IGCSE Accounting Paper-2: Specimen Questions with Answers 46 - 48 of 103

Passage

Daffy Ltd had a profit of £500000, after charging depreciation of £100000 on assets and transferring an amount of £150000 to general reserve. The Goodwill amortized was £35000, and a profit was gained on the sale of machinery amounting to £15000. Other changes in current assets and current liabilities was as follows:

(i) Increase in trade receivables £15000

(ii) Increase in trade payables £30000

(iii) Increase in prepaid expenses £1000

(iv) Decrease in outstanding expenses £10000

Question number: 46 (1 of 5 Based on Passage) Show Passage

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State any two benefits of cash flow statement?

Explanation

The two benefits of preparing cash flow statement are as follows:

(i) Helps in comparing the operating performances of different enterprises; as it eliminates the effects of using different accounting treatments for the same transaction.

(ii) It enables the users to evaluate the changes in the structure of assets and liabilities of an enterprise, its liquidity and solvency position and its ability to generate cash based on the changing circumstances.

Question number: 47 (2 of 5 Based on Passage) Show Passage

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Calculate the Net profit before taxation of Daffy Ltd?

Explanation

The net profit before taxation of Daffy Ltd is £650000

Statement showing the net profit before taxation

Table of Statement showing the net profit before taxation

PARTICULARS

AMOUNT

Net Profit

500000

Add: Transfer to general reserve

150000

Net profit before Taxation

650000

Question number: 48 (3 of 5 Based on Passage) Show Passage

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How much cash flow does Daffy Ltd have from Operating activities?

Explanation

The net cash from operating activities of Daffy Ltd is £774000

Statement showing cash flows from operating activities

Calculate Amount of the table

PARTICULARS

AMOUNT

AMOUNT

Net profit before Taxation

650000

Adjustments of non cash & non operating expenses:

Add: Depreciation

100000

Add: Goodwill

35000

135000

785000

Less: Profit on sale of machinery

-15000

770000

Adjustments for working capital changes:

Less: Increase in trade receivables

15000

Less: Increase in prepaid expenses

1000

Less: Decrease in outstanding expenses

10000

26000

744000

Add: Increase in trade Payables

30000

Cash flow from operating activities

774000