- May 3, 2016 at 1:42 pm #313526
I am doing some practice questions at the moment for Cashflows. how would the following be dealt with?
1. Intangible included in Non Currant Assets is capitalised development expenditure.
Amortization charge during year was €18,000,000.
2.The investments item in the Statement of Financial Position includes an entry for Short Term Investments (less than 3 months) of €6,000,000.
Any help please.
ThanksMay 3, 2016 at 2:01 pm #313529
Where have you found these?! All ACCA examples are in $ not €!
“1. Intangible included in Non Currant Assets is capitalised development expenditure.
Amortization charge during year was €18,000,000.”
Presumably the question is not querying the validity of the capitalisation so the only use I can see for the information given is the add back of €18 million to profit before interest and tax as a non-cash item. Is there no information in the question about brought forward and carried forward balances on the NCA Account? Are you expected to calculate how much cash was spent on buying new assets? There seems to be a whole load of information that you’re missing unless the only point of the exercise is to see that you are aware of the add-back of non-cash matters like depreciation, amortisation and impairments of assets
“2.The investments item in the Statement of Financial Position includes an entry for Short Term Investments (less than 3 months) of €6,000,000.”
This paragraph is simply saying that, when you calculate how much has been spent on acquiring investments during the year, in your calculations exclude from the carry forward value €6 million and instead include that amount within the closing figure for Cash and Cash Equivalents at the end of the year
OK?May 3, 2016 at 2:19 pm #313530
Is the following correct?
1. Intangible asset: Development expenditure(SOFP) C/B =1,250 O/B= 817
So all i do is O/B: 817+18(Amort)=835-1250(C/B) = 415=Addition?
Therefore do i use this 415 as a payment to acquire new intangibles in the cash flow and add back the 18 to PBIT?
2. “The investments item in the Statement of Financial Position includes an entry for Short Term Investments (less than 3 months) of €6,000,000”
Investment (Current Asset): O/B=24 & C/B=114
Bank (Current Asset): O/B = 62 CB= 5
24-6-114=96 which is an addition? so in Investing section of cashflow its a payment to acquire a short term investment?
62+6-5=(63): is this the Net Cash Movement?
Thanks for your time and help.May 3, 2016 at 2:45 pm #313532
From what I can see, no, it’s not correct!
“1. Intangible asset: Development expenditure(SOFP) C/B =1,250 O/B= 817
So all i do is O/B: 817+18(Amort)=835-1250(C/B) = 415=Addition?”
We need to DEDUCT €18 from the opening balance, not add it. Imagine those assets (pretend that they are tangible – it’s easier to imagine them!) They were worth €817 at the start of the year and now they’ve been depreciated (amortised) by €18 so those brought forward assets are now worth €799
But we know the closing balance of those assets is €1,250.
Therefore the entity must have spent €1,250 – €799 = €451 additions
“2. “The investments item in the Statement of Financial Position includes an entry for Short Term Investments (less than 3 months) of €6,000,000”
Investment (Current Asset): O/B=24 & C/B=114
Bank (Current Asset): O/B = 62 CB= 5
24-6-114=96 which is an addition? so in Investing section of cashflow its a payment to acquire a short term investment?”
Same again here – you need to deduct the €6 from €114 (that €6 is not an investment – it’s cash. So only €108 is investment)
So investment calculation is €108 – €24 = €84 additions in the year
62+6-5=(63): is this the Net Cash Movement?”
Opening balance was €62, closing balance is €5 + the cash equivalent of €6 = €11
So net cash flow in the year is €51 outflow
OK?May 3, 2016 at 2:53 pm #313535
Yes i get what you are saying.
Thanks for clarifying that for me.
By the way this is an amazing website and thank you very much for the help.
Am in my final year in college which has an F7 module. I intend on doing ACCA exams post graduation so will be availing of this website again.
Damien.May 3, 2016 at 2:58 pm #313537
Thanks for those kind words.
Can you do us a favour in return, please? Can you please bring our existence to the attention of all your fellow students in college?
That would be great 🙂May 3, 2016 at 7:08 pm #313573
I have used this website since last year when i was doing the F8 module, which was of great assistance. I have most of my class told as well as the 3rd years.
Thanks again.May 3, 2016 at 7:43 pm #313575
No, my turn to thank you!May 5, 2016 at 11:06 am #313789
Back again to you Mike.
Heres the Q.
Intangible Assets: O/B = 1180 & C/B=960
Included in Intangibles above Non-Current Assets is capitalised development expenditure. Amortisation charge of this development was correctly amortised as per IAS 38 during year at €1.75 million.
Disposal / Additional amort = 218.25??
Is this added back to PBIT as 1.75+218.25=220?
Thanks.May 5, 2016 at 11:10 am #313790
Also Legal Provision O/B = 336 C/B = 65
Is this deducted from PBIT as 336-65=271?May 5, 2016 at 11:51 am #313797
A little bit of a problem with not knowing the value of the brought forward and carry forward values …..
I assume that your figures are rounded to millions so $1,180 is $1,180,000,000 and amortisation for the year is therefore $1,750,000
How am I doing so far?
Well, I’m not happy 🙁
It would make much more sense to me if the brought forward and the carried forward values were $1,180,000 and $960,000 respectively
Let’s deal with the first proposition – the one I consider unlikely.
If your figures are correct, then your logic also is correct and we’re looking at a disposal of INCA amounting to $218,250,000 (or additional amortisation) But that’s why I can’t believe the figures are in millions. The question would have told you about the additional amortisation and / or disposals
So let’s move on to the second proposition – that the values brought forward and carried forward are respectively $1,180,000 and $960,000
On the debit side of the INCA T account is 1,180,000 and on the credit side we have 1,750,000 and 960,000 ( a total of 2,710,000)
That leaves a missing figure on the debit side of 1,530,000 and I suggest to you that that value represents the value of development expenditure capitalised this year.
Does that make sense?May 5, 2016 at 11:54 am #313801
“Also Legal Provision O/B = 336 C/B = 65
Is this deducted from PBIT as 336-65=271?”
Yes – the 271,000 legal provision no longer required (and that was charged against profits in earlier years as an expense) is now added back into the statement of profit or loss in arriving at profit before tax.
But, as you realise, this add back into profits does not involve cash and so must now be deducted in our calculation of the figure “Net cash flow from operating activities”May 5, 2016 at 12:12 pm #313810
The figures in the question were in millions so are as follows;
Intangible asset: o/b =1180,000,000 and c/b= 960,000,000
“Included in Intangibles above Non-Current Assets is capitalised development expenditure. Amortisation charge of this development was correctly amortised as per IAS 38 during year at €1.75 million.”
So i did it as follows 1180-960-1.75=218.25 (Additional amort)
SO Added? this back to PBIT. Is this right?May 5, 2016 at 12:31 pm #313812
Yes. But it’s a daft question!
Why tell you about $1,750,000 and simply “forget” the remaining $218,250,000?
Whereas if the figures had been $1,180,000 and $960,000 the question would have been sensible.
What’s the source of the question?May 5, 2016 at 12:45 pm #313816
Its from a past 4th year exam paper in my college.
But dont these type of questions constantly only tell you about only a part of a transaction for example in PP&E it might say there was additions of 10, for example, but during the year after doing the comp you realise there was also another addition.
They wreck my head.
Anyways finally got the Cashflow to balance. Roll on the exam tomorrow. Fingers crossed.
Thanks a million.
Damien.May 5, 2016 at 2:12 pm #313825
Hmm – OK. Ask the college if they want anyone to write sensible exams for them.
I’m sure that Opentuition could do something for them – for an appropriate fee
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