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Exam 10: Cash Flow Statements

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Question 1

Multiple Choice

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Getting-Harder has an operating profit of £40000 after charging depreciation of £5000 and has a decrease in inventory of £7000 and an increase in receivables of £3 500. What is its cash flow from operations?

A) £51000
B) £48500
C) £40500
D) £33500
E) £36500

F) A) and D)
G) A) and C)

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B

Question 2

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Inventory increases are added to profit to arrive at the operating cash flow.

A) True
B) False

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Question 3

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Flogemoff had a cash flow from operations of £48000 and during the year bought fixed assets for £42000, introduced £21000 in new equity capital, sold assets with a carrying value of £36000 resulting in a paper loss of £6000. What was the net cash flow ?

Borrowit had a cash flow from operations of £56000 and during the year bought fixed assets for £84000, introduced £42000 new equity capital, took out a new loan and had a net cash flow of £36000. What was the amount of the new loan ?

Cash flow statements provide useful information about the nature of cash flows.

An increase in payables will mean that the cash flow from operations is lower than the profit figure.

A business can be profitable but have negative cash flows.

Nice'n'easy which is a trading business operating on a cash only basis has an operating profit of £30000 after charging depreciation of £4000 and has an increase in inventory of £5000. What is its cash flow from operations?

What effect have the transactions set out above in respect of loans had on Expansion's financial risk?

Depreciation has the same effect on cash flows as it does on the income statement.

A decrease in receivables will mean that the cash flow from operations is higher than the profit figure.

All the information that is in the cash flow statement can be derived from the other financial statements and the notes to the accounts.

The sale of fixed assets has no impact on the cash flow statement.

Cash flow statements are seen as more important than income statements by bankers.

Cash flows are just another name for revenue and expenses.