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ACCA FR Chapter 4 Statement of cash flows (IAS 7) Questions

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  3. I used to find it easiest if I started with the brought forward figures! We’re told that the share capital balance brought forward was 160 made up of shares of 50 cents each

    There was a bonus issue of 1 for 8 so that will add another 20 on to the share capital figure (1/8 * 160)

    Then there’s the rights issue at 90 cents per 50 cent share. Before the issue there were $180 worth of 50 cent shares in issue so a 1 for 2 will involve a further nominal value $90 worth or, in other words, a further 180 shares. Exercise price was 90 cents so issued at a premium of 40 cents (90 exercise – 50 nominal value)

    So proceeds will be 180 * 50 nominal value + 180 * 40 share premium – (90 + 72) = 162

    ie 90 more on the capital balance and 72 more on the premium balance

    Before this rights issue we had balances of 180 and 120. After the rights issue we now have (180 + 90) = 270 and (120 + 72) = 192 … as per the closing balances in the question

    What I find intriguing in the question is that this inflow of 162 would be included within Net Cash Flow from Financing Activities.

    Strictly, the answer to the question as it is written is “No idea “!

  4. Actually they deducted bonus shares(because it does not create monetary inflow/outflow) from the equity share of year end balance(270 – 20) =250 are the shares which outflows/inflows money. so the difference between current year and past year of Equity shares and share premium become our ‘Net cashflow from Operating activities. (Shares 250-160) = 90 + 72 ( share premium 1920-120) = 162 balance

  8. Sir,

    Could you please explain me why is that 3rd statement is the only correct statement in question 07.
    2nd statement is also correct isn’t it?. We don’t feature rights issue in cash flow statement because it is not a cash flow.

    Thankyou.

  9. Hi Tutor,
    Can you please help me with Question 1?

    Cash(bal) 2100. B/f 3800
    C/f 4600. Interim 2900

    There is no information given in the question as opening balance along with interest is paid. Kindly provide clearly how the answer have been prepared for Question 1

      • Hello Dip1234, thank you for your response. How do we know that the dividend liability per Closing 2014 have not been paid? I couldnt find any indicator with respect to that in the question. Eventhough I agree that dividends are usually paid out within one year. However, it is not unusual to also see a company to not pay out the dividend payable, as there could be different scenarios in which a dividend could be held for more than one year for strategic reasons.
        Under the aforementioned assumption, would 2100 then not be a possible answer as well?

  12. Good afternoon,

    In question 2, can you clarify why the rights issue is not included in the calculation and why this does not affect cash flows? Is the exercise and market price there to throw you?

    Best wishes,
    Samantha

    • It is considered in calculation.
      Exercise and market price before issue , I think is useful for EPS calculations. No relevance here.
      Accordingly, 180,000 Right Shares * $0.90 = $162,000 is bifurcated to $0.50 Face value and $0.40 Premium received.
      Hence, Total proceeds of $162,000 will be included in Cash Flow from Financing Activities.

    • “On 31 July, 2014 a bonus issue of 1 for 8 was made financed by capitalising some of the General Reserve”

      At the start of 2014 there were 320,000 shares of 50 cents each (= $160,000)

      For every 8 shares already held, Pere gave as a bonus 1 extra share

      So 40,000 shares were issued as bonus and, at 50 cents nominal value per share, that gives us $20,000 worth of bonus issue shares

      If you’re happy with this concept now, it’s probably easier in future simply to divide $160,000 by 8 to get the value of the 1 for 8 bonus issued shares

      OK?

  14. Q2. How was the $20K value calculated, so far I understand that there was a bonus issue of 40 shares and a rights issue of 180 shares, correct me if I am wrong but how do I get the dollar value of $20K

  15. How was the $20K value calculated, so far I understand that there was a bonus issue of 40 shares and a rights issue of 180 shares, correct me if I am wrong but how do I get the dollar value of $20K

  17. Hello Sir,

    Please refer to question no 8.

    Operating profit should not include profit from sale of non current assets. So no need to subtract it from operating profit while preparing a CF Statement.
    Had the question sought for addition/deduction from “Net profit” instead of “operating profit”, then it would be fine to subtract the profit on sale.

    Am I right or could you please explain otherwise?

    Thanks.

    • Hi,

      When the sale was recorded the profit on sale will have been included in the operating profit in the statement of profit or loss. It is a non-cash item and therefore it is adjusted accordingly. The question is asking for the cash flow from operating activities, and has no relevance to net profit.

      Thanks

      • Thanks for your reply.

        I did some more study and now I agree with you. Operating profit DOES INCLUDE gain/loss arising from sale of non current assets.
        I have made a rationale of my own – since depraciation is charged on operating segment in the IS, and it is overcharged/undercharged depreciation that gives rise to gain/loss on sale of that assets, hence, gain/loss should be included in the operating profit.

        Now, since it is a non cash item, it should be adjusted from the operating profit while preparing CF Statement.

        Thank you P2-D2 again.
        馃檪

  18. Good day sir thanks for the lectures they are really helpful. In question8. Why do we subtract the profit on the sale instead of adding it?

    Also I thought the amount that appears on the statement of cash flows is supposed to be the proceeds amount (proceeds=profit/loss-carrying value), not the profit/loss on the sale (as seen in the last lecture example on statement of cash flows) that’s why I left out that profit in the calculation. Please explain further.

    • Hi,

      The share premium account would normally decrease but it specifically states in the question that the bonus issue used the general reserve and not the share premium account.

      Thanks

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