- November 17, 2015 at 2:25 am #283177
1. For car manufacturer,fixed assets are purchased related to car for example battery. so this non current asset adjusted under operating activities. ?
2.I did not understand that interest received and paid and dividend received vary according to the nature of activities but why dividend paid is always under financing activities.
For financing companies we put dividend received in operating activities but why not
dividend paid ?
3. why do we say cash and cash equivalents are kept still, there is no inflow and outflow?
we get that brought forward cash and carried forward cash from buying and selling. there is movement in cash. but why in the book it is said there is no movement in cash?November 17, 2015 at 3:29 am #283180
sir my next question is
the principle activity of school is to teach. so the fees received from students come under operating activities or not?November 17, 2015 at 7:53 am #283227
1. The purchase of a car battery is a running expense that will appear in the Statement of profit or loss – it is not a non-current asset. Neither expenses nor non-current assets are ‘adjusted’ under cash flows from operating activities.
2. Dividend paid is not always under financing activities. IAS 7 allows you to either subtract it from cash generated from operations or alternatively to show it under cash flows from financing activities.
3. The whole purpose of the Statement of cash flows is to explain the movement over the year of the total cash and cash equivalents. They do not ‘keep still’ at all – the total of them is different at the end of the year from the start of the year, and the Statement is explaining why they changed.
4. Fees received from students would be included in the calculation of the profit on the Statement of profit or loss. This profit appears on the Statement of cash flows (and is adjusted for non-cash items and the movement in working capital) – the fees themselves do not appear as a separate item.
I really do suggest that you watch our free lectures on Statement of cash flows.
Our lectures are a complete course for Paper F3 and cover everything you need to be able to pass the exam well.November 17, 2015 at 9:02 am #283254
thank you so much sir. ya, I have watched the lectures but still in some stuffs I am confused.
It may sound dumb but why we start off calculation on operating activities by ”profit before tax”.1. can’t we just start by profit after tax (net income)?
2 we then add interest . again at the end we deduct interest. why is it so ?
3. where do we adjust bank overdraft?November 17, 2015 at 11:19 am #283290
We start with the profit before tax because the tax payment has to be shown separately (from the accounting standard). Also the tax actually paid is likely to be different from the expense appearing in the Statement of profit or loss.
Similar, the interest in the Statement of profit or loss may not be the same as the interest actually paid.
The bank overdraft is a negative bank balance and is part of the total ‘cash and cash equivalents’.November 17, 2015 at 11:32 am #283291
sir I am still unclear regarding interest expense.
I know the actual interest paid might be different . but can’t we just deduct the actual interest paid from the interest given in profit and loss account and adjust that figure in CFS directly rather than adding back interest expense at 1st and deducting actual interest paid later.November 17, 2015 at 11:40 am #283295
No because the accounting standard requires that the actual cash paid for interest is disclosed separately.November 17, 2015 at 12:02 pm #283300
thank you so much. you made me crystal clear 🙂November 17, 2015 at 12:11 pm #283302
sir in book I came across with this statement ” credit sales not recorded in cash flow statement because it is not recorded in cash book” . I did not understand this statement.
does it mean like only items of cash book are recorded in CFS? so what about debtors and creditors. they are not recorded in cash book but still in CFS.November 17, 2015 at 2:33 pm #283383
It is rather poor of the book to make that statement.
All sales are included in the profit (whether cash sales or credit sales).
However, because we want a Statement of cash flows, we adjust the profit by the change in receivables over the period. This is to account for the cash that was still owing to use from credit sales and has therefore not been received. (Most of the credit sales are likely to have paid us and so most of the cash from them will have been received)November 18, 2015 at 3:18 pm #283641
which one of the following would be not be shown in a statement of cash flow using the direct method.?
a. cash payment to employees
b.cash paid to suppliers
sir either we use direct or indirect method finance cost is shown in CFS. isn’t it ?November 18, 2015 at 6:23 pm #283667
We can use either method, but this question specifically refers to the direct method.
In the direct method we show “cash received from customers” which is not simply cash sales – it includes was received from credit sales as well.
So C is wrong.
I do suggest that you watch our free lectures on Statements of cash flows. Our lectures for Paper F3 are a complete course and cover everything you need to be able to pass the exam well.
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