Chapter - 8 IAS 7: STATEMENT OF CASH FLOWS – QUESTIONS (1)

-------------- Cash flow format -----------

[Indirect method]
Company name
Statement of cash flows
For the year ended -----------------
Rs.’000 Rs.’000
Cash flow from operating activities:
Profit before tax (W-1) XXX
Add: Depreciation / Impairment loss (W-3) XXX
Loss on disposal of asset (W-3, W-6, W-12) XXX
Revaluation loss (P&L) XXX
Interest expense/Finance cost (W-4) XXX
Bad debt expense (W-5) [Note-1] XXX
Fair value loss on investment property (W-6) XXX
Less: Interest / investment income (W-7) (XXX)
Dividend income (W-8) (XXX)
Fair value gain on investment property (W-6) (XXX)
Grant income (W-9) (XXX)
Revaluation loss reversal (P&L) (XXX)
Profit on sale of asset (W-3, W-6, W-12) (XXX)
Operating profit before working capital changes: XXX
(Increase) / Decrease in debtors [Note-1] (XXX) / XXX
(Increase) / Decrease in stocks (XXX) / XXX
(Increase) / Decrease in advances [Note-2] (XXX) / XXX
(Increase) / Decrease in prepayments (XXX) / XXX
Increase / (Decrease) in creditors XXX / (XXX)
Increase / (Decrease) in accruals XXX / (XXX)
Cash generated from operations XXX
Tax paid (W-10) (XXX)
Interest paid (W-4) (XXX)
Dividend received (W-8) XXX
Interest received (W-7) XXX
Cash inflow / (Outflow) from operating activities (A) XXX

Cash flow from investing activities:

Purchase of PPE (W-3) (XXX)
Sale of PPE / Insurance claim received (W-3) XXX
Purchase of investment property (W-6) (XXX)
Sale of investment property (W-6) XXX
Expenditure on capital WIP (W-11) (XXX)
Long term deposits (XXX)
Govt. grant received (W-9) XXX
Govt. grant repaid (W-9) (XXX)
Purchase of investment (W-12) (XXX)
Sale of investment (W-12) XXX
Cash inflow / (outflow) from investing activities (B) XXX

Cash flow from financing activities:

Issue of shares (W-13) XXX
Dividend paid (W-2) (XXX)
Proceeds from loan (W-14) XXX
Repayment / redemption of loan (W-14) (XXX)
Cash inflow / (outflow) from financing activities (C) XXX
Net cash inflow / (outflow) during the year (A + B + C) XXX
Cash and cash equivalents at start of year XXX
Cash and cash equivalents at end of year XXX
Nasir Abbas FCA
Chapter - 8 IAS 7: STATEMENT OF CASH FLOWS – QUESTIONS (2)

CASH AND CASH EQUIVALENTS:

Opening Closing
Cash in hand XXX XXX
Bank balance XXX XXX
Bank overdraft / running finance (XXX) (XXX)
Short term investments XXX XXX
XXX XXX
EXAM NOTES:
1. Increase / decrease in debtors can be calculated in one of the following two ways:
(a) Movement in gross debtors (as done in above format)
= closing gross debtors + bad debt written off during the year – opening gross debtors
(b) Movement in net debtors
= closing debtors (net of provision) – opening debtors (net of provision)
Tips:
• If (b) is used then bad debt expense line will not appear in adjustments to profit before tax
• (a) is more practically used treatment however (b) is also acceptable in exams
2. Changes in all current assets and current liabilities are shown in this section except for followings:
(i) cash and cash equivalents
(ii) tax assets and liabilities
(iii) Dividend payable and receivable
(iv) Interest payable and receivable
(v) Any other asset or liability which is shown under investing or financing activities e.g. short term finance,
investment, payable for purchase of a PPE and current portion of loan etc.
Above items may be hidden in other current assets or liabilities (e.g. interest payable may be hidden in
“accrued expenses”). In this case exclude above items first while calculating working capital changes.
3. IAS 7 allows to show: Under Under

Dividend received Operating activities OR Investing activities

Interest received Operating activities Investing activities

Dividend paid Operating activities OR Financing activities

Interest paid Operating activities Financing activities

Workings
W–1 Profit before tax
Retained earnings

Cash dividend declared (W-2) XXX Open. Balance XXX

Bonus dividend XXX PAT XXX
Transfer to general reserve XXX Transfer from revaluation surplus XXX
Clos. Balance XXX

PBT = PAT + Tax expense (W-10)

W–2 Dividend paid

Dividend payable

Cash dividend paid XXX Open. Balance XXX

Clos. Balance XXX Cash dividend declared XXX

Note - Even if there is no information regarding dividend paid / declared in other information do not forget to prepare
“Retained earnings” account as it may give cash dividend declared as a balancing figure on debit side.

Nasir Abbas FCA

Chapter - 8 IAS 7: STATEMENT OF CASH FLOWS – QUESTIONS (3)

W–3 PPE
(i) PPE carried at cost / revalued amount:
PPE

Open. Balance (Cost / Revalued amount) XXX Disposal (Cost / Revalued amount) XXX
Revaluation (upwards) XXX Revaluation (downwards) XXX
Transfer from capital WIP (W-11) XXX Transfer to investment property (W-6) XXX
Transfer from investment property (W-6) XXX Clos. Balance (Cost / Revalued amount) XXX
Addition:
Cash XXX
Non cash XXX

Examples of non-cash additions – Trade in allowance and credit purchase.

Accumulated depreciation & impairment loss

Disposal (Acc. Dep) XXX Open. Balance XXX

Clos. Balance XXX Depreciation XXX
Impairment loss XXX

PPE Disposal

Cost / Revalued amount XXX Accumulated depreciation XXX

Profit on disposal XXX Sale price / Insurance claim XXX
Trade in allowance XXX
Loss on disposal XXX

(ii) PPE carried at NBV

PPE at NBV

Open. Balance (NBV) XXX Disposal (NBV) XXX

Revaluation (upwards) XXX Revaluation (downwards) XXX
Transfer from capital WIP XXX Depreciation XXX
Transfer from investment property XXX Transfer to investment property XXX
Addition: Impairment loss XXX
Cash XXX Clos. Balance (NBV) XXX
Non cash XXX
PPE Disposal

NBV XXX Sale price / Insurance claim OR XXX

Profit on disposal XXX Trade in allowance XXX
Loss on disposal XXX

Note – While working for PPE, do not forget to prepare accounts for “Capital WIP” and “Revaluation surplus”

W–4 Interest expense / paid

Interest payable

Interest paid XXX Open. Balance XXX

Clos. Balance XXX Interest expense for the year XXX

Nasir Abbas FCA

Chapter - 8 IAS 7: STATEMENT OF CASH FLOWS – QUESTIONS (4)

W–5 Bad debt expense

Provision for doubtful debts

Bad debts written off XXX Opening balance XXX

Closing balance XXX Bad debt expense for the year XXX

W–6 Investment property (carried at fair value model)

Investment property

Open. Balance (Fair value) XXX Disposal (Carrying amount) XXX

Fair value gain XXX Fair value loss XXX
Transfer from PPE XXX Transfer to PPE XXX
Addition XXX Clos. Balance (Fair value) XXX
Disposal

Carrying amount XXX Sale price XXX

Profit on disposal XXX Loss on disposal XXX

W–7 Interest income / Interest received

Interest receivable

Open. Balance XXX Interest received XXX

Interest income for the year XXX Clos. Balance XXX

W–8 Dividend income / Dividend received

Dividend receivable

Open. Balance XXX Dividend received XXX

Dividend income for the year XXX Clos. Balance XXX

W–9 Government grant (deferred income method)

Govt. grant

Taken to income XXX Open. Balance (non current) XXX

Grant repaid during the year XXX Open. Balance (current) XXX
Clos. Balance (current) XXX Grant received during the year XXX
Clos. Balance (non current) XXX

W – 10 Tax
Tax

Open. Balance (Advance tax) XXX Open. Balance (tax payable) XXX
Tax paid XXX Tax expense XXX
Clos. Balance (tax payable) XXX Clos. Balance (Advance tax) XXX

W – 11 Capital work-in-progress
Capital work in progress

Open. Balance (Cost) XXX Transfer to fixed assets XXX

Expenditure on capital WIP XXX Clos. Balance (Cost) XXX

Nasir Abbas FCA

Chapter - 8 IAS 7: STATEMENT OF CASH FLOWS – QUESTIONS (5)

W – 12 Investments
Investment at cost

Open. Balance (Cost) XXX Disposal (Cost) XXX

Addition XXX Clos. Balance (Cost) XXX
Disposal

Cost XXX Sale price XXX

Profit on disposal XXX Loss on disposal XXX

W –13 Capital

Share capital

Closing balance XXX Opening balance XXX

Right issue / New issue (cash) XXX
Non-cash issue (e.g. purchase of PPE) XXX
Bonus issue XXX

Share premium

Closing balance XXX Opening balance XXX

Bonus issue (only if issued out of premium) XXX Right issue / New issue (cash) XXX
Non-cash issue (e.g. purchase of PPE) XXX

Note – Bonus issue is by default made out of retained earnings (i.e. bonus dividend)

W –14 Loans
Loans

Loan repaid (principal only) XXX Open. Balance (current + non current) XXX
Clos. Balance (current + non current) XXX New loan XXX

[Direct method]
Company name
Statement of cash flows
For the year ended -----------------
Rs.’000’ Rs.’000’
Cash flow from operating activities:
Receipts from customers (W-1) XXX
Other receipts (e.g. rent received) XXX
Payments to suppliers (W-2) (XXX)
Payment for other operating expenses (W-3) (XXX)
Cash generated from operations XXX
``
``
``
Remaining format after “cash generated from operations” is exactly
same as Indirect method
``
``
``

Nasir Abbas FCA

Chapter - 8 IAS 7: STATEMENT OF CASH FLOWS – QUESTIONS (6)

W–1 Receipts from customers

Customers / Debtors

Opening balance (Gross) XXX Bad debts written off XXX

Sales (Total) XXX Receipts (balancing) XXX
Closing balance (Gross) XXX

W–2 Payments to suppliers

Creditors

Payments (balancing) XXX Opening creditors (Note) XXX

Closing creditors (Note) XXX Purchases (from COS a/c) XXX

Note – If accrued interest is included, then exclude it first before using here.

Cost of sales / Inventory

Opening stock XXX Cost of sales (Note) XXX

Purchases (balancing) XXX Closing balance XXX

Note – If depreciation is included, then exclude it first before using here.

W–3 Payment for other operating expenses

Operating expenses
Rs.’000’ Rs.’000’
Opening advances & prepayments (Note-1) XXX Opening accrued expenses (Note-2) XXX
Payments (balancing) XXX Operating expenses (Note-3) XXX
Closing accrued expenses (Note-2) XXX Closing advances & prepayments (Note-1) XXX

Notes:
1. If advance income tax is included, then exclude it first before using here.
2. If accrued interest is included, then exclude it first before using here.
3. Operating expenses = Admin expenses + Distribution cost + Other expenses – Depreciation – Amortization
– Bad debt expense – Impairment loss – loss on disposal of asset – Fair value loss on investment property –
Revaluation loss (P&L)

Nasir Abbas FCA

Chapter - 8 IAS 7: STATEMENT OF CASH FLOWS – QUESTIONS (7)

QUESTIONS
QUESTION NO. 1
Following balances have been extracted from balance sheets of a limited company as at:
June 30, 2017 June 30, 2016
-------------- Rs. -------------
Share capital 1,200,000 800,000
Share premium 200,000 120,000
Retained earnings 2,050,000 1,450,000
Dividend payable 75,000 50,000
Tax payable 32,000 26,000

Additional information:
1) Tax paid during 2017 was Rs. 42,500.
2) Dividend paid during 2017 was Rs. 100,000.
Required:
Calculate “cash inflow from issue of shares” and “profit before tax” for the year ended June 30, 2017.

QUESTION NO. 2
Following balances have been extracted from balance sheets of a limited company as at:
Dec 31, 2017 Dec 31, 2016
-------------- Rs. -------------
Property, plant and equipment 1,820,000 1,450,000
Revaluation surplus 163,000 140,000
Capital work in progress 270,000 550,000

Additional information relating to year 2017:

1) Depreciation for the amount to Rs. 425,000.
2) Transfer from revaluation surplus to retained earnings during the year was Rs. 15,000.
3) Expenditure of Rs. 140,000 was incurred on capital work-in-progress during the year.
4) During the year a machine costing Rs. 240,000 was sold at a profit of Rs. 18,000. Accumulated depreciation of
machine at the time of disposal was Rs. 75,000. There was no other disposal during the year.
Required:
Calculate “cash inflow from sale of PPE” and “cash outflow from purchase of PPE” for the year ending December 31, 2017.

QUESTION NO. 3
Following balances have been extracted from balance sheets of a limited company as at:
Dec 31, 2017 Dec 31, 2016
-------------- Rs. -------------
Share capital 310,000 250,000
Share premium 120,000 90,000
Long term loan 225,000 200,000
Dividend payable 22,000 15,000

Additional information relating to year 2017:

1) Total principal repayments of loan made during the year were Rs. 55,000.
2) Dividend of Rs. 40,000 was declared during the year.
Required:
Prepare “cashflow from financing activities” section of cash flow statement for the year ended December 31, 2017.

Nasir Abbas FCA

Chapter - 8 IAS 7: STATEMENT OF CASH FLOWS – QUESTIONS (8)

QUESTION No. 4
Following information pertains to Dahl Limited (DL):
Summarised statement of financial position as at 31 December 2021
2021 2020 2021 2020
Rs. in million Rs. in million
Share capital 11.0 10.0 Property, plant and equipment 18.7 10.6
Retained earnings 32.9 33.8 Working capital other than cash 24.5 17.8
Revaluation surplus 4.0 - Cash 4.7 15.4
47.9 43.8 47.9 43.8

Additional information:
(i) Final dividend was paid in respect of year 2020 amounting to Rs. 3.4 million.
(ii) Additions to property, plant and equipment during the year amounted toRs. 14 million.
(iii) Tax expense for the year amounted to Rs. 2.4 million. Tax payable as at31 December 2021 amounted
to Rs. 1 million (2020: Rs. 0.2 million)
Required:
Prepare DL’s statement of cash flows for the year ended 31 December 2021. (08)
[Spring 2022, Q-2]

QUESTION No. 5
Following are the extracts from the financial statements of Saguaro Limited (SL) for the year ended 30 June 2021:

Statement of financial position as on 30 June 2021

2021 2020 2021 2020
Assets Rs. in million Equity & liabilities Rs. in million
Operating fixed assets 820 848 Share capital (Rs. 10 each) 700 500
Accumulated depreciation (300) (262) Share discount (40) -
Capital WIP 84 - Retained earnings 220 315
Inventories 274 245 Long term loans 175 210
Trade receivables 177 204 Trade payables 180 130
Insurance claim - 31 Accrued expenses 48 43
Advance to supplier 78 60 Current portion of loans 43 40
Cash and bank balances 193 112
1,326 1,238 1,326 1,238

Statement of comprehensive income for the year ending 30 June 2021

Rs. million
Sales 757
Cost of sales (485)
Gross profit 272
Operating expenses (310)
Gain on disposal of equipment 17
Loss before interest (21)
Other information:
(i) SL declared a final dividend of 10% on 30 September 2020 which was paid in December 2020.
(ii) 20 million shares were issued in May 2021.
(iii) Insurance claim was related to plant and machinery destroyed in April 2020. The plant had cost and book value of
Rs. 63 million and Rs. 42 million respectively.
(iv) During the year, SL disposed of equipment having cost and net book value of Rs. 75 million and Rs. 35 million
respectively.
(v) Current portion of long-term loans include accrued interest of Rs. 5 million. (2020: Rs. 1 million)
(vi) Trade payables include an amount of Rs. 14 million payable against capital work in progress.

Nasir Abbas FCA

Chapter - 8 IAS 7: STATEMENT OF CASH FLOWS – QUESTIONS (9)

Required:
Prepare SL’s statement of cash flows for the year ended 30 June 2021. (16)
[Autumn 2021, Q-6]

QUESTION No. 6
Statement of financial position of Taxila Limited (TL) as on 30 June 2020 is as follows:

Statement of financial position as on 30 June 2020

2020 2019 2020 2019

Assets Rs. in million Equity & liabilities Rs. in million
Property, plant and equipment 1,619 1,200 Share capital (Rs. 100 each) 1,200 800
Investment property 290 120 Share premium 290 150
Stock in trade 205 180 Retained earnings 260 90
Trade receivables 342 291 Revaluation surplus 215 200
Prepayments & other receivables 14 20 Long term loans 367 445
Short term investment 60 48 Trade & other payables 144 120
Cash and bank balance 24 6 Current maturity of loan 78 60
2,554 1,865 2,554 1,865

Additional information:
(i) Equipment having fair value of Rs. 240 million was acquired by issuing 2 million shares.
(ii) As a result of revaluation carried out on 30 June 2020, property, plant and equipment was increased by Rs. 80
million out of which Rs. 35 million was credited to profit and loss account.
(iii) During the year, fully depreciated items of property, plant and equipment costing Rs. 36 million were sold for Rs.
8 million out of which Rs. 3 million is still outstanding.
(iv) Depreciation on property, plant and equipment for the year amounted to Rs. 290 million.
(v) An investment property was acquired for Rs. 180 million. TL applies cost model for subsequent measurement of
its investment property.
(vi) Financial charges for the year amounted to Rs. 45 million. Trade and other payables include accrued financial
charges of Rs. 12 million (2019: Rs. 17 million).
(vii) Short-term investments amounting to Rs. 35 million are readily convertible to cash (2019: Rs. 20 million).
Investment income for the year amounted to Rs. 6 million.
Required:
Prepare TL’s statement of cash flows for the year ended 30 June 2020 in accordance with the requirements of IFRS. (17)
[Autumn 2020, Q-6]

QUESTION No. 7
You are working as Finance Manager in Broad Peak Limited (BPL). Faraz has recently joined BPL as an internee for three
months. You have asked him to develop an understanding of the statement of cash flows. After going through few
statements, he has raised the following queries:
(i) Depreciation is not a cash flow but was still appearing as an addition in the statement of cash flows.
(ii) In the statement of cash flows of a competitor, interest paid was shown as a financing activity but BPL showed it
in operating activities.
(iii) BPL purchased inventories throughout the year but total purchases of inventory were not shown in the
statement. However, only decrease in inventory was added.
(iv) Cash and bank balance in the statement of financial position was not in agreement with the opening and closing
balances at the end of statement of cash flows.
Required:
Briefly answer the queries raised by Faraz. (08)
[Spring 2020, Q-2]

Nasir Abbas FCA

Chapter - 8 IAS 7: STATEMENT OF CASH FLOWS – QUESTIONS (10)

QUESTION No. 8
Following are the extracts from the financial statements of Sunday Traders Limited (STL) for the year ended 30 June 2019:
Statement of financial position as on 30 June 2019
2019 2018 2019 2018
Assets Rs. in million Equity & liabilities Rs. in million
Property, plant and equipment 8,555 7,240 Share capital (Rs. 10 each) 4,650 3,450
Investment property 1,800 1,120 Share premium 1,600 1,240
Stock in trade 4,800 4,500 Retained earnings 1,652 (655)
Prepayments 184 268 Long term loans 6,024 6,523
Trade receivables 3,800 3,600 Trade payables 3,422 5,390
Cash 194 480 Contract liability 250 40
Accrued liabilities 310 180
Interest payable 135 110
Current maturity of loan 850 700
Provision for taxation 440 230
19,333 17,208 19,333 17,208
Statement of profit or loss for the year ended 30 June 2019
Rs. in million
Sales 29,700
Cost of sales (15,750)
Gross profit 13,950
Distribution cost (6,185)
Administrative cost (2,302)
Other income 404
Profit before interest and tax 5,867
Interest expense (1,210)
Profit before tax 4,657
Tax expense (1,150)
Profit after tax 3,507
Additional information:
(i) 72% of sales were made on credit.
(ii) Depreciation expense for the year amounted to Rs. 750 million which was charged to distribution and
administrative cost in the ratio of 3:1.
(iii) Distribution cost includes:
• Rs. 40 million in respect of loss on disposal of equipment. The written down value at the time of disposal
was Rs. 152 million.
• impairment loss on vehicles amounting to Rs. 24 million.
(iv) Loan instalments (including interest) of Rs. 1,984 million were paid during the year.
(v) Other income comprises of:
• increase in fair value of investment property amounting to Rs. 220 million.
• rent received from investment property amounting to Rs. 184 million.
(vi) During the year, STL issued right shares at premium.
Required:
Prepare STL’s statement of cash flows for the year ended 30 June 2019 using direct method. (19)
[Autumn 2019, Q-5]
QUESTION NO. 9
Junior Accountant of Drum Limited has prepared the following statement of cash flows for the year ended 31 December
2018:
Statement of cash flows
Rs.’000
Cash flow from operating activities
Increase in retained earnings 1,360
Increase in dividend payable 200
Increase in net trade receivables (100)

Nasir Abbas FCA

Chapter - 8 IAS 7: STATEMENT OF CASH FLOWS – QUESTIONS (11)

Increase in interest accrued 50

1,510
Cash flow from investing activities
Increase in land and building (2,600)
Increase in equipment (1,550)
Decrease in inventory 400
Decrease in tax payable (60)
(3,810)
Cash flow from financing activities
Increase in share capital and premium 2,350
Decrease in long term loan (1,000)
Increase in trade and other payables 600
1,950
Decrease in cash balance during the year (350)
Opening cash balance 450
Closing cash balance 100

Junior Accountant informed you that he has taken the difference of opening and closing balances of each balance sheet
item and classified each difference as either operating, investing or financing cash flows. He further informed that the
statement is tied up with the cash balances appearing in the balance sheet. He has ignored the following information:
(i) Depreciation on building and equipment amounted to Rs. 480,000 and Rs. 810,000 respectively.
(ii) During the year, an equipment costing Rs. 560,000 and having a book value of Rs. 310,000 was sold for Rs.
440,000.
(iii) Provision for doubtful debts was increased by Rs. 140,000.
(iv) Dividend amounting to Rs. 700,000 was paid during the year.
(v) Interest and tax expenses for the year amounted to Rs. 378,000 and Rs. 650,000 respectively.
(vi) Trade and other payables as at 31 December 2018 included Rs. 950,000 for purchase of land and building.
Required:
Prepare statement of cash flows for the year ended 31 December 2018, in accordance with IAS 7 ‘Statement of Cash
Flows’ using indirect method. (14)
(Spring 2019 Q.7)
QUESTION NO. 10
Following information pertains to Nadir Limited:
Extract from statement of profit or loss for the year ended 31 December 2017
Rs. in ‘000
Profit before taxation 8,955
Taxation (2,945)
Profit after taxation 6,010

Extract from statement of financial position as on 31 December 2017

2017 2016 2017 2016
Equity and liabilities Assets
--- Rs. in ‘000 --- ---- Rs. in ‘000 ---
Share capital 12,400 10,000 PPE – net book value 21,400 15,800
Share premium 1,400 - Current assets:
Retained earnings 13,450 12,440 Stock-in-trade 5,600 5,750
Surplus on revaluation 4,000 - Trade receivables – net 6,840 4,446
Non-current liabilities: Other receivables 2,385 800
Long-term loans 4,100 5,000 Cash & bank 2,355 3,204
Current liabilities:
Trade payables 1,900 1,400
Accruals & other payables 680 660
Tax liability 650 500
38,580 30,000 38,580 30,000

Nasir Abbas FCA

Chapter - 8 IAS 7: STATEMENT OF CASH FLOWS – QUESTIONS (12)

Other information:
(i) Shares issued during the year were as follows:
• 10% bonus shares in March 2017.
• Right shares in July 2017.
(ii) During the year, a plant costing Rs. 9,500,000 and having a book value of Rs. 5,200,000 was disposed of for Rs.
4,800,000 of which Rs. 1,800,000 are still outstanding.
(iii) Depreciation for the year amounted to Rs. 7,350,000.
(iv) Financial charges for the year amounted to Rs. 1,100,000. Accrued financial charges as on 31 December 2017
amounted to Rs. 112,000 (2016: Rs. 48,000).
(v) Provision for doubtful trade receivables is maintained at 5%.
Required:
Prepare statement of cash flows for the year ended 31 December 2017, in accordance with IAS 7 ‘Statement of Cash
Flows’ using indirect method. (15)
(Spring 2018 Q.3)
QUESTION NO. 11
Following are the extracts from the financial statements of Universal Limited (UL) for the year ended 30 June 2017:
Statement of financial position as on 30 June 2017
2017 2016 2017 2016
Assets Rs. in ‘000 Equity & liabilities Rs. in ‘000
Property, plant and 158,500 120,000 Share capital (Rs. 10 each) 175,000 150,000
equipment
Stock in trade 58,000 45,000 Retained earnings 54,434 21,500
Trade receivables 68,000 56,000 Revaluation surplus 10,000 -
Cash 39,434 48,000 Debentures (Rs. 100 each) 18,000 20,000
Interest payable 1,000 2,500
Trade payables 42,000 39,000
Accrued liabilities 20,000 18,000
Unearned maintenance 2,000 4,000
Provision for taxation 1,500 14,000
323,934 269,000 323,934 269,000
Statement of profit or loss for the year ended 30 June 2017
Rs. in '000’
Sales 273,000
Cost of sales (187,500)
Gross profit 85,500
Operating expenses (46,766)
Other income 11,200
Profit before interest and tax 49,934
Interest expense (2,000)
Profit before tax 47,934
Tax expense (15,000)
Profit after tax 32,934
Additional information:
(i) 60% of sales were made on credit.
(ii) UL maintains a provision for doubtful receivables at 6%. During the year, trade receivables of Rs. 7 million were
written off.
(iii) Depreciation expense for the year was Rs. 22.5 million. 70% of the depreciation was charged to cost of sales.
(iv) Other income comprises of:
▪ gain of Rs. 3 million on disposal of vehicles for Rs. 12 million;
▪ maintenance income of Rs. 8 million; and
▪ discount of Rs. 10 per debenture which were redeemed during the year.
Required:
Prepare UL’s statement of cash flows for the year ended 30 June 2017 using direct method. (15)
(FAR II Q-1, Autumn 2017)

Nasir Abbas FCA

Chapter - 8 IAS 7: STATEMENT OF CASH FLOWS – QUESTIONS (13)

QUESTION NO. 12
The statement of financial position of Liaquat Limited as at 31 December 2016 is as follows:
2016 2015 2016 2015
Equity and liabilities Assets
------- Rupees ------- ------- Rupees -------
Share capital 9,200,000 9,000,000 Freehold land 4,778,400 6,600,000
Share premium 1,346,832 1,000,000 Building – WDV 5,057,600 4,171,200
Retained earnings 3,391,228 3,665,280 Vehicle – WDV 600,000 800,000
Long term loan 1,000,000 1,000,000 Equipment – WDV 1,643,100 2,112,000
Short term loan 1,331,200 1,531,200 Capital WIP 1,478,400 1,821,600
Accounts payable 417,120 694,320 Long term deposits 580,800 448,800
Accrued interest 105,600 63,360 Inventory 685,608 320,628
Accounts receivable 1,273,272 595,452
Cash 694,800 84,480
16,791,980 16,954,160 16,791,980 16,954,160

The following information has been extracted from income statement:

Rupees
Depreciation expenses 932,500
Finance cost 141,872
Gain on sale of fixed assets (net) 98,960
Net profit before tax 1,525,948
Additional information:
(i) Details of gain on sale of fixed assets are as follows:
Rupees
Gain on sale of freehold land 168,960
Loss on disposal of equipment due to fire (70,000)
98,960
The loss on disposal of equipment represents the WDV of the equipment. The amount of insurance claim
received, amounting to Rs. 30,000 was erroneously credited to accumulated depreciation.
(ii) Repairs to building amounting to Rs. 50,000 were erroneously debited to building account on 31 December 2016.
(iii) Transfers from capital work in progress to building amounted to Rs. 1,200,000.
Required:
Prepare statement of cash flows for the year ended 31 December 2016, in accordance with IAS – 7 using indirect method.
(12)
{Spring 2017, Q # 6}
QUESTION NO. 13
Following are the extracts from income statement of Quality Engineering Limited (QEL) for the year ended 31 December
2015 and its statement of financial position as at that date, together with some additional information:
Income statement for the year ended 31 December 2015
Rs. In ‘000’
Profit from operations 6,402
Other income 1,357
Interest expense (100)
Profit before tax 7,659
Income tax expense (1,376)
Profit for the year 6,283

Statement of financial position as at 31 December 2015

2015 2014 Assets 2015 2014
Equity and liabilities
--- Rs. In ‘000’--- Non-current assets --- Rs. In ‘000’---
Share capital 9,000 7,000 Property, plant and equipment 19,628 11,845
Share premium 5,219 3,703 Investments 7,645 6,498
Un-appropriated profit 10,652 6,697 27,273 18,343
Revaluation surplus 2,676 1,911

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Chapter - 8 IAS 7: STATEMENT OF CASH FLOWS – QUESTIONS (14)

10% bank loan 6,000 -

Current liabilities Current assets
Trade and other payables 3,337 4,953 Inventories 4,642 3,073
Income tax payable 1,300 994 Trade and other receivables 2,273 3,865
Bank overdraft - 27 Cash and bank 3,996 4
4,637 5,974 10,911 6,942
38,184 25,285 38,184 25,285
Additional information:
(i) During the year, movements in property, plant and equipment include:
• Depreciation amounting to Rs. 5,280,000.
• Machinery having a carrying amount of Rs. 2,481,000 was sold for Rs. 3,440,000.
• Factory building was revalued from a carrying amount of Rs. 5,963,000 to Rs. 8,000,000.
• An office building which had previously been revalued, was sold at its carrying amount of Rs. 2,599,000.
(ii) Cash dividends paid in December 2015 and November 2014 were Rs. 3.6 million and Rs. 2.4 million respectively.
(iii) Trade debts written off during the year amounted to Rs. 200,000. The provision for bad debts as at 31 December
2015 was Rs. 400,000 (2014: Rs. 550,000)
(iv) The interest on bank loan is payable on 30th June every year. The bank loan was received on 1 November 2015.
Interest for two months has been accrued and included in trade and other payables.
(v) Other income includes investment income of Rs. 398,000. As at 31 December 2015, trade and other receivables
included investment income receivable amounting to Rs. 96,000 (2014: Rs. 80,000).
Required:
Prepare a statement of cash flows for QEL for the year ended 31 December 2015, using the indirect method.
(18)
{Spring 2016, Q # 6 amended}
QUESTION No. 14
(a) List the elements of financial statements. (02)
(b) Following is the draft balance sheet of XYZ Limited as at 31 December 2014 which was prepared by its
accountant:
Rs. in Rs. in
Assets Equities and liabilities
million million
Leasehold land – cost 250 Capital 1,000
Leasehold land – acc. depreciation (200) Accumulated profit 1,816
Building – cost 1,000 Long term bank loan 200
Building – acc. depreciation (500) Trade payables 228
Machinery – cost 1,750 Income tax payable 85
Machinery – accumulated depreciation (1,150) Accrued interest 13
Long term deposit 70
Stocks 910
Account receivables – net of provision 361
Cash and bank 851
3,342 3,342
Additional information:
(i) Profit before tax and income tax expenses for the year amounted to Rs. 275 million and Rs. 13 million
respectively.
(ii) Balances as at 31 December 2013 were as under:
Rs. in million
Stock 703
Account receivables – net of provision 418
Cash and bank 243
Trade payables 150
Income tax payable 80
Long term deposit 70
The company follows a policy of maintaining provision for bad debts equal to 5% of account receivables.

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Chapter - 8 IAS 7: STATEMENT OF CASH FLOWS – QUESTIONS (15)

(iii) The bank loan was obtained on 1 January 2014 and carries interest @ 9% per annum.
(iv) XYZ uses straight line method for depreciation. Rates of depreciation are as under:
Leasehold land 2%
Building 5%
Machinery 10%
Full month’s depreciation is provided in the month of acquisition but no depreciation is charged in the
month of disposal. Depreciation for the year 2014 has already been provided.
On review the CFO has discovered the following:
• A machine with list price of Rs. 50 million was purchased on 1 January 2014. An amount of Rs.
30 million had been paid in cash whereas Rs. 20 million were adjusted against trade-in of a
machine costing Rs. 40 million and having a book value of Rs. 25 million. The transaction was
recorded by debiting the plant and machinery account by Rs. 30 million i.e. the net amount
paid to the supplier.
• One of the company's customers became bankrupt during the year. Rs. 5 million out of total
debt of Rs. 25 million were recovered from him. Balance has to be written off.
Required:
Prepare a statement of cash flow as at 31 December 2014. (20)
{Spring 2015, Q # 4}
QUESTION No. 15
Sky Limited (SL) commenced its business on 1 July 2013 by purchasing the business of Moon Enterprises for a
consideration of Rs. 60 million. The following information has been extracted from its financial statements for the year
ended 30 June 2014.

Particulars Debit Credit

Rs. in million
Sales 172
Cost of sales 80
Operating and selling expenses 40
Bad debt expense 6
Loss on settlement of insurance claim 2
Finance charges paid 8
Taxation expense 15
Closing stock in trade 10
Trade receivables 28
Provision for doubtful debts 6
Trade payables 20
Provision for taxation (net of payments) 1
Property, plant and equipment - WDV 105

Additional information:
(i) At the time of acquisition, the assets and liabilities were valued as under:
Rs. in million
Property, plant and equipment 52
Stock in trade 4
Trade receivables 8
Trade payables 12
(ii) During the year, SL incurred a capital expenditure of Rs. 70 million.
(iii) Loss on settlement of insurance claim relates to a car which was destroyed in an accident. Its cost and written
down value at the time of accident was Rs. 5 million and Rs. 4 million respectively. There were no other disposals
during the year.
Required:
Prepare operating activities section of the statement of cash flows for the year ended 30 June 2014 using the direct
method in accordance with the International Financial Reporting Standards. (11)
(FAR II Q-4, Autumn 2014)

Nasir Abbas FCA

Chapter - 8 IAS 7: STATEMENT OF CASH FLOWS – QUESTIONS (16)

QUESTION No. 16
Galaxy Limited commenced its business on 1 January 2013 by issuing shares as follows:
• Rs. 50 million against cash
• Rs. 25 million against purchase of building
• Rs. 1.4 million against purchase of vehicle
Following is the summarised Trial Balance for 1st year as of 31 December 2013:
Debit Credit
Particulars
Rs. in million
Sales 136.00
Cost of sales (including depreciation expense of Rs. 9 million) 83.50
Operating and selling expenses (including depreciation expense of Rs. 6.25 million) 37.30
Miscellaneous income (net of loss of Rs. 0.35 on settlement of total loss claim) 0.50
Finance charges 2.50
Taxation expense 6.00
Cash and bank balances 5.00
Bank overdraft 23.00
Accounts receivable 18.00
Provision for doubtful debts 0.90
Closing inventory 10.00
Accounts payable 14.00
Interest payable 1.20
Provision for taxation (net of payments) 1.00
Share capital 76.40
Dividend paid 2.45
12% Long term loan payable 25.00
Property, plant and equipment 128.25
Accumulated depreciation 15.00
293.00 293.00
Settlement of the insurance claim pertained to an accident of a new car costing Rs. 1.8 million and having a depreciation
charge of Rs. 0.25 million for the period in use. No bad debts were written off during the year.
Required:
Prepare a statement of cash flow for the year ended 31 December 2013. (13)
{Spring 2014, Q # 7 amended}
QUESTION No. 17
The following balances were extracted from the financial statements of Spanish Limited for the years ended 30 June 2012
and 2013.
2013 2012
---------Rs. in 000---------
Sales 60,000 40,000
Interest expense 27 30
Profit after tax 7,800 4,800
Property, plant and equipment – cost 10,000 9,000
– accumulated depreciation 1,000 900
Stock in trade 6,970 6,800
Trade debtors 9,000 8,000
Provision for doubtful debts 500 360
Trade creditors 5,000 4,700
Accrued expenses 300 -
Interest payable 12 14
Income tax payable 55 38

Additional information
• New machine costing Rs. 1,800,000 was purchased during the year. A machine with a carrying amount of Rs.
200,000 was sold for Rs. 250,000

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Chapter - 8 IAS 7: STATEMENT OF CASH FLOWS – QUESTIONS (17)

• The tax rate applicable to the company is 35%.

Required:
Prepare operating activities section of the statement of cash flows for the year ended 30 June 2013 using the Direct
Method. Show all necessary workings. (15)
(FAR II Q-3, Autumn 2013)
QUESTION No. 18
A summary of revenues and expenses of AB Limited for the year ended 30 June 2013 is given below:
Rupees
Sales 2,345,000
Cost of goods manufactured and sold (1,624,000)
Gross profit 721,000
Selling, general and administrative expenses (509,000)
Net income before income tax 212,000
Income tax (90,000)
Net income 122,000
Net changes in working capital items for the year ended 30 June 2013 were as follows: Net changes
Dr. Cr.
Cash 32,000
Trade receivables (net) 74,000
Inventories 105,000
Prepaid expenses (selling and general) 6,000
Accrued expenses 15,000
Income tax payable 28,000
Trade payables 90,000
Depreciation for the year amounted to Rs. 68,000.
Required:
Prepare a cash flow statement for the year ended 30 June 2013. (07)
{Autumn 2013, Q # 7 amended}
QUESTION No. 19
The balance sheet of Amin Limited as at 31 August 2011 is as follows:
2011 2010 2011 2010
-------- Rs.’000 ----- -------- Rs.’000 -----
Equity Fixed assets – book value 15,172 12,346
Share capital 15,450 10,000
Retained earnings 17,983 17,942
33,433 27,942
Current liabilities Current assets
Short term finance 1,845 1,216 Investments 4,911 -
Creditors 3,457 2,850 Stock-in-trade 12,178 14,950
Dividend payable 700 400 Trade debts – net 6,732 4,887
Bank 442 225
6,002 4,466 24,263 20,062
39,435 32,408 39,435 32,408
The following information is also available: Rs.’000
Profit during the year ended 31 August 2011 3,161
Accumulated depreciation on fixed assets – 31 August 2010 5,605
Accumulated depreciation on fixed assets – 31 August 2011 7,470
Provision for bad debts – 31 August 2010 385
Provision for bad debts – 31 August 2011 484
During the year fixed assets costing Rs. 1,500,000 with a book value of Rs. 867,000 were sold for Rs.
1,284,000.
Required:
Prepare a cash flow statement for the year ended 31 August 2011. Show necessary workings. (13)
{Autumn 2011, Q # 2 amended}

Nasir Abbas FCA

Chapter - 8 IAS 7: STATEMENT OF CASH FLOWS – QUESTIONS (18)

QUESTION No. 20
Junaid Janjua Limited has provided you the following balance sheet and income statement.
Balance Sheet as on December 31, 2010
2010 2009
Rupees
Cash 145,000 32,000
Accounts receivable 280,000 104,000
Long-term investments 220,000 170,000
Inventory 424,000 200,000
Prepaid insurance 24,000 36,000
Office supplies 14,000 7,000
Land 1,810,000 2,500,000
Building 2,800,000 2,300,000
Accumulated depreciation (890,000) (720,000)
Equipment 1,200,000 1,150,000
Accumulated depreciation (380,000) (350,000)
Total assets 5,647,000 5,429,000
Accounts payable 158,000 263,000
Wages payable 40,000 24,000
Short-term loans 580,000 580,000
Long-term loans 985,000 1,160,000
Share capital 1,100,000 1,000,000
Retained earnings 2,784,000 2,402,000
Total liabilities and equity 5,647,000 5,429,000

Income Statement for the year ended December 31, 2010

Rupees
Sales revenue 9,280,000
Cost of goods sold (6,199,000)
Gross margin 3,081,000
Operating expenses
Selling expenses 634,000
Administrative expenses 1,348,000
Depreciation expenses 230,000
2,212,000
Income from operations 869,000
Other revenues/expenses
Gain on sale of land 64,000
Gain on sale of long term investment 32,000
Loss on sale of equipment (15,000)
81,000
Net income 950,000
Notes :
(a) Part of the long term loan amounting to Rs. 100,000 was settled by issuing ordinary shares.
(b) Long term investments costing Rs. 100,000 were sold during the year.
(c) Depreciation charged during the year on equipment amounted to Rs. 60,000. Equipment having a book value of
Rs. 75,000 was sold during the year.
Required:
Prepare a cash flow statement for the year ended December 31, 2010. (14)
{Spring 2011, Q # 4 amended}

Nasir Abbas FCA

Chapter - 8 IAS 7: STATEMENT OF CASH FLOWS – QUESTIONS (19)

QUESTION No. 21
The balance sheets of Sakhawat Hussain Limited as at December 31, 2009 and 2008 are as follows:
2009 2008
Rupees
Current assets 4,750,000 2,850,000
Investments 2,600,000 2,500,000
Fixed assets 9,750,000 9,600,000
Accumulated depreciation (2,950,000) (2,450,000)
14,150,000 12,500,000

Current liabilities 1,850,000 1,450,000

Income tax liability 200,000 150,000
Share capital 11,000,000 10,000,000
Accumulated profits 1,100,000 900,000
14,150,000 12,500,000

Other information for the year 2009 is as follows:

(i) Investments costing Rs. 250,000 were sold for Rs. 320,000.
(ii) Fully depreciated furniture costing Rs. 200,000 was written-off.
(iii) Fixed assets costing Rs. 960,000 with a net book value of Rs. 160,000 were sold for Rs. 250,000.
(iv) Income tax amounting to Rs. 180,000 was paid in September 2009.
(v) Cash dividend amounting to Rs. 1,200,000 was paid during the year.
(vi) 20% of the opening and closing balances of current assets are represented by cash.
Required:
Prepare cash flow statement for the year ended December 31, 2009. (11)
{Spring 2010, Q # 7 amended}

QUESTION No. 22
The comparative balance sheets as at December 31st of Moosani Limited show the following information:
2008 2007
Rupees
Cash 5,200 41,400
Accounts receivable 31,700 21,500
Inventory 25,000 19,400
Investments - 16,900
Furniture 80,000 64,000
Equipment 86,000 43,000
227,900 206,200

Allowance for doubtful debts 6,500 9,700

Accumulated depreciation – equipment 24,000 18,000
Accumulated depreciation – furniture 8,000 15,000
Trade creditors 10,800 6,500
Accrued expenses 4,300 10,800
Bills payable 6,500 8,600
Long term loans 31,800 53,800
Share capital 100,000 80,000
Retained earnings 36,000 3,800
227,900 206,200

Additional data related to 2008 is as follows:

(i) Equipment that had costed Rs. 23,000 and was 40% depreciated at the time of disposal was sold for Rs.
6,500.
(ii) On January 1, 2008, the furniture was completely destroyed by a fire. Proceeds received from the
insurance company amounted to Rs. 60,000.
Nasir Abbas FCA
Chapter - 8 IAS 7: STATEMENT OF CASH FLOWS – QUESTIONS (20)

(iii) Investments were sold at Rs. 7,500 above their cost.

(iv) Cash dividend amounting to Rs. 180,000 was paid during 2008.
Required:
Prepare cash flow statement for the year ended December 31, 2008. (12)
{Spring 2009, Q # 3 amended}
QUESTION No. 23
Financial statements of Data Limited are as follows:
30 June 2018 30 June 2017
Rs “000” Rs “000”
Non-current assets
Fixed assets 161,300 160,500
Investments 20,500 12,200
Current assets
Stock in trade 34,200 36,600
Short term investments 1,500 2,300
Trade debts 25,500 18,700
Prepayments 2,700 3,000
Cash and bank 4,100 -
249,800 233,300
Equity and liability
Share Capital 66,000 56,000
Retained earnings 100,100 83,900
Revaluation reserve – land & Building 8,000 3,000
174,100 142,900
Non-current liabilities
Bank loan 20,300 22,500
Government grant 10,000 -
Current liabilities
Trade payables 20,400 35,100
Government grant 2,000 -
Accrued expenses 23,000 28,800
Overdraft - 4,000
249,800 233,300
Additional information:
(i) Provision for doubtful debt at 30 June 2018 was Rs 1.2 million (2017: Rs 1.7 million).
(ii) During the year total payment of 7.6 million was made to bank against loan (including interest).
(iii) Dividend of Rs. 36 million was declared and paid during the year.
(iv) Government grant recognized as income for the year amounts to Rs. 2.5 million.
(v) Interest and tax expense for the year was Rs. 3.5 million and Rs 20.1 million respectively.
(vi) Accrued expenses include interest payable of Rs 1.1 million (2017: Rs 0.4 million) and tax payable of Rs 4.5
million (2017: Rs 3 million).
(vii) Following is the details of fixed assets:
30 June 2018 30 June 2017
Rs “000” Rs “000”
Land and building 88,700 85,200
Plant and machinery 65,600 67,300
Intangibles 7,000 8,000
161,300 160,500
Renovation of building of Rs 3 million was capitalized during the year. Depreciation expense of land & building
and plant and machinery was Rs 4.5 million and 6.5 million respectively for the year just ended. Few machines
having net book value of Rs. 5,200,000 were sold at profit of Rs 500,000.

Required:
Prepare statement of cash flows using indirect method as per IAS-7 for 2018. (15)

Nasir Abbas FCA