Chapter 6 Self-test questions

* not completed

. Which one of the following statements is not correct?

Under the indirect method, the total inflows and outflows from operations are ignored and the operating profit for a period is adjusted for increases or decreases in inventory, receivables, prepayments, payables and accruals and for the effect of non-cash items. correct incorrect

Depreciation is an accounting adjustment that allocates the cost of non-current assets to the accounting periods benefiting from their use. correct incorrect

The direct method takes all the cash inflows and outflows from operations and summarises them to produce the net cash inflow from operating activities. correct incorrect

Depreciation and profits and losses on the disposal of non-current assets are all cash flows. correct incorrect

* not completed

. Which of the following are cash outflows from investing activities? Please select all that apply.

Interest paid correct incorrect

Investment in long term investments correct incorrect

Purchase of trademarks correct incorrect

Dividends received correct incorrect

* not completed

. When preparing the statement of cash flows under the indirect method, an increase in trade payables is _____________ operating profit.

Your response

* not completed

. The statement of cash flows, unlike the statement of profit or loss, is not drawn up on the accruals basis of accounting and so does not suffer from any distortion that might arise in the timing of the recognition of income and expenditure.

True correct incorrect

False correct incorrect

* not completed

. Statements of cash flows are split into cash flows from operating activities, cash flows from investing activities and cash flows from financing activities. Which category of cash flows would each of the following transactions fall into?

Purchase of new plant and equipment.

Select an answer choice Cash flows from investing activities Cash flows from financing activities Cash flows from operating activities Cash flows from investing activities

* not completed

.

Purchase of goods for resale in a shop.

Select an answer choice Cash flows from financing activities Cash flows from investing activities Cash flows from operating activities Cash flows from investing activities

* not completed

.

Sale of a patent.

Select an answer choice Cash flows from investing activities Cash flows from investing activities Cash flows from operating activities Cash flows from financing activities

* not completed

.

Dividends paid.

Select an answer choice Cash flows from investing activities Cash flows from investing activities Cash flows from financing activities Cash flows from operating activities

* not completed

. In the financial year ended 31 December 2021, Fergus Limited paid £200,000 to acquire new long-term investments and sold plant and equipment for £20,000. At the time of sale, the plant and equipment sold had a carrying amount of £15,000 and there was a profit on disposal of £5,000. What is Fergus Limited's cash outflow from investing activities for the year ended 31 December 2021?

£180,000 correct incorrect

£185,000 correct incorrect

£195,000 correct incorrect

£205,000 correct incorrect

* not completed

. When calculating the cash flow from operating activities under the indirect method, which of the following are deducted from operating profit? Please select all that apply.

Loss on disposal of non-current assets. correct incorrect

Decrease in provisions. correct incorrect

Amortization of intangible non-current assets. correct incorrect

Increase in prepayments. correct incorrect

* not completed

. Over time, cash inflows must exceed cash outflows in order for an entity to remain a ____________, a business that will continue in operational existence for the foreseeable future.

Your response

* not completed

. The statement of cash flows is the only statement required for users to gain a full understanding of the financial position, performance and cash flow generating capability of an organisation.

True correct incorrect

False correct incorrect

* not completed

. In the financial year ended 31 October 2021, Heather Limited received dividends of £15,000 and £10,000 in interest from the bank. A share issue in August 2021 raised £250,000 which was used to repay borrowings of £150,000. On 30 September 2021, a dividend of £50,000 was paid to shareholders. What is Heather Limited's cash inflow from financing activities for the year ended 31 October 2021?

£25,000 correct incorrect

£35,000 correct incorrect

£50,000 correct incorrect

£100,000 correct incorrect

* not completed

. When calculating the cash flow from operating activities under the indirect method, which of the following are added to operating profit? Please select all that apply.

Decrease in trade receivables. correct incorrect

Decrease in trade payables. correct incorrect

Depreciation of property, plant and equipment. correct incorrect

Increase in accruals. correct incorrect

* not completed

. Profits should always be anticipated when preparing the statement of profit or loss.

True correct incorrect

False correct incorrect

* not completed

. Which one of the following would not be classified as cash and cash equivalents in the statement of cash flows?

Cash in a bank current account. correct incorrect

Cash in the tills of a retailer. correct incorrect

Cash in a deposit account requiring 120 days' notice. correct incorrect

A bank overdraft. correct incorrect

* not completed

. Which one of the following would not be classified as a cash flow from operating activities?

Buying in raw materials for use in production. correct incorrect

Interest paid on borrowings used to finance the acquisition of plant and equipment used in operations. correct incorrect

Costs incurred in the day to day running of the business. correct incorrect

Delivery of goods to customers. correct incorrect

* not completed

. Profit, the difference between income earned and expenditure incurred, equates to cash.

True correct incorrect

False correct incorrect