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sir could u please explain again why do we always add the depreciation to the operating activities?
In the statement of cash flows, we are trying to show the cash receipts and payments.
Depreciation is not a cash flow – there is no cash payment of that amount. So we ‘remove’ it from the profit figure. Since it was an expense, if we remove it then the figure is higher – we add it to the profit.
It will help you to watch the free lectures on Statements of cash flows.
sir could pls help with another question
Scents had the following balances in its statement of financial positions as at 30 September 2004 and 2005:
Loan interest accrual: 20X4- $5000 20X5- $3000
Approved ordinary dividends: 20X4- $20,000 20X5- $25,000
10% Loan Notes: 20X4- $100,000 20X5- $100,000
Ordinary share capital: 20X4- $150,000 20X5- $150,000
8% Preference share capital: 2004- $50,000 20X5- $50,000a) How much will appear in the statement of cash flows for the year ended 30 September 2005 for the loan interest and preference dividend paid?
b) How much will appear in the statement of cash flows for the year ended 30 September 2005 for the ordinary dividend paid?
Say which part of the answer is giving you a problem, and then I will try and help.
(and have you watched the lectures on Statements of cash flows, or not?)
sir i do not understand how to do question A and B. Please help me sir. I’ve watched the the cash flows videos, but I’m still having a hard time in cash flows. 🙂
But surely there is an answer in the same book as you found the question?
For the loan interest,the expense for the year is 10% x 100,000 = 10,000. However to get the cash paid it needed adjusting for the accruals and so the acute payment of interest is 10,000 – 5,000 + 3,000 = 8,000
For the preference dividend, the expense for the year is 8% x 50,000 = 4,000. There is no mention of any accruals for preference dividend, and so the cash paid is 4,000.
For the ordinary dividend, you really need more information to be sure how much was paid. However if there is no more information then you would assume that the dividend for 20X4 was paid in 20X5.
Yes – that is what I replied. With no other information you would assume that the 2004 dividend was paid during 2005.
ok thank u so much sir 🙂
Sir, another question, what is the meaning of operating profit?sir this is the continuous question related to operating profit which I don’t understand how to do to it.
Baldrick has the following balances in its statement of financial position as at 30 June 2004 and 30 June 2005:Taxation payable: 30 June 2005- $600 30 june 2004- $400
Dividend: 30 June 2005- $3300 30 June 2004- $2500
8% Loan Notes: 30 June 2005- $50,000 30 June 2004- $40,000
Accumulated Profits: 30 June 2005- $65,500 30 June 2004- $45,500In the year ended 30 June 2005 taxation of $550 was paid. The additional loan notes were issued on 30 June 2005.
You have not said what the question is requiring.
(Have you watched the lectures on Statement of cash flows?)
Oh sorry sir 🙂 What is the operating profit of Baldrick for the year ended 30 June 2005?
Yes sir, I have watched the lectures, there are just some questions which confuse me. 🙂
The increase in the accumulated profits is equal to the operating profit less the tax charge for the year less the loan interest for the year and less the dividends for the year.
You can calculate the tax charge because you know what was owing at the start and end of the year, and you know how much was paid.
The loan interest was 8% of 40,000 (because the extra ones were only issued at the end of the year.
The dividend is 2500.
(Again, do you not have answers in the same book as the questions? 🙂 )
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