Statement of Cash Flows (part b) Example 1 - ACCA Financial Accounting (FA) lectures
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136 Comments
T
TEFO·
hello, I want to understand example 1 statement of cash flow if there was a decrease in receivables, how will we adjust it in cash flow statement?
J
John MoffatTutor·
The opposite way to an increase in receivables (as shown in the free lecture).
T
TEFO·
hello, I want to understand if there was a decrease in receivables, how will we adjust it in cash flow statement?
A
ABDI·
Thank you for your deep explanation, I have one doubt why we do not consider calculating the payout dividend to financing section instead in the operating section?
N
noe·
Thank you so much
J
John MoffatTutor·
You are welcome :-)
T
T·
Would dividends paid not be under Financing instead of operations? Thank you!
T
T·
Nvm, just saw the last bit of the lecture, i understand it now
J
John MoffatTutor·
Great :-)
D
Dilnaz·
there is workings to calculate the actual tax paid, but what about interest. Do we just assume that the whole amount of interest from Profit or loss is paid ?
D
dang khoa·
Dear tutor,
Thank you for the lecture. I have one small question: is it fine under IFRS, if I move the item of interest paid of $1,000 that you showed under cash from operating activities to under the heading of cash from financing activities?
This came to my mind because in the lecture, you mentioned the movement of dividend paid into under cash from financing activities. I remember these two items are allowed to be classified in either of the 2 headings.
Thank you tutor!
J
John MoffatTutor·
For Paper FA it should be shown under cash from operating activities, as in the lecture.
D
dang khoa·
Thank you tutor for your reply.
But that is allowed in practice? I mean.
J
John MoffatTutor·
Yes.
H
Hg·
I am also confused by this input.
I understand that:
Profit before tax
Less: Interest expense (1000)
However, I don't think the “Interest Paid" would necessarily be 1000 in the example 1.
J
John MoffatTutor·
True, although if the interest paid was different then there would be an opening or closing accrual for interest.
H
Himanshu·
So basically if we want we can show interest paid in financing activities or operating activities, same with dividends paid or received, but tax is always be going to be in cash flow from operating activities at last.
H
haroon·
Best explanation ever. Just to get a doubt off my head. I learned that tax payable in the beginning of year is the provision that must be paid later somewhere in the year and the entries are adjusted based on over provision or underprovision. I am trying to calculate cash paid under that method but i am not able to. Can you please elaborate on this further
J
John MoffatTutor·
At the start of the earthy were owing 30,000. The charge for the year is 39,000 and so if they had paid nothing they would be owing 69,000 at the end of the year. In fact they are only owing 20,000 at the end of the year and so they must have paid 49,000 during the year. This is nothing to do with any specific over or under provision.
J
John MoffatTutor·
We don't debit or credit anything. We are simply adjusting the profit to get a 'cash' profit because depreciation is not a cash item.
J
Jeslin·
Sir should'nt interest and dividend paid be subracted from financing activity
H
Hiba·
hi, the first part when we reduce the interest form the profit before tax
can we add this part after the change in working capital under the tax paid...
??
J
John MoffatTutor·
The profit before tax is after charging interest. We add back the interest charged because we are required by accounting standards to then show the interest paid as a separate item.
J
Jaz·
Thanks for your replied.
How about where there is bank overdraft? It will just less from cash? But show in working?
J
Jaz·
I saw an example:
The dividend received during the year 30,000, we will record in investment.
And the dividend paid during the year 80,000, we record at financing activities.
why do we still need to record the dividend income of 30,000 in operating activities? if is required by accounting standards, why the dividend expense of 80,000 not record also in operating activities?
This is confusing. Thanks Sir John.
J
John MoffatTutor·
A bank overdraft is negative cash and is subtracted from other cash balances in arriving at the net cash figure. There is no requirement to show workings.
J
John MoffatTutor·
I do not know where you found the example. Dividend income is not shown as part of cash flow from operating activities. Dividends paid can be shown either under cash flows from operating activities or under cash flows from financing activities, as I explain in my lectures - either is allowed.
J
Jaz·
Hi John, I’m kinda confused with the
Profit before tax 100000
Add: interest 1000
But then at the last part of the
Less: Interest paid (1000)
Can you explain this?
Thanks.
J
Javier·
Dear John.
You said that if there is any balance due to an overdraft under the current liabilities, the total cash would be all cash and equivalent. So for instances, will be it calculated as follow cash/bank+petty cash (if it shown separately)+ overdraft or less overdraft?
Thanks in advanced.
J
John MoffatTutor·
It will be less the overdraft so as to show the overall net cash balance.
J
jabu·
hello professor are short term investments included in the cashflow statement since they are also part of working capital
T
Thenuka·
Dear John,
Could you please clarify why we "credited $40,000 of depreciation" on the NBV account?
Since we are using the carrying values & NOT the cost, shouldn't we ignore the $40K depreciation as the NBV means depreciation has been already been removed?
J
John MoffatTutor·
One of the reasons for the NBV being different at the end of the year as against at the start of the year is that it will have reduced by the amount of the depreciation charge for the year.
J
Javier·
Hi, I am a bit messed up. I just wanted to ask if irrecoverable debts and the allowances of doubtful debts are considered a cash outflow, since irrecoverable reduce receivables it might make a bit more sense but the allowances are an amount that we could receive at one point and it is subtracted in the SOPL. I hope you can understand what I am trying to say.
Thank you for your lectures.
J
John MoffatTutor·
Neither will need to be shown in the cash flow statement because they are taken into account in the movement in receivables (the receivables in the SOFP are the net receivables, after subtracting the allowance).
J
Javier·
Thank you, Sr. It is amazing to watch a lecture from someone who dominates what he is explaining so well that makes easy what is actually complicated.
J
John MoffatTutor·
Thank you for your comment :-)
S
Standelous·
Beautiful explanations. Thank you Sir.
Please does the format of the statement of cash flows depend on the operations of the company?
I am looking at a statement of cash flows from a bank and "Interest and dividend received" is captured under Cash flows from operating activities while 'Dividend paid" is under Cash flows from financing activities.
S
Standelous·
Got it Sir. You answered at the end of the lecture. Thank you
J
John MoffatTutor·
Great :-)
K
kyo8519·
Dear Sir,
I do not understand how to calculate net decrease in cash? and cast at end of year?
Can you break it down, please?
Thank you in advance.
K
kyo8519·
I figured out net decrease in cash, but still do not understand cash at end of year.
K
kyo8519·
Got it all!
J
John MoffatTutor·
That's good :-)
C
Claudia·
Hi John, thank you for the amazing explanation. It helped me a lot!
In your lecture the Interest expense and interest paid are the same figure. In other scenario how can I distingue them?
Thank you in advance.
KR
Claudia Brunharo
J
John MoffatTutor·
If the amount paid was less then the expense for the year then there would be an amount show as owing on the SOFP.
J
Joanne·
Hi John, would an increase in available for sale securities fall under cash outflows in operating activities? Since we purchased more securities, therefore we deduct from net income? Same for decrease in non trade notes payable.
Thank you so much for the lectures!
J
John MoffatTutor·
Neither affect the income.
'available for sale securities' is not a term used in ACCA exams. If they are short-term then they are included in cash and cash equivalents. I don't know what you mean by 'non trade notes payable'. If you are referring to loan notes then they are long-term debts and appear under flows from financing activities.
N
Nijat·
Good evening, thanks for the good lecture!
I have a quick question, why do we deduct any gains on a sale of non - current assets from the net profit in a cash flow statement?
Thanks!
J
John MoffatTutor·
Because the profit itself is not a cash flow. It is the sale proceeds that are an actual cash flow, and they are shown under the heading of investing activities.
N
Nijat·
Thanks for your answer! Great help!
J
John MoffatTutor·
You are welcome :-)
J
Javier·
Hi, I am a bit messed up. I just wanted to ask if irrecoverable debts and the allowances of doubtful debts are considered a cash outflow, since irrecoverable reduce receivables it might make a bit more sense but the allowances are an amount that we could receive at one point and it is subtracted in the SOPL. I hope you can understand what I am trying to say.
Thank you for your lectures.
A
Abiriyi·
Good day Sir, I don't get how changes in inventory, payable and receivables explain receipt or payment of cash.
B
Basil Ahmed·
Sir, Is your notes enough rather than reading the whole textbook?. I find your notes concise and to the point,
btw thank you for your amazing lecture.
J
John MoffatTutor·
Thank you for your comment :-)
K
Kartik·
Hello,
Can you please explain the tax treatment in a little more detail?
If we pay tax the following year, is B/f amount at the start of the year an estimate which comes in as current liability of previous year and how is tax charge of the year in SPL calculated and lastly why did we pay 490000 tax when the charge for the year is 39000?
What is our ultimate tax liability for the current year?
J
John MoffatTutor·
The tax charge for this year is the figure in the SOPL of $39,000. You cannot be required to calculate the tax in Paper FA - the calculation is not examined until Paper TX.
At the end of last year they owed $30,000. We don't know what the total tax charge last year was because they will probably have paid some of the tax doing the year, but they need up owing $30,000
So this year they will have paid the $30,000 that was owing.
This year the tax charge for the year was $39,000. They were only owing $20,000 at the end of the year and so they must have paid the other $19,000 during the year.
Therefore the total cash paid during the year must have been 30,000 + 19,000 = $49,000.
K
Kartik·
Hello, Can you please explain how we would have calculated the value of purchase of non current asset if cost and accumulated depreciation would have been given and role of disposal account in the calculation?
I am getting confused with the previous lectures on depreciation.
J
John MoffatTutor·
You would write up the cost account and the accumulated depreciation account in the normal way (as in my lectures on depreciation) and the purchase would be the missing figure in the cost account.
A
Asif·
If there is a note added - like that of disposal during the year of an item of plant which had so and so accumulated depreciation (thus we minus this from original cost and put disposal of carrying amount). Similarly, under the t account of NBV when you add the depreciation charge, does the accumulated depreciation of the disposal have any effect on its value also in anyway ?
J
John MoffatTutor·
Yes. The profit or loss on sale is the difference between the sale proceeds and the net book value of the asset sold (as I explain in my lectures on non-current assets).
A
Asif·
Sir I think you misunderstood me, maybe because I did not frame my question clearly, but thanks God, I found the answer somehow.
First we do the Acc.Depr T account, and find the Depreciation charge. In this t-account is the Acc.Depr of the Disposal added to the Debit side and thus removed and as a result affecting the overall value of the Depreciation Charge on the Credit side, the answer of which would later be added to the NBV t account on credit side for further calculations in order to find the Purchase amount on the debit side.
Sorry if I made my question seem ambiguous, and thankyou once again for your rich lectures and notes, and swift help at the forums always :)
A
Asif·
Since Revaluation surplus is an item that belongs to the original Non Current Cost T -account instead of the NBV/Carrying T-Account; would there be any adjustments to make to the Revaluation surplus inserted into the NBV T-Account, shown on the SOFP, besides reducing the revaluation surplus amt of the last year? Any adjustments connected to the Acc.Depreciation amount ? Please do also provide reason.
A
Asif·
My reasoning would be: since NBV is original Non Current Asset less Acc.Depreciation. We thus remove Acc.Depr amount from the Revaluation surplus as:
Dr. asset cost
Dr Acc Depreciation
The total amount of above forms:
Cr. revaluation surplus.
As we are playing with the T account of Carrying Amount (Asset cost less Acc.Depr), we do not have to enter the Acc.Depr. Portion of the Revaluation Surplus, just like with another example - Disposals - in the NBV T-Account we enter the Disposals at carrying amount (Original asset cost less Acc.Depr) as you showed in the lecture above.
J
John MoffatTutor·
A revaluation changes both the balance in the cost account and automatically therefore the NBV. The entries for a revaluation are all explained in the lectures on Limited Companies.
A
Asif·
Greetings.
1. Does the Non Current Asset displayed in the FS always represent NBV/Carrying Amount ? Or if Accumulated Depreciation is given, then it means at Original cost ? Is there some default rule ?
2. When calculating using the T account for Cash flows - is this memorandum style or dual effect style ?
A
atme770·
do we have to take adminis. expense into account?
J
John MoffatTutor·
The profit before tax is always already after charging all expenses.
A
ABDULLAHI·
thank you for the amazing lecture. hope i got this right: 1) dividends paid is the sum of retained earnings of previous year and profit of the year(after tax) less retained earnings of this year. 2) In the event we have non current liabilities of current year exceeding that of previous year, we will adjust cash flow from financing activities by adding the difference and vice versa. 3) i was wondering why we add interest to profit and again subtract the same. i felt that the interest will cancel out and don't need to be added as it has no effect.
J
John MoffatTutor·
(1) and (2) are correct.
For (3), we add back to the profit the interest charged for the year, and then subtract the interest actually paid. Usually in the exam the two are the same (in practice they could be different because some of the interest might still be owing), but we are required to show the interest payment separately by the accounting standard.
F
Farhad·
Thank you sir so much for this amazing lecture.
J
John MoffatTutor·
Thank you for your comment :-)
J
Joanne·
Hello John, thank you for your response. I get it now, but if they can be converted to cash in a short period of time, wouldn't an increase affect operating cash flows?
J
John MoffatTutor·
No. It is just like changes in the other flows affect the change in the cash balance over the year. Short term investments are effectively the same as cash balances and are included in the totals at the bottom of the statement.
A
Asif·
Dear sir,
Thankyou for the important lengthy lecture. I have a couple of question arising from this as a result.
1) Are the values of the Non Current Asset in the SOFP always at NBV instead of original cost (I need a revision), as you said to the other user right now -we don’t know the original cost.
2) Under Cashflow from Investments; within the T-table, when you credited 20,000 why did you debit reference to Sales. Does sales decrease?
3) Under Cashflow from Finance, even though there was issuance of shares of 70,000, what guarantee we have that all the money was paid for the purchase of those shares, and nothing was left pending to be called upon for by the Company later on from the Shareholders. If we applied caution to derive calculations for all other workings, we should consider here as well this point, don’t you think as well ?
J
John MoffatTutor·
1. The SOFP always shows the NBV (but might give the breakdown between the cost and the accumulated depreciation).
2. By t-table, I assume you mean the t-account. I wrote sales simply because it was the sale of the asset. The double entry is not to sales at all (and I explain the double entries in my earlier lecture). However this is only quick workings to sort out what was spent on assets. Nobody looks at the workings in the exam and nobody cares what the double entry is. In an exam I would not have written anything against the figures.
3. If there was money still to be called up then the question would have tell you. These days money is not left to be called up - it could happen in theory, but it doesn't happen in practice.
A
Asif·
2. Yes you are right. Would the debit be towards disposal ?
3. So in general practice nowdays, it has become a custom for most to pay full on payment at first go itself ? That’s why by default we consider issuing of shares = cash inflow
Thankyou sir.
E
Emmanuella·
Sir please in the previous lectures on non-current assets, you said when we are to credit the non-current asset with disposal, you credit it with the original cost of the asset that was sold but here you credited it with the net book value. So please which is which?
J
John MoffatTutor·
In this example, if we knew the cost of the asset and the accumulated depreciation, then we would make the full entries (credit cost, debit disposal; and debit accumulated depreciation, credit disposal).
However we don’t know the cost and accumulated depreciation here. All we know is the net book value, so we credit net book value with the book value of the asset sold.
E
Emmanuella·
Understood. Thank you Sir.
J
John MoffatTutor·
You are welcome :-)
I
Ivy·
Hi Sir, thank you so much for your explaination but I am still a bit confused regarding the NBV in this question, the information stated that " during the year there had been sales of non-current assets for $30,000. The assets sold had originally cost $50,000 and had the NBV of $20,000"
So the question is why we dont credit the original cost which is $50.000?
Thank you.
J
John MoffatTutor·
By all means credit the cost of the asset and debit the disposal account with 50,000
In addition however we need to debit the accumulated depreciation and credit the disposal account with 30,000.
The net effect is exactly the same (and, of course, you cannot be asked to produce t-accounts in the exam) :-)
I
Ivy·
I got it, i forgot about the disposal account. Thank you so much sir :)
J
John MoffatTutor·
You're welcome :-)
M
Megha·
Hi Sir,
Could you please explain me if in case in the question they had given the original cost and accumulated depreciation, we would have taken the original cost in the ledger and the disposal/sales value would have been also taken the original cost which is in this case 50000. And also depreciation for that year also would be taken in account to the ledger ????
Can you please clarify ?
M
Megha·
The above doubt is on calculating the new purchases of NCA for the year under cash flows from investing activities.
J
John MoffatTutor·
You would make the entries for the disposal as explained in the free lectures on non-current assets.
A
Arahn·
Hi John. at the beginning of the lecture, you remove the profit. Why is this done. I thought profit is cash flow as you have received more?
J
John MoffatTutor·
I do not remove the profit, I adjust it because profit is certainly not a cash flow.
I assume that you have watched all the earlier lectures in the free course and so know that in arriving at the profit we charge depreciation as an expense. But we are not paying out any cash to anybody when we depreciate!
You will also know that when calculating the profit we take all the sales we have made during the year. However if some of the sales were on credit and there is money owing to us at the end of the year (and we therefore have receivables in the SOFP), then the cash received during the year will not be the same as the total sales made.
A
Arahn·
Thanks John. What I meant to say was why is the Loss on Disposal Added ? Is it because it would have reduced the profit originally ?
J
John MoffatTutor·
Yes, that is exactly the reason :-)
S
Saqib·
Hey John, so the layout or the pro forma template for cash flow statement must be memorised for the exam?
J
John MoffatTutor·
No - you will not be asked to produce a full statement.
However you must learn what the three headings are and what goes under each of them.
K
Kevinchan·
Hi sir, I found it so hard to persuade myself “increase in receivable” is subtraction but no addition, even though I understand the customers are owing us more, so we have less cash?. Will there be other better method?
J
John MoffatTutor·
No - that is really the only method :-)
S
Saima·
I cannot download the free resources - are they still available?
J
John MoffatTutor·
The lecture notes can be downloaded but the lectures can only be watched online.
A
Anik·
Sir, Why do you put dividend paid in 'cash flow from operating activities' in stead of 'cash flow from financing activities? Please tell me the reason of this. Thank You.
J
John MoffatTutor·
The accounting standard allows us to do either.
The logic of putting it under cash flow from operating activities is that the dividend is being paid out of the cash we are getting due to making profits.
K
Kin·
Hi Professor,
Do we have to do anthing with the share premium account which also have an increase of 45000?
Thank you
J
John MoffatTutor·
I don't understand. The share premium account increases by 20,000 (not 45000) and that is taken account of in the cash flows from financing activities.
K
Kin·
Thank you. I have miss-read the accumulated profit figures for share premium.
J
John MoffatTutor·
You are welcome :-)
S
SAMI u LLAH·
Dear sir when you prepare NBV T account you Dr 410000 .I only understand cr side 30000 and depreciation 40000. But dont understand 410000 why you add as an opening blance.where it write in question.?
J
John MoffatTutor·
$410,000 is the figure from last years balance sheet which must be the net book value (we do not know the breakdown between the cost and assimilated depreciation because we are not told them in the question).
S
SAMI u LLAH·
thank you so much sir.
J
John MoffatTutor·
You are welcome :-)
C
crystabel·
Hello Mr John
Thank you for your lesson.
In this question are we to assume that Interest paid of 1,000 is the same as the Interest expense in the P&L. I thought must times interest expense is different from interest paid.
J
Jennifer·
I too didn't understand that part. Does it mean that interest expense will be added back and be deducted just the same?
J
John MoffatTutor·
Yes - they must be the same here otherwise there would be a liability on the SOFP.
We add back the interest expense from the SOPL and later subtract the interest actually paid.
H
Hunain·
what to do with retained earnings?
J
John MoffatTutor·
What about them? The retained earnings increase by the profits made during the year and the dividends paid during the year. We put the profits in the statement (and adjust for non cash items etc) and we put the dividends paid in the statement.
P
pellagia·
Hello John
Thank you very much for the free lectures, they are very helpful. l need to understand something. When we are adjusting for non-cash items. If we have a loss on the sale of a current asset- Do we add or subtract the amount?
Thank you
Pellagia
J
John MoffatTutor·
We add it to the profit when adjusting the profit to arrive at the cash generated from operations.
P
pellagia·
Thank you very much
J
John MoffatTutor·
You are welcome :-)
T
tori1984·
Hello John,
Please help me understand Risyv's question above. Why is interest paid 50K adjusted with PBT and not 75K, as shown in the question. I thought interest paid is different from interest received?
In my own computations, I added interest paid of 75K back to profit of 300K. Then instead of showing interest received of 25K under operating activities, I used it under investing activities. Net cash flows from operating activities is giving me 73K and yet I believe it should give me 48K.( Total less interest received.
Then since interest received of 25K can be put under investing activities, that is where I put it to give me a total of (164K) instead of (189K).
J
John MoffatTutor·
As I wrote in my answer to Risyv, I do not have the BPP question and answer and so it is difficult for me to be certain as to what they have done.
However it does seem that the 50K is there not as a cash flow, but to adjust the profit - we need the profit to be before interest paid and before interest received.
The interest paid is then shown as an outflow after the cash generated from operations, and the interest received is shown as in inflow under cash flows from investing activities.
F
farije·
I believe because the NCA are held at Net Book Value on the Companies's Financial Statements as opposed to Sole Traders. So the values shown on SOFP are NBV.
J
John MoffatTutor·
NCA's are shown at net book value on the SOFP of both sole traders and limited companies.
The reason here that we just use one NBV account is because only the NBV's are given in the question - so we do not know the details for the cost account and accumulated depreciation account.
U
ubairakhan57·
Hi Sir,
Got little questions.
1. If there is a revaluation surplus which has been added in retained earning what should we do about that?
2. Another is "dividend proposed" i guess we will not include any divident proposed usless they are paid right?
earlier response is highly appreciated i got my exam in about 10 hours.
Thank You.
J
John MoffatTutor·
1. A revaluation surplus is not a cash flow and is therefore irrelevant (although it is relevant in calculating the acquisitions or disposals of non-current assets because the value of the non-current assets in the SOFP will have increased because of the revaluation if it occurred in the current year).
2. Proposed dividends appear in none of the financial statements and so are not relevant.
J
John MoffatTutor·
The accounting standard gives the choice, as I explain in the lecture.
S
Shaaliha·
Hello, Sir! I just wanted to thank you for the lectures! I cant explain how much of a blessing they are to me right now!
J
John MoffatTutor·
Thank you for your post :-)
Y
Yedidia·
Sir, why is interest paid listed under Operating Activities and not under Financing?
J
John MoffatTutor·
Because the accounting standard says that we must :-)
J
John MoffatTutor·
Depreciation is not a cash flow.
Profit is always stated after charging depreciation and so we need to add back the depreciation to get the 'cash' profit.
R
Risvy·
Now I can understand..Thank you very much for solve my problem.
J
John MoffatTutor·
You are welcome :-)
R
Risvy·
I have problem with Interest..In BPP Book in Example question in Income statement Interest Received 25000, Interest Paid 75000..They show in Cash flow Interest Expense 50000 add with profit before Tax..Is that Right directly show it cash flow?? How could they do this??
J
John MoffatTutor·
Without having the question in front of me, I am pretty sure that they are not showing the 50,000 as a cash flow. What they are doing is adjusting the profit so that they have profit before interest in the cash flow statement.
The actual cash interest paid and received has to be shown separately in the cash flows statement because they are cash flows.
R
Risvy·
Sorry Sir for late reply because your comment won't give notification to me..However It's really showing 50,000 as a cash flow. If you don't believe me then if possible please check BPP Book Page 382 383 SHABNUM CO Statement of Cash Flow..Thank you for reply..
J
John MoffatTutor·
What I wrote before is correct. They are adding the 50,000 to the profit before tax in order to get the profit before interest - not because it is a cash flow.
The cash flows are shown below 'cash generated from operating activities' - an inflow of 25,000 interest received and an outflow of 75,000 interest paid.
This is perfectly correct and is as I explain in my lectures.
Thank you for the lecture. I have one small question: is it fine under IFRS, if I move the item of interest paid of $1,000 that you showed under cash from operating activities to under the heading of cash from financing activities?
This came to my mind because in the lecture, you mentioned the movement of dividend paid into under cash from financing activities. I remember these two items are allowed to be classified in either of the 2 headings.
Thank you tutor!
But that is allowed in practice? I mean.
I understand that:
Profit before tax
Less: Interest expense (1000)
However, I don't think the “Interest Paid" would necessarily be 1000 in the example 1.
can we add this part after the change in working capital under the tax paid...
??
How about where there is bank overdraft? It will just less from cash? But show in working?
The dividend received during the year 30,000, we will record in investment.
And the dividend paid during the year 80,000, we record at financing activities.
why do we still need to record the dividend income of 30,000 in operating activities? if is required by accounting standards, why the dividend expense of 80,000 not record also in operating activities?
This is confusing. Thanks Sir John.
Profit before tax 100000
Add: interest 1000
But then at the last part of the
Less: Interest paid (1000)
Can you explain this?
Thanks.
You said that if there is any balance due to an overdraft under the current liabilities, the total cash would be all cash and equivalent. So for instances, will be it calculated as follow cash/bank+petty cash (if it shown separately)+ overdraft or less overdraft?
Thanks in advanced.
Could you please clarify why we "credited $40,000 of depreciation" on the NBV account?
Since we are using the carrying values & NOT the cost, shouldn't we ignore the $40K depreciation as the NBV means depreciation has been already been removed?
Thank you for your lectures.
Please does the format of the statement of cash flows depend on the operations of the company?
I am looking at a statement of cash flows from a bank and "Interest and dividend received" is captured under Cash flows from operating activities while 'Dividend paid" is under Cash flows from financing activities.
I do not understand how to calculate net decrease in cash? and cast at end of year?
Can you break it down, please?
Thank you in advance.
In your lecture the Interest expense and interest paid are the same figure. In other scenario how can I distingue them?
Thank you in advance.
KR
Claudia Brunharo
Thank you so much for the lectures!
'available for sale securities' is not a term used in ACCA exams. If they are short-term then they are included in cash and cash equivalents. I don't know what you mean by 'non trade notes payable'. If you are referring to loan notes then they are long-term debts and appear under flows from financing activities.
I have a quick question, why do we deduct any gains on a sale of non - current assets from the net profit in a cash flow statement?
Thanks!
Thank you for your lectures.
btw thank you for your amazing lecture.
Can you please explain the tax treatment in a little more detail?
If we pay tax the following year, is B/f amount at the start of the year an estimate which comes in as current liability of previous year and how is tax charge of the year in SPL calculated and lastly why did we pay 490000 tax when the charge for the year is 39000?
What is our ultimate tax liability for the current year?
At the end of last year they owed $30,000. We don't know what the total tax charge last year was because they will probably have paid some of the tax doing the year, but they need up owing $30,000
So this year they will have paid the $30,000 that was owing.
This year the tax charge for the year was $39,000. They were only owing $20,000 at the end of the year and so they must have paid the other $19,000 during the year.
Therefore the total cash paid during the year must have been 30,000 + 19,000 = $49,000.
I am getting confused with the previous lectures on depreciation.
First we do the Acc.Depr T account, and find the Depreciation charge. In this t-account is the Acc.Depr of the Disposal added to the Debit side and thus removed and as a result affecting the overall value of the Depreciation Charge on the Credit side, the answer of which would later be added to the NBV t account on credit side for further calculations in order to find the Purchase amount on the debit side.
Sorry if I made my question seem ambiguous, and thankyou once again for your rich lectures and notes, and swift help at the forums always :)
Dr. asset cost
Dr Acc Depreciation
The total amount of above forms:
Cr. revaluation surplus.
As we are playing with the T account of Carrying Amount (Asset cost less Acc.Depr), we do not have to enter the Acc.Depr. Portion of the Revaluation Surplus, just like with another example - Disposals - in the NBV T-Account we enter the Disposals at carrying amount (Original asset cost less Acc.Depr) as you showed in the lecture above.
1. Does the Non Current Asset displayed in the FS always represent NBV/Carrying Amount ? Or if Accumulated Depreciation is given, then it means at Original cost ? Is there some default rule ?
2. When calculating using the T account for Cash flows - is this memorandum style or dual effect style ?
For (3), we add back to the profit the interest charged for the year, and then subtract the interest actually paid. Usually in the exam the two are the same (in practice they could be different because some of the interest might still be owing), but we are required to show the interest payment separately by the accounting standard.
Thankyou for the important lengthy lecture. I have a couple of question arising from this as a result.
1) Are the values of the Non Current Asset in the SOFP always at NBV instead of original cost (I need a revision), as you said to the other user right now -we don’t know the original cost.
2) Under Cashflow from Investments; within the T-table, when you credited 20,000 why did you debit reference to Sales. Does sales decrease?
3) Under Cashflow from Finance, even though there was issuance of shares of 70,000, what guarantee we have that all the money was paid for the purchase of those shares, and nothing was left pending to be called upon for by the Company later on from the Shareholders. If we applied caution to derive calculations for all other workings, we should consider here as well this point, don’t you think as well ?
2. By t-table, I assume you mean the t-account. I wrote sales simply because it was the sale of the asset. The double entry is not to sales at all (and I explain the double entries in my earlier lecture). However this is only quick workings to sort out what was spent on assets. Nobody looks at the workings in the exam and nobody cares what the double entry is. In an exam I would not have written anything against the figures.
3. If there was money still to be called up then the question would have tell you. These days money is not left to be called up - it could happen in theory, but it doesn't happen in practice.
3. So in general practice nowdays, it has become a custom for most to pay full on payment at first go itself ? That’s why by default we consider issuing of shares = cash inflow
Thankyou sir.
However we don’t know the cost and accumulated depreciation here. All we know is the net book value, so we credit net book value with the book value of the asset sold.
So the question is why we dont credit the original cost which is $50.000?
Thank you.
In addition however we need to debit the accumulated depreciation and credit the disposal account with 30,000.
The net effect is exactly the same (and, of course, you cannot be asked to produce t-accounts in the exam) :-)
Could you please explain me if in case in the question they had given the original cost and accumulated depreciation, we would have taken the original cost in the ledger and the disposal/sales value would have been also taken the original cost which is in this case 50000. And also depreciation for that year also would be taken in account to the ledger ????
Can you please clarify ?
I assume that you have watched all the earlier lectures in the free course and so know that in arriving at the profit we charge depreciation as an expense. But we are not paying out any cash to anybody when we depreciate!
You will also know that when calculating the profit we take all the sales we have made during the year. However if some of the sales were on credit and there is money owing to us at the end of the year (and we therefore have receivables in the SOFP), then the cash received during the year will not be the same as the total sales made.
However you must learn what the three headings are and what goes under each of them.
The logic of putting it under cash flow from operating activities is that the dividend is being paid out of the cash we are getting due to making profits.
Do we have to do anthing with the share premium account which also have an increase of 45000?
Thank you
Thank you for your lesson.
In this question are we to assume that Interest paid of 1,000 is the same as the Interest expense in the P&L. I thought must times interest expense is different from interest paid.
We add back the interest expense from the SOPL and later subtract the interest actually paid.
Thank you very much for the free lectures, they are very helpful. l need to understand something. When we are adjusting for non-cash items. If we have a loss on the sale of a current asset- Do we add or subtract the amount?
Thank you
Pellagia
Please help me understand Risyv's question above. Why is interest paid 50K adjusted with PBT and not 75K, as shown in the question. I thought interest paid is different from interest received?
In my own computations, I added interest paid of 75K back to profit of 300K. Then instead of showing interest received of 25K under operating activities, I used it under investing activities. Net cash flows from operating activities is giving me 73K and yet I believe it should give me 48K.( Total less interest received.
Then since interest received of 25K can be put under investing activities, that is where I put it to give me a total of (164K) instead of (189K).
However it does seem that the 50K is there not as a cash flow, but to adjust the profit - we need the profit to be before interest paid and before interest received.
The interest paid is then shown as an outflow after the cash generated from operations, and the interest received is shown as in inflow under cash flows from investing activities.
The reason here that we just use one NBV account is because only the NBV's are given in the question - so we do not know the details for the cost account and accumulated depreciation account.
Got little questions.
1. If there is a revaluation surplus which has been added in retained earning what should we do about that?
2. Another is "dividend proposed" i guess we will not include any divident proposed usless they are paid right?
earlier response is highly appreciated i got my exam in about 10 hours.
Thank You.
2. Proposed dividends appear in none of the financial statements and so are not relevant.
Profit is always stated after charging depreciation and so we need to add back the depreciation to get the 'cash' profit.
The actual cash interest paid and received has to be shown separately in the cash flows statement because they are cash flows.
The cash flows are shown below 'cash generated from operating activities' - an inflow of 25,000 interest received and an outflow of 75,000 interest paid.
This is perfectly correct and is as I explain in my lectures.