ACCT 2105 Tutorial Questions Cash Flow/Working Capital

EXERCISE 1.

Item Operating Investing Financing Not part of

Activities Activities Activities Cash Flow

Cash Sales
Discount
Allowed
Dividends
from
Investments
Cash Purchase
of Investments
Rent Paid
Credit
Purchases
Dividends Paid
Cash
Purchases
Sale of non
Current Assets
New Share
Capital issue
Interest Paid
Depreciation
Wages Paid
Payments to
Creditors

Credit Sales
Doubtful Debts
Loans Repaid
Increase in
Loans
Tax Paid
Interest
Received
Cash Sale of
Investments
Exercise 2: Presented below is information pertaining to Ventruong Pty Ltd for the year
ended 31 December 2004. Use the following information to prepare the Statement of Cash
Flows.

$
Cash balance, 31 December 2004 61,000
Cash paid to employees and suppliers 260,000
Cash received from sale of land 45,000
Cash paid as income taxes 20,000
Cash received from money market 30,000
borrowings
Depreciation expense for the period 12,000
Cash paid to purchase equipment 50,000
Cash balance, 1 January 2004 46,000
Cash paid as dividends 63,000
Cash received from customers 330,000
Cash received as interest 8,000
Cash paid for interest 5,000
Exercise 3: Use the following information about the cash flows of Ferron
Company to prepare a complete statement of cash flows (direct method) for the
year ended December 31, 2008. Use a note disclosure for any noncash investing
and financing activities.

Exercise 4:
Exercise 5: Working Capital
The following ratios were taken from two trading entities: VNN Vietnam and Vietsun.

VNN Vietnam Vietsun Industry Average

Inventory turnover
(Days) 23 days 40 days 25 days
Debtors turnover
(Days) 36 days 45 days 35 days
Creditors turnover
(Days) 25 days 45 days 40 days
Creditors charge
interest after 40
days

REQUIRED:

(a) From the above information, compare the two entities and analyse what each ratio
implies. (6 marks)

(b) Explain two problems that may result from taking a lot of time to receive money owed
by customers. (4 marks)

(c) Calculate the operating cash cycle for VNN Vietnam and Vietsun (show your
calculations). Analyse results including a comparison with industry averages.
(4marks)

(Total = 14 marks)

Multiple Choice Questions:

1. The cost of holding cash is:
a. the opportunity cost of holding cash
b. physical security of holding the currency
c. losses due to inflation.
d. all of the options are true

2. How do entities ensure that customers are able to pay the cash related to their
credit sales?
a. check their credit-score before giving credit
b. require their directors give a personal guarantee
c. have a limit on the amount of credit they can take
d. all of the options are true

3. Which of these is not a cost of holding inventory?

a. ordering costs
b. storage costs
c. obsolescence
d. lost sales

4. The primary purpose of the statement of cash flows is to

a. report about the cash receipts and cash payments made during the
accounting period.
b. show the deficit of cash during the period.
c. show the cash balance at the end of the period.
d. report the profit or loss during the period.

5. Which of the following items would not appear in a statement of cash

flows?

a. expenses paid
b. income tax paid
c. depreciation expense
d. all of the items would appear on a statement of cash flows

6. The format followed in the preparation of the statement of cash flows is:

a. cash flows from investing activities, cash flows from operating

activities, cash flows from financing activities
b. cash flows from financing activities, cash flows from operating
activities, cash flows from investing activities
c. cash flows from operating activities, cash flows from investing
activities, cash flows from financing activities
d. cash flows from investing activities, cash flows from financing
activities, cash flows from operating activities

Working Capital Exercise: