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Incomplete Records

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Incomplete Records

  • This topic has 5 replies, 2 voices, and was last updated 7 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • October 26, 2015 at 10:33 am #279004
    Benny
    Member
    • Topics: 5
    • Replies: 2
    • ☆

    Hi Sir

    I do have another question as well.

    A business’s bank balance increased by $750,000 during its last financial year. During the same period
    it issued shares of $1 million and repaid a loan note of $750,000. It purchased non-current assets for
    $200,000 and charged depreciation of $100,000. Working capital (other than the bank balance)
    increased by $575,000.
    What was its profit for the year?

    A $1,175,000
    B $1,275,000
    C $1,325,000
    D $1,375,000

    The ans is A. However my calculation is B.

    Could you kindly explain as well. Thank You.

    October 26, 2015 at 2:05 pm #279047
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    Surely BPP show explanations of their answers?

    This is a question on Statement of cash flows.
    Cash inflows = $1M
    Cash outflows = 750,000 + 200,000 = $950,000
    So excluding cash flows for operating activities, there is a net inflow of 50,000.

    Since cash increased by 750,000, the cash from operating activities = 700,000.

    Therefore the profit = 700,000 – 100,000 (depreciation) + 575,000 (increase in working capital) = 1175000

    I do suggest you watch our free lecture on Statements of cash flows. Our lectures are a complete course covering everything you need to be able to pass Paper F3.

    October 27, 2015 at 1:09 am #279143
    Benny
    Member
    • Topics: 5
    • Replies: 2
    • ☆

    Hi Sir

    Thank you for the explanation.

    BPP text do have the explanation.

    However, the part which i do not understand is that the depreciation was being added back.

    Below is the ans.

    Profit for the year 1,175
    Add back depreciation 100
    1,275
    Add: issue of shares 1,000
    Less: repayment of loan notes (750)
    Less: purchase of non current assets (200)
    1,325
    Less: increase in working capital (575)
    Increase in bank balance 750

    October 27, 2015 at 9:05 am #279208
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    We always add back depreciation to the profit to get the cash flow from operations, because depreciation was an expense in arriving at the profit, but is not a cash flow.

    (and therefore if know the cash flow from operations, we need to subtract the depreciation in order to get back to the profit.)

    Again, I do suggest that you watch the free lecture on Statements of cash flows.

    October 28, 2015 at 3:14 am #279334
    Benny
    Member
    • Topics: 5
    • Replies: 2
    • ☆

    Ok.

    Thank you for the explanation.

    October 28, 2015 at 7:51 am #279360
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
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