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Hi Sir,
The question asks to prepare extracts of cash flow statements. I am not sure the answer for the heading of financial activities, with item 3, repayment of finance lease:
(2300+(1500-570))
1500 is the annual payment of the finance lease, and 570 is the finance cost of the year charged to P/L.
Why the cash flow for this is 1500 – 570? I mean we are considering cash in and cash out, so why 570 of finance cost is duducted?
Is it because 570 is regarded as operational activities, and should belong to operating activities heading?
Thanks.Yes, the 570 will have been included within “Interest paid” in operating activities
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Hi Sir
Thank you. May I ask a further question?
Suppose the Examiner asked us to prepare the extracts of cash flow statement for operating activities. Will my calculation below be correct re the interest payment item?
Interest paid: 800 (from Trial balance) + 800 (elimination of suspense account because of note ii) + 570 (finance lease interest) = 2170
Thanks.
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But the bank interest is an accrue, I can’t see anywhere from the paper saying it was paid already.
A trial balance is drawn together BEFORE accurals are accounted for.
In addition, the entry in the trial balance is on the debit side suggesting that the credit side is cash
Do I need to go back to the question to check this?
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Why not the liability (interest payable) on the credit side? Thanks.
I don’t see any “interest payable” on the credit side of the trial balance and, besides, I’ve already told you that accruals and prepayments are accounted for AFTER the trial balance has been extracted
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Okay, got it now. Thanks.
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