work with them. 

The most important point to remember is that the principles of computerised 

accounting are the same as those of manual accounting. You should by now 

have a good grasp of these principles. 

The first section of this chapter talks about accounting 

packages. This is a 

rather general term, but most of us can probably name the accounting package 

that we use at work. 

An accounting package consists of several accounting 

modules, eg receivables 

ledger, cash book. An exam question may take one of these modules and ask 

you to describe inputs, processing and outputs. Alternatively, you may be 

asked to outline the advantages of computer processing over manual 

processing, for example, for receivables or payroll. 

Questions may ask you to discuss the advantages and disadvantages of 

databases. These are discussed in Section 3. 

Topic list 

Syllabus reference 

1 Accounting packages 

C3(d)–(e)

2 Accounting modules 

C3(b)–(e)

3 Databases 

C3(b)

4 Practical experience 

C3(b)

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