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June 19, 2015 at 9:45 pm
Hi John I must say thank you for this lecture of socf. This was well executed. Keep up the good job.
May 28, 2015 at 10:22 pm
Hello, please help me with such a question, why when we do the indirect method, we don’t deduct bad debt from profit? It is included in expenses and doesn’t generate a cash flow! Shouldn’t we do so:?
Profit on sale (6000)
Bad debt 14000
John Moffat says
May 29, 2015 at 12:56 pm
But there is effectively a cash flow – it there is an irrecoverable debt then it means that we have not received cash that we otherwise would have received
Irrecoverable debts never require adjusting for with the indirect method.
May 27, 2015 at 2:26 am
sir, I really didnt understand the calculations of Other Expenses ( Distr and Admin costs). could you please go through it again.
May 27, 2015 at 9:26 am
How? I cannot type out the lecture here!
May 27, 2015 at 6:27 pm
i mean why we take out and add up the costs…e.g. profit…
May 27, 2015 at 8:12 pm
Because we are trying to calculate the cash that is coming from the profits – it is a cash flow statement!
May 12, 2015 at 10:28 pm
Please could you explain question test question 5 of chapter 14 in a bit more detail, I have struggled to understand the question altogether. What exactly is being asked for here, and what’s the best way to attempt this question? Thanks in advance!
May 13, 2015 at 6:24 am
(In future please ask this sort of question in the Ask the Tutor Forum rather than as a comment on a lecture)
The question simply wants to know the figure for purchases of non-current assets (tangible – so excluding the development expenditure). You approach it in exactly the same way as I do in the lecture (this is an easier version of what is in the lecture – have you watched the lecture?).
You know the NBV of the assets at the start and end of the year – the only reasons they will have changed is because of depreciation and because of additions. You know the depreciation, so the additions are the missing figure.
May 13, 2015 at 4:56 pm
Thank you very much. Yes, I always watch the videos before attempting the tests but made it more complicated than it ought to be. It’s clear now, and I’ve noted your request to post in the Ask Tutor Forum going forward
May 13, 2015 at 5:02 pm
You are welcome (and I am pleased that it is now clear)
February 26, 2015 at 6:16 pm
why are we assuming that all the revenue collected of 1,200,000 was received from sales on credit? I ask because we have included it in the T account of receivables while trying to look for the cash received from recevables during the year.
February 27, 2015 at 9:29 am
It is irrelevant whether the revenue of 1,200,000 was cash sales of credit sales (or, more likely, a combination).
The revenue earned (not collected) is 1,200,000 – this is the total of the sales for the year.
Just suppose a business had total sales of 100,000, and that customers still owed them 10,000 at the end of the year. The total sales is all sales (whether or not they have yet paid) and therefore if 10,000 have not paid it must mean that only 90,000 cash has actually been received.
February 27, 2015 at 9:39 pm
Thanks again. It is very clear now.
December 8, 2014 at 6:21 am
How do we solve this??
A company has the following info.about property,plant and equipment.
Cost. 750. 600
Acc.dep. 250 150
Carryn.amt (250) (150)
A plant wth a carryn amt of $75(original cost of $90) was sold for $30 during the year.
What is the cashflow from investing activities during the year?
December 8, 2014 at 7:26 am
You have either copied the question wrong, or the question itself was typed wrong. The carrying value at the beginning and end of the year should be the cost minus the accumulated depreciation – and it is not!!!
However, since the cost was 600 at the start of the year and plant with a cost of 90 was sold, this brings the cost down to 510. Therefore there must have been purchases of assets of 750 – 510 = 240.
So the cash flow from investing activities is an outflow of 240 – 30 = 210.
November 6, 2014 at 6:52 am
Which method to be stdied for the exam? Direct or indirect?
November 6, 2014 at 6:55 am
You are expected to know both methods. However most of any calculation questions will be on indirect method.
April 15, 2014 at 4:58 pm
why don’t we add back bad-debt in inderect mothod . . . . .. as it is non cash item
April 15, 2014 at 5:02 pm
No it isn’t – an irrecoverable debt is where we have received less cash (because the receivable is not paying).
The only non cash items you will see in F3 are depreciation and profit or loss on the sale of non-current assets.
January 12, 2014 at 7:23 pm
hi, i am a bit puzzled as to why would we add back profit and not just leave it netted off if it isn’t a cash flow……. by me adding back wouldn’t I have the profit included in the calculation when really it should be excluded?
January 13, 2014 at 1:39 am
We are not adding back profit – we are trying to convert the accounting profit into a cash ‘profit’ by (for example) adding back the depreciation expense because although it makes the accounting profit lower, it does not involve paying out cash.
January 13, 2014 at 1:43 am
I am assuming you are referring to adding back the profit on sale to the expenses.
Just suppose there was a profit on sale of 20 and other expenses of 100. Since the question says that the profit had been netted off against expenses, it would mean that in the profit statement there would be a net expense of 80. However the profit on sale is not a cash item and so if we add the 20 to the 80 we get the cash expenses of 100.
muhammad Ali says
January 5, 2014 at 8:02 am
Kindly explain why the following things have been subtracted and added from Dist. and Admin?
Dist. and Admin 120,000
less: Depcn (36,000)
less: Bad Debts (14,000)
less: Employment Costs (42,000)
Add: Profit on Sale 6,000
January 5, 2014 at 10:52 am
Depreciation is removed because it is not a cash flow.
Irrecoverable debts are removed because they are dealt with in calculating the cash received from customers.
Employment costs are removed because they are shown separately when using the direct method.
Profit on sale is added back because it is not a cash flow.
January 5, 2014 at 4:21 pm
January 6, 2014 at 6:39 am
You are welcome
December 7, 2013 at 12:24 am
how do we solve these type of questions?????
Turbot Co had the following changes in its share capital and non-current liabilities during the year.
A bonus issue of shares with a nominal value of $84,000
A rights issue of shares with proceeds of $144,000
A repayment of a $96,000 long-term loan
What net amount would appear under the cash flows from financing activities heading in the Statement of Cash Flows?
$48,000 net inflow
$132,000 net inflow
$228,000 net inflow
$96,000 net outflow
abdullah khan says
December 7, 2013 at 8:06 am
48000 net inflow. the bonus issue is a non cash item so would not affect the cashflow.
December 8, 2013 at 12:24 am
October 17, 2014 at 2:10 pm
Bonus issue of shares will also increase the cash by nominal value
October 17, 2014 at 4:32 pm
A bonus issue will not affect the cash at all and will not appear in the Statement of cash flows.
A bonus issue is an issue of shares free of charge – no cash is received.
Abdullah khan’s answer is correct.
October 17, 2014 at 5:03 pm
Thank you sir. But I heard that the nominal value must be paid by the company itself or by the shareholders
October 17, 2014 at 5:16 pm
Whitemagician: I don’t know where you heard that, but it is wrong.
Bonus issues are issues of free shares – nobody pays for them.
We increase the share capital and decrease the share premium by the amount of the bonus issue (the nominal/par value). No cash at all is received.
You should watch the free lecture on this
October 17, 2014 at 7:58 pm
Thank you for correcting my misconception
hassan rk says
December 7, 2013 at 10:52 am
48000 net inflow
October 17, 2014 at 2:09 pm
I think net inflows will be $132,000 because bonus issue will increase the cash by nominal value
October 17, 2014 at 4:34 pm
Whitemajician: No. See what I wrote above – a bonus issue does not result in a cash flow (they are free shares).
July 21, 2013 at 8:43 am
Any one help me how answer is 890000 and not 990000:
11. In the course of preparing a company’s Statement of Cash Flows, the following figures are to be included in the calculation of net cash from operating activities:
Profit on sale of non-current assets
Increase in inventories
Decrease in receivables
Increase in payables
What will be the net effect of these items in the Statement of Cash Flows?
addition to operating profit of $1,070,000
subtraction from operating profit of $890,000
addition to operating profit of $990,000
addition to operating profit of $890,000
September 24, 2013 at 7:05 pm
Add: Depreciation 980000
Less: Profit on sale (40,000)
Less: Inc. in receivables 0000000
(What we have there was a decrease)
Less: Inc in inventories (130,000)
Add: Increase in Payables 80,000
I hope I am right.Can someone please confirm this.
November 25, 2013 at 6:35 am
Shouldn’t the decrease in receivables be added to the net cash?
Add Depreciation 980
Less Profit on sale (40)
Add Decrease in receivable 100
Less increase in Inventory (130)
Add increase in Payables 80
Mr. John can you explain please?
April 29, 2012 at 3:22 pm
I don’t really get it when profit on sales is added back to calculate other cash payment under direct method. Can someone pls explain me? Thanks in advance.
June 8, 2012 at 11:07 pm
@sengseng, i also did nt got y itz adding in cash flow????????
August 2, 2012 at 9:53 am
@sengseng, Note (b) of the question says that the profit on sale of the non-current asset has been netted of expenses (i.e. because it is a profit it has been treated as a negative expense – if it was not there then the total expenses would be higher).
Since the profit itself is not a cash flow, it is not relevant for the cash flow statement. If we remove this ‘negative expense’ then the remaining expense figure will be higher.
shahbaz Gohar says
January 9, 2012 at 4:55 am
plz tell me why profit on sale of non-current assets is deducted?
April 26, 2012 at 5:30 pm
@shahbaz963, let’s say that we sold a non-current asset of net book value of 20K for 30K. So the profit on disposal is 10K. In cash flow statement we are concerned about physical cash, not profits. So we deduct the profit of 10K, but then, in investing activities hedding, we add that very 30K that we actually recieved
September 16, 2011 at 12:31 am
i’m writing paper CAT 6/ FFA in December 2011, as meantioned by nosaj i would also like the lecturers to do one with the two years where u have to find the differences it would really help allot…keep up the good work and i’ll be waiting on your 2011 Dec notes….
August 2, 2012 at 9:54 am
@trevon2020, Have you looked at the previous lecture (for example 1)?
August 16, 2011 at 2:16 am
can \someone please assist when you are asked to calculate the net cashflow and you are given two years figure eg
inventory o6 and 07 and i you would find the difference and aplly whether increase or decrease. If you are given two profits one for 06 and one for 07 how do you treat this
January 3, 2011 at 4:35 am
i appreciate open tuition.it is much better than a free lunch which is not suppose to exist .a question regarding cash flow.under cashflow from finance activities shouldnt there be adj for loans recv in the period ?
January 3, 2011 at 1:24 pm
sorry,ignore the above question.found the answer.ofcourse debentures covers all loan forms.
November 22, 2010 at 2:42 am
thx a lot
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