1. Profile photo of Accountmanaic says

    Sir, i understand how you arrived at all the figure except for the increase in receivable which i was thinking should be (584-492) 92…. i cant figure out how you got the 32…. i know i missing something in there. do help me please.

    • Profile photo of MikeLittle says


      You need to be careful here! Why did you stop at “goodwill” – until the recent property price crash, land and buildings values were also increasing. In fact, if you had bought pretty well any property in the UK 40 years ago, it’s most likely that its value in 2014 is substantially greater than you would have had to pay 40 years ago.

      Right! So what’s depreciation about? Is it to ensure that the carrying value of an asset is somewhere close to its market value? A resounding NO! Depreciation is to allocate to those years that benefit from the use of an asset the proportionate share of the cost of that asset over its estimated useful life. So even though the value of an asset may well increase over time, nevertheless we depreciate it.

      Now goodwill. You’re right of course. Goodwill can increase in value, particularly where we work hard at building up good relations with our suppliers, customers, bank, employees, shareholders – in fact, all our stakeholders. But can you not see that that is an increase due to our own efforts? This is “internally generated” goodwill and, of course, this is NOT recognised in the financial statements.

      Where we have purchased goodwill on the acquisition of a subsidiary …. well that’s a different story. Like the buildings mentioned earlier in this post, a number of years are hopefully going to benefit from that acquisition, so we shall impair it – typically over a period not lasting greater than 20 years, but it will be subjected to an annual impairment review until it is fully “used up”

      But even after it’s been fully impaired, we are still getting benefits from this notional, intangible asset! Yes, but that’s because we have been working hard at building up good relationships with our suppliers, customers etc and that maintenance of good relations is as a result of our own efforts – that is, it’s internally generated. So no recognition


  2. avatar says

    Hi everyone,

    Just new op tuition and quite happy to join the crew. Mr mike seems to be very resourceful.
    Well since we’re dealing with IAS7, could you give me the steps to follow when dealing with a mid year acquisition?
    Would be going in for F3 in a couple of hours.

  3. avatar says

    Thanks mr mike and please i want ask
    why you do not do working in SCF like consolidation financial statements ? and is marker give me marks on my working? and if my last figure is wrong i will take marks on my all answer ? and for your shortcuts like TNCA can i use it like you or can i change it ?
    please help

    • Profile photo of MikeLittle says

      There really is no need to get into workings as complicated as for consolidations. The most difficult is the working for TNCA but even that becomes relatively easy with practice.

      Yes, you will get marks for workings if you don’t have the time to finish the cash flow statement – but you need to head up your workings to identify which figure you are calculating and therefore also how much CASH is involved in, say, investment income received.

      If you follow my style of attacking these questions, your last figure cannot be wrong! If you mean the figure that you have just calculated in your workings, say, investment income received, then you will not gain the mark.

      Work on the principle that for each and every figure you get correct in the Statement of Cash Flows, you will earn one mark

      I would abbreviate TNCA, INCA, C & E, Pbles, Rbles …..yes, I would abbreviate – just so long as your abbreviation is pretty clear. A bit of a problem with “inv” for inventory and “inv” for investments

      • avatar says

        Thanks Mr Mikel

        I use instead Pbles , AP and instead Rbles AR AND (COST OF SALES ) Cogs and other shortcut what about that ? i can use it when when i prepare financial position or cash flow in exam? and some Terminology i do not know shortcut for it like( accrued expenses ) can i write full term like ( accrued expenses ) and TNCA in the same financial statement see that

        TNCA 200

        INCA 150
        INVENTORY 70

        A R 50
        account payable 100

        thanks mr mike

  4. avatar says

    Hi all , another wonderful lecture, thanks Mike.

    could someone please help me with a few issues as i seem to understand this lecture but there are two things i cant get around.
    1. how do we work out the $32 increase in receivables? am i wrong to assume it should have been $584 – $492 = $92
    2. in the answer at the back of the text, the cash &equivalents c/f were worked out as 17+32-60 = $(11). the bank liability of $60 was included.

    please help
    many thanks

    • Profile photo of MikeLittle says

      Hi Frank, thanks for your appreciative comments. The answer in the back of the notes shows the increase in receivables as (92). That’s correct so far as I am concerned :-)

      The cash and equivalents figure HAS included as a deduction the 60 overdraft at the bank at the end of the year netted off the figure of 17 + 32. So, yes, I ALWAYS include the overdrawn position as a cash and equivalent amount although, in practice, consideration needs to be given to the nature of the overdraft – is it long term financing or is it a short term element of cash and equivalents. If it’s long term, then it would probably be more correct to include the amount in the “Financing” section of the Statement of Cash Flows rather than as a Cash and Equivalent amount

  5. avatar says

    hi all. thanks Mike, nice lecture as i seem to understand whats happening. I’ve got one question Mike,
    how do you work out the increase in receivables, am i wrong to assume its $ (584 – 492) = $92
    also in your answer at the back of the text, cash equivalents c/f are worked out as 17+32-60 = $(11) the bank liability is included in the working. please advise as i can’t get around this. thanks for the effort.

  6. avatar says


    Can someone help me with the treatment of interest under operating cash flow please?

    In Kaplan exam kit some of the answers do not add interest expense and then deduct it but instead they just deduct it, so my question is when do I add and deduct and when do I simply deduct it? Is there something in the question that need to watch out for?

    Thank you.

    • Profile photo of MikeLittle says

      The start point is pbt. If interest has NOT been deducted in arriving, but the start given is pbit, then we need to deduct interest to arrive at pbt. That’s the top figure in the cash flow.

      One of the first things we then do is add the interest back – the same figure we have just deducted.

      Then we need to calculate the amount of interest actually paid and deduct that as Cash paid in the operating activities of the Statement of Cash Flows

      Does that clear it up for you?

      • avatar says

        Thank you very much Mike. It really helped, I’ve compared few question and answers they now make sense. Thank you again.

    • Profile photo of MikeLittle says

      @valenyap86, In the Statement of Financial Position, per the question, in the Equity section, third line, you’ll see the words “Revaluation surplus”. If you move your eyes to the right along that line, you come to the figures “150” and “40”

      Now, by deducting “40” from “150”, you arrive at “110”

      Does that answer it for you?

  7. avatar says

    hello, good example but I’m confused about one thing…in arriving at the figure of (239) for purchase of investments, why is the 32 taken away from to get 364…..isn’t that 32 related to the receivables?

    • Profile photo of MikeLittle says

      @alextrunghuynh, Ok … what’s the problem? The calculation to arrive at 75,000 or the fact that the debit entry has gone to Share Premium? ( The credit entry has gone to increase the Share Capital from 300,000 to 375,000 )

      If the problem is the calculation of 75,000 that’s easily sorted! How many shares were in existence at the date just before the bonus issue? Last year’s shares brought forward = 300,000. A “1 for 4” bonus issue means that, for every 4 shares you previously held, the company will give you 1 more share. So, for 300,000 shares there will be an additional 75,000 shares issued as bonus shares.

      If the problem is “Why the Share Premium Account” it’s because there are only four allowable uses of the Share Premium, and the most valuable one – where you can use up the greatest amount of Share Premium. So, we’ve calculated 75,000 and I’ve explained WHY the Share Premium Account. The double entry to record the bonus is therefore is Debit Share Premium Account and Credit Share Capital Account. The entry will be recorded in the Statement of Changes in Equity


  8. avatar says

    maybe I am having blonde moments. I accessed the lecture where can I get the questions, ZETA. I have been doing the revisions based on ACCA past papers but on this one I do not KNOW where the ZETA question is , please help

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