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Hi Mr Mike!!
I have a question regarding the cash flow statement.
First of all, the interest payment, why do we add the interest to the profit before tax when adjusting for non cash items and then we subtract it again under operating activities? (when we deduct interest, tax and dividend paid), I don’t see the point of adding it and subtracting it, do I have to do that?
Secondly, Some non cash items such as unwinding the discount and FV adjustments – I thought I should adjust for them when I am adjusting for the non cash items at the top of the statement, but the way it was solved in my revision kit is that for example they subtracted the unwind-ed discount when they were accounting for the finance cost and they adjusted for the FV when they were accounting for the investment income – I believe the net effect is the same, whether I do it my way or their way, so does it matter? (e.g. If I subtract an increase in FV of an investment of 20 from the profit at the top and then I account for the whole income without subtracting the FV adjustment from it, the effect is the same, so can I do it my way?
Regarding Q2 on the paper ( i hope it is okay to post it here) – We often get revalued PPE in that question and so on, something I need to ask about, do we assume that the depreciation charge of a company is done at the beginning of the year? I often get confused about this, sometimes the question tells me the asset was revalued at the end of the year and its remaining useful life is xx years, I understand here that the accounting treatment is to calculate the depreciation based on the restated amount over the remaining useful life but the question, is the depreciation charge here based on the original value of the asset since the asset was revalued at the end of the year so it should have been calculated before the revaluation? I hope I made my point clear and I hope this is not too long for you.
Mr Mike, there is an item for increase in provisions on the cash flow example. Is that a constant? I thought only cash items would be on the Statement of cash flows.
The change (increase or decrease) in a provision is a non-cash item which will have been credited or debited respectively to the Statement of Income in arriving at profit before tax. As such, it needs to be deducted / added to the profit before tax figure to get that profit figure back to being cash based. You could have asked the same about depreciation – that too is non-cash and needs to be adjusted within the operating activities section of the Statement of Cash Flows
I understand the case of depreciation, I don’t have to compare it with last year’s figure so it’s not a change(increase or decrease). In this situation, it is a change in the provision (suggesting a comparison between current and prior year figures). Please can you give me some examples of this kind of provision?
Thanks a lot. Really appreciate it……
OK, Provision for Warranty Claims brought forward from last year $62,000 (on SoFP) (on credit side of provision account)
Provision for Warranty Claims carried forward into next year $65,000 (on SoFP) (on debit side of provision account, above the total lines and on the credit side on the same account below the total lines)
Warranty Claims paid out per the notes in the question $8,800 (not always an amount paid out in an exam question) (on the debit side of the provision account above the total lines)
Therefore, there must be an entry on the credit side of the provision account above the total lines in the sum of $13,800 to keep the account in balance. The double entry for that #13,800 is to the Statement of Income, but it’s non-cash.
Therefore, in the Statement of Cash Flows, you will find an add-back in “operating activities” of $13,800 and then, lower down, an amount shown as a payment for warranty claims of $8,800
Mr Mike! Don’t you ever try lose that English accent, British accents are the best! Love them!!
Try as I might, that North Manchester accent stays with me, though not as broad as it used to be. The one sound which I find I cannot shake off is the “u” sound so I hear myself saying things like “cumpany budgets must show muney” – to my ears, it’s awful so it’s almost reassuring that someone, somewhere enjoys it!
Not only someone Mr Mike, there are many who do enjoy it!
I do and the fun lot in the lectures. it’s a shame the jokes won’t be asked in the exams. I’ll love to get maximum marks in them!!!
great lecture ….!!!!! i finally understand cash flows !
thank you very much Mike
Mike..Thank you very much.. Your lectures are great
Hi any one can make me understand About Shares ( O. share , peference share, bonus shares) and any other relating to shares.
i am having problem adjusting the cash flow from “Investing activites” due to not clear understanding of shares i guess.
Hi – you’re going to struggle as an accountant if you can’t get your head around something as basic as shares – sorry to be so blunt! There is certainly a session in the F3 course videos about shares – maybe you should bite the bullet and go back to revising F3. Be upbeat about it, it shouldn’t take long
But Shares related cash goes into financing activities not investing!!
Please don’t confuse me people O.o
If it’s our company that is issuing shares then Maha is correct – the entry is in “financing activities” in so far as CASH is involved.
If the matter concerning shares is because our company has made an investment in another during the year (NOT a consolidated cash flow question which is out of the F7 syllabus) then the investment would appear within “investing activities”
is ACCA relevant in Canada?
ACCA provides extended knowledge in finance and accounting – it may be applied in all countries. ACCA has Canada web-site. Check here http://www2.accaglobal.com/canada/
hi, theirs no sound on this lecture?
I am having problems with lectures for chapter 19 Statement of Cash flow for F7. the lecture starts and then it just stops. Am I the only one with this problem ?
What an entertaining lecture that was!
Thank you sir. The problem with the signs of the Cash Flow items was something I never completely understood, but that is all in the past now. However, could you spare a minute and answer a question that I have that I’m unable to grasp?
In the accompanying notes of the lecture in the “Cash Flows from Investing Activities” sub-section, the 2nd item reads: “Proceeds from Sale of PPE”.
I understand that this is just the CASH component of the asset disposal i.e. what we are interested in in a Statement of Cash Flows.
However, since in every asset disposal a profit/(loss) is eventually realised and this profit/(loss) would already have been charged against the Income Statement, shouldn’t we make an adjustment for this gain/(loss) in the “Cash Flows from Operating Activities” sub-section as well in the same way that we treated depreciation, amortisation and impairment?
Absolutely, yes. In fact, the revisions put through in the course notes for the Spring 2013 session DO NOW show the adjustment for ( gain ) / loss on asset disposals
Thanks MIke. Keep up the good work!
Mike why does the chat link doesn’t work?. Does OT no more support chat? i have tried to log on many times but it says that i dont have permissions to log in .. can anyone help??????
thank you very much for your lectures.I have a small guestion.Is it correct that if i make non-T account working for PPE and for the rest of items like Tax Paid & interest Paid,i make T-accounts ? Thanks alot
@chsanaullah, Yes, no problem at all. Just make sure you do your best to get the right figures!
Hi, it works fine on my iPad2 with the latest iOS update.
why can’t i view the lectures from an ipad?
Please guide me!
Lectures work on iPad
Maybe your connection is slow or behind a firewall,
Try another location?
@admin, thanks for the reply.
i dont think it has to do with the connection because i am using the laptop in the same area with no problems. From the ipad i cant even see the video box and i cant reply to comments too.
Did you update it to the latest version? ( mean iOS .. ) maybe wifi is very slow? try it near the router..
just tried, and this video works fine on ipad2
pure gold..its just like eating broccolli…the lecture just melts into your brains…good job Mike.
@peterb, I think chocolate would be a better example, not broccoli
Or, it is a piece of cake! lol!
well done mike …..good job!
Mike you are the best,thank you very much.
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