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Is it correct:
1. What does operating activities mean when you say that in your lecture to cashflows?
2. What does operating and non-operating activities refer to?
3. Is it true that operating activities are those usual trading activity of the business from which the business earn its revenue and pay its expenses?
4. Could you please tell me how many investment sources are available to a company?
5. Could you please tell me that companies raise money to invest in non-current assets and current assets respectively so those assets will earn profits for the business?
6. Is it also true that a business is allowed to lend money to other businesses then it will be part of our investment as current assets in SOFP but a business is allowed to lend money to public because only banks can do that not limited companies?
7. Bank deposits are considered investment as current asset in balance sheet? Are they current or non-current investment?
Thanks in advance !
3 is correct and answers 1 and 2
4 Companies raise finance from either equity (issuing shares) or from long-term borrowing.
5 Non-current assets are needed to earn the profits. Current assets are needed to enable the day-to-day running of the business.
6 Loans by the company to anybody are recorded as current assets. The laws relating to lending money to individuals are not relevant for Paper FA.
7 They are current assets.
I am not sure why you are asking these questions, because everything examinable in Paper FA is explained in my free lectures 🙂
You didn’t answer question (1) and (2)
3. You are saying that operating activities are those usual business activity or trading from which business earn revenue and pay expenses. In other words it refers to the whole SOPL items?
4. I saw your lecture where you explained that business can either raise money from equity (issuing shares) or from long-term borrowing but could you please be specific how many long-term borrowing options are there?
5. Please correct me that Bank deposits are considered current assets because they are short-term investments but it could be a long-term investment also if a business invest funds for a longer period of time?
6. What i wanted to know here is that a business is allowed to lend money to other businesses (but not to the public) and it will be our either long-term or short-term investment depending on their period as current assets in SOFP. Although a business is NOT allowed to lend money to public because only banks can do that not the limited companies?
7. Is it true that money earns from long-term investments such as NCA and short-term investments such as CA are both used to generate revenue and pay expenses during the year which will be shown in SOPL?
Sorry to bother you. Thanks multitude!
My answer to (3) covered (1) and (2) just as I wrote.
(3) Yes, except for any interest paid, because interest results from the way they raised their money and not from how well or badly they are trading.
(4) They can either have long term borrowing from the bank, or they can raise money from issuing debentures or loan stock (which are different names for the same thing).
(5) Bank deposits are effectively cash balances and are current assets.
(6) Businesses can lend money to anyone (they can lend money to an employee for example). The lendings are current assets. Any other ‘rules’ regarding this (such as if they are acting as a bank) are not relevant for Paper FA.
(7) It is the non-current assets (e.g. machines) that are used to generate the profits. Current assets are needed to be able to enable to business to run effectively (for example, most business need to carry inventory just so that they are able to meet the demand from customers). They are not directly related to what appears in the SOPL.
Again, I am not sure as to why you are asking these questions. Is it the Paper FA exam that you are studying for?
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