Objective Type IAS 7

QUESTIONS
01. Faria Limited is involved in the business of furniture. At 1 January 2018 the company’s issued share
capital consists of 50,000 Rs. 1 shares. During the year 2018 company has made a bonus issue of 1 for 5
shares.

What is impact of bonus issue on cash flows of the business?

(a) Decrease in cash flows from operating activities Page | 1
(b) Increase in cash flows from financing activities
(c) No impact
(d) Increase in cash generated from operations

02. A company has incurred a loss of Rs. 40,000 during the year 2018; however, the balance in the bank
account at end of the year is more than the balance at start of the year.

What does this mean?

(a) Company has allowed a longer credit period to the credit customers
(b) Company has purchased more stock
(c) Company has made a right issue during the year
(d) Company has purchased fixed assets during the year

03. A company has provided the following information:

2018 2017
Rs. Rs.
Share capital 110,000 100,000
Share premium 30,000 40,000
A bonus issue of 1 for every 10 shares held has been made during the year.

What is the amount to be reported in cash flow from financing activities for the year 2018?
(a) Rs. 10,000 Inflow
(b) 0
(c) Rs. 10,000 outflow
(d) Cannot be determined

04. A company has provided following balances

Rs.
Non–current asset – 31 December 2018 125,000
Accumulated depreciation 1 January 2018 25,000
Accumulated depreciation 31 December 2018 38,000
During the year an asset having cost Rs. 10,000 was sold for Rs. 6,000 and gain on disposal was Rs.
3,000.

What is the charge for depreciation for the year to be adjusted in statement of cash flows?
(a) Rs. 13,000
(b) Rs. 19,000
(c) Rs. 20,000
(d) Rs. 38,000

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 Objective Type IAS 7

05. A company has provided following information as at 31 March 2019:

2019 Rs. 2018 Rs.
Retained earnings 50,000 38,000

Following adjustments were made during the year 2019:

Dividends paid Rs. 5,000
Page | 2 Transfer to general reserves Rs. 12,000
Tax charge Rs. 4,000

What is the amount of profit before tax for the year 2019 for the purposes of preparing statement of
cash flows?
(a) Rs. 29,000
(b) Rs. 33,000
(c) Rs. 24,000
(d) Rs. 25,000

06. A company has provided the following data:

Rs.
Receivables at 1 April 2018 12,000
Receivables at 31 March 2019 25,000
Credit sales during the year 75,000
Discount allowed during the year 3,000
What is the amount to be shown as cash received from customers in statement of cash flows using
direct method?
(a) Rs. 62,000
(b) Rs. 75,000
(c) Rs. 59,000
(d) Rs. 65,000

07. Which TWO of the following are considered as inflows in a company’s statement of cash flows?
(a) Bonus shares issued
(b) Decrease in accounts receivables
(c) Increase in inventory
(d) Increase in accounts payables

08. Which of the following item will appear in cash flows from financing activities section of statement of
cash flows?
(a) Cash paid to acquire non-current assets
(b) Dividends paid
(c) Bonus shares issued
(d) Depreciation for the year

09. Following data is available for a company for the year ended 31 December 2018:
Rs.
Operating profit before working capital changes 30,000
Increase in accounts receivables 5,000
Increase in inventory 3,000
Increase in accounts payable 2,000
Interest paid 500
What is the net cash generated from cash flows from operating activities for the year ended 31
December 2018?
(a) Rs. 23,500
(b) Rs. 24,500
(c) Rs. 29,500
 Objective Type IAS 7

(d) Rs. 19,500

10. Which of the following is an advantage of statement of cash flows?

(a) It determines the profitability of a business
(b) It helps users to estimate the future expected cash flows of the business
(c) It determines the ratio of business debts and equity Page | 3
(d) It helps in determining the net assets of a business

11. A company has made following investments during the year:

Rs.
6 months Advance rent paid to landlord 30,000
Short term investments bond (highly liquid) 25,000
Debentures purchased- redeemable after 7 years 50,000
Non–current assets purchased 45,000

What is the amount to be shown in investing activities for the year?

(a) Rs. 45,000
(b) Rs. 150,000
(c) Rs. 95,000
(d) Rs. 100,000

12. A company has provided following data at the end of year 2017:
2017
Rs.
Share capital Rs. 1 each 100,000
Share premium 3,000
The company has made a right issue of 1 for 5 shares during the year 2018 at Rs. 1.2 per share.

What is the amount to be shown in the cash flows from financing activities?
(a) Rs. 24,000 outflow
(b) Rs. 24,000 inflow
(c) Rs. 20,000 inflow
(d) Rs. 4000 inflow

13. How should gain on sale of used equipment be reported in a cash flow statement, using indirect
approach?
(a) In operating activities as deduction from Profit before tax
(b) In investing activities as a reduction in cash inflow
(c) In investing activities as an increase in cash inflows
(d) In operating activities as addition to profit before tax

14. Which TWO of the following are added as non-cash adjustments to the profit before tax in the cash
flow from operating activities section of statement of cash flows?
(a) Interest expense
(b) Interest income
(c) Loss on sale of non–current assets
(d) Tax charge for the year

15. Where, in a company are financial statements complying with international accounting standards,
should you find the proceeds of non-current assets sold during the period?
(a) Statement of cash flows and statement of financial position
(b) Statement of changes in equity and statement of financial position
(c) Statement of profit or loss and statement of cash flows
(d) Statement of cash flows only

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 Objective Type IAS 7

16. Zahid & Co. reported a profit Rs. 40,000 for the year, after charging the following:
Rs.
Depreciation 4,000
Loss on sale of assets 3,000
During the year there was a decrease in accounts receivables of Rs. 1,000.

Page | 4 What was the net cash flow generated from operations based on above data?

Rs. ___________

17. Asmat Limited made a profit for the year of Rs. 320,500, after accounting for depreciation Rs. 32,500.
During the year following transactions took place:
Rs.
Purchase of machinery 125,000
Increase in accounts receivables 45,000
Increase in inventory 28,000
Increase in accounts payable 12,600

What is the net increase in cash and bank balance during the year?

Rs. ___________

18. A company has provided following information:

Rs.
4% Loan notes 1,000,000
Interest payable 1 January 2018 10,000
Interest payable 31 December 2018 20,000

What is the amount to be reported as interest paid during the year 2018 in the Statement of Cash
Flows?

Rs. ___________

19. Furqan Limited has provided following information about non–current assets:
Rs.
Cost as at 1 January 2018 350,000
Cost as at 31 December 2018 450,000
During the year an asset costing Rs. 100,000 and having net book value of Rs. 40,000 was sold at a profit
of Rs. 30,000.

What is the net to be shown as outflow in the “Cash flow from investing activities” section in Statement
of Cash Flows?
Rs. ___________

20. The following amounts have been calculated for inclusion in the statement of cash flow of House
Limited:
Rs.
Net cash inflow from financing activities 145,000
Net cash outflow from investing activities 160,000
Increase in cash and cash equivalents 24,000
Income taxes paid 65,000
Interest paid 12,000
How much cash has been generated from operations?

Rs. ___________
 Objective Type IAS 7

21. A cash flow statement provides information that enables users to evaluate the changes in:
(a) Solvency
(b) Net assets
(c) Its financial structure
(d) Its liquidity

22. Daily sales and purchases and employee costs comprise: Page | 5
(a) Operating activities
(b) Investing activities
(c) Financing activity
(d) Component of cash and cash equivalent

23. Which of the following involves a movement of cash?

(a) A rights issue
(b) Depreciation of fixed assets
(c) Creation of a provision for doubtful debts
(d) A bonus issue

24. Activities that result in changes in the size and composition of the equity capital and borrowings of an
entity are called:
(a) Operating activities
(b) Investing activities
(c) Financing activity
(d) None of these

25. Which of the following are not the operating activities?

(a) Interest paid
(b) Cash payments of income taxes
(c) Collections from customers
(d) Payment of dividends

26. Amplifier Limited had sales of Rs.120 million during the year. Trade and other receivables increased
from Rs.12 million to Rs.16 million, an increase of Rs. 4 million. What amount of cash was received from
customers during the year?
(a) Rs.124 million
(b) Rs.116 million
(c) Rs.120 million
(d) None of these

27. Cost of sales for Shah Textile Limited during the year was Rs.100 million. Opening inventory was Rs.20
million and closing inventory was Rs. 28 million. Opening trade payables were Rs.5 million and closing
trade payables were Rs.9 million. What amount of cash was paid to suppliers?
(a) Rs.102 million
(b) Rs.104 million
(c) Rs.108 million
(d) Rs.110 million

28. Zaman Limited extracted general ledger from which it shows salaries and wages expense of Rs.50
million during the year. Its cash flow statement reported cash paid to employees of Rs.42 million. The
opening balance of accrued salaries and wages was Rs.3.6 million.

What was the closing balance for accrued salaries and wages?
(a) Rs.11.6 million
(b) Rs.11.8 million
(c) Rs.4.4 million
(d) Rs.3.8 million

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 Objective Type IAS 7

29. Sale proceeds from disposal of property, plant and equipment are classified as:
(a) Financing activities
(b) Operating activities
(c) Investing activities
(d) Either financing or operating activities, depending on which method (direct or indirect) is used
to determine cash flows from operating activities
Page | 6
30. Which one of the following events will increase the cash balances of a business?
(a) Loan repayment to banks
(b) Bank granting it an overdraft facility
(c) Debtors paying amounts owed
(d) Sale of stock on credit

31. A company with healthy profits is facing a cash shortage. Which of the following events could account
for this?
(a) Delaying payments to creditors
(b) The shortening of the credit period granted to debtors
(c) The recent acquisition of machinery
(d) An increase in dividend proposed by the directors

32. Which one of the following companies is most likely to run into cash flow problems?
(a) A loss making company making components of vital strategic importance to the government
(b) A profitable new retailer about to embark on ambitious expansion plans
(c) A company which has recently sold part of its operations so as to concentrate on its core areas
(d) Reasonably profitable, long established company with no expansion plans

33. What is the immediate effect of making a capital repayment on a loan on cash flow and profits?
(a) On profit - None; On cash – Decrease
(b) On profit - Increase; On cash – Decrease
(c) On profit - Decrease; On cash – Decrease
(d) On profit - Decrease; On cash – None

34. A company has a negative cash flow from operating activities. What could explain this negative cash
flow?
(a) High levels of dividend payments
(b) A substantial investment in new fixed assets
(c) A sudden increase in credit sales
(d) The repayment of a loan

35. Which of the following is NOT a cash outflow for the firm?
(a) Dividends
(b) Interest payments.
(c) Taxes
(d) Bad debts
 Objective Type IAS 7

ANSWERS
01. (c) Bonus issue of shares involves transfer from Reserves to share capital of the
company. There is no cash flow involved.
02. (c) The statement indicates that the company had net cash receipts (inflows) despite
the losses, which is indicative of receipts of cash by issuing right shares.
03. (b) No cash is paid or received for bonus issue of share capital.
Entry to record bonus issue Page | 7
Dr CR
Rs. Rs.
Share premium 10,000
Share capital 10,000

Share Capital + Share premium

b/d 100,000+40,000 140,000
c/d
110,000 + 30,000 140,000
140,0000 140,000
04. (c)
Accumulated depreciation
Particulars Rs... Particulars Rs.
Disposal (see below) 7,000 b/f 25,000
c/f 38,000 Depreciation 20,000
45,000 45,000

Disposal
Particulars Rs... Particulars Rs.
Asset 10,000 Provision for dep. (bal) 7,000
Gain on disposal 3,000 Cash 6,000
13,000 13,000

05. (b)
Retained earnings
Particulars Rs... Particulars Rs.
Dividends paid 5,000 b/f 38,000
Transfer to reserves 12,000 Profit for the year 29,000
c/f 50,000
67,000 67,000
Profit after tax 29,000 + Tax 4,000 = Rs. 33,000 profit before tax

06. (c)
Accounts receivables
Particulars Rs... Particulars Rs.
b/f 12,000 Cash (bal.) 59,000
Sales 75,000 Discount allowed 3,000
c/f 25,000
87,000 87,000

07. (b) & (d) Decrease in accounts receivables indicates that they have paid the debt, hence,
inflow for us.
Increase in accounts payable indicates that we have not paid them, thus reducing
outflows (or increasing cash flows)
Bonus shares issued do not affect cash flows.
Increase in inventory is cash outflows.
08. (b) Dividend is paid to shareholders who provide finance to the business; therefore, it is
treated as financing activity.
Cash paid to acquire non-current assets is shown in investing activities.
Bonus issues have no impact on cash flows of the business.
Depreciation is non-cash item and is adjusted in operating activities.

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 Objective Type IAS 7

09. (a)
Rs.
Operating profit before working capital changes 30,000
Increase in accounts receivables (5,000)
Increase in inventory (3,000)
Increase in accounts payable 2,000
Interest paid (500)
Page | 8 23,500

10. (b) Users of financial statements may predict future cash flows from past data of how
the entity generates and uses its cash.
Profitability is reflected in statement of comprehensive income.
Debt/Equity and net assets are reflected in statement of financial position.
11. (c) Only debentures and non – current assets purchased are included in investing
activities; Rs. 50,000+45,000= Rs. 95,000
Investment in short term bonds will be considered cash equivalent and advance rent
would affect operating activities cash flows.
12. (b) Shares issued = 100,000/5 = 20,000
Cash received = 20,000xRs.1.2= Rs. 24,000
13. (a) The gain on disposal in included in profit before tax as other income. This is
deducted back in order to determine the cash figure.
14. (a & c) Interest expense is added back as interest paid is separately reported.
Loss on disposal is added back as this is included in profit before tax as an
expense.
Interest income is deducted back.
Tax charge need not be added back as already the amount taken is profit before
tax.
15. (d)
16. Rs.
48,000 Rs.
Profit before tax 40,000
Adjustments for non-cash items
Depreciation 4,000
Loss on sale of fixed assets 3,000
Operating profit before working capital changes 47,000
Decrease in accounts receivables 1,000
Cash generated from operations 48,000

17. Rs.
167,600 Cash flows from operating activities Rs.
Profit before tax 320,500
Depreciation 32,500
Operating profit before working capital changes 353,000
Increase in accounts receivables (45,000)
Increase in inventory (28,000)
Increase in accounts payable 12,600
292,600

Cash flow from investing activities

Purchase of machinery (125,000)
167,600

18. Rs.
30,000 Interest payable
Particulars Rs. Particulars Rs.
Cash 30,000 b/f 10,000
c/f 20,000 Interest expense 40,000
50,000 50,000
Interest expense = Rs. 1,000,000x4%= Rs. 40,000
 Objective Type IAS 7

19. Rs.
130,000 Amounts to be shown in Cash flows from investing activities are;
Cash flows from investing activities Rs.
Cash paid to acquire assets (200,000)
Cash received on disposal 70,000
130,000
Page | 9
Non-current assets
Particulars Rs. Particulars Rs.
b/f 350,000 Disposal 100,000
Cash 200,000 c/d 450,000
550,000 550,000

Disposal
Particulars Rs. Particulars Rs.
Asset 100,000 Acc. Dep [10,000 – 4,000] 60,000
Gain on disposal 30,000 Cash 70,000
130,000 130,000

20. Rs.
116,000 Rs.
Cash generated from operations (β) 116,000
Interest paid (12,000)
Income taxes paid (65,000)
Net cash from operating activities (β) 39,000
Net cash outflow from investing activities (160,000)
Net cash inflow from financing activities 145,000
Increase in cash and cash equivalents 24,000

21. (d)
22. (a)
23. (a)
24. (c)
25. (d)
26. (b)
27. (b)
28. (a)
29. (c)
30. (c)
31. (c)
32. (b)
33. (a)
34. (c)
35. (d)

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