Practice Questions • 20 Questions
Define what is meant by the "indirect method" of preparing a statement of cash flows, as required by IAS 7. (2 marks)
State whether the schedule of non-current assets is a financial statement or a note to the financial statements, and explain the purpose of producing this schedule. (3 marks)
Distinguish between an ordinary share issue, a rights issue, and a bonus issue. (3 marks)
A motor vehicle was purchased by Ellison Plc on 1 April 2022 for £36 000. The company depreciates motor vehicles at 25% per annum on a reducing balance basis. A full year's depreciation is charged in the year of purchase and none in the year of sale. The vehicle was sold on 30 September 2025 for £12 500. Calculate the profit or loss on disposal. (3 marks)
The following information relates to the taxation of Fenwick Plc: Calculate the corporation tax paid during the year ended 31 March 2026. (3 marks)
The equity section of Thornton Plc's statement of financial position shows the following: During the year, a bonus issue was made of 1 for 5 existing shares held at 31 December 2024, funded from share premium. Calculate the total cash proceeds received from any ordinary share issue during the year. (3 marks)
Explain why depreciation is added back to profit from operations when preparing the operating activities section of a statement of cash flows. (3 marks)
Explain why a bonus issue of shares does not appear in the statement of cash flows but a rights issue does. (3 marks)
State FOUR financial statements that a limited company is required to publish as part of its annual accounts. (4 marks)
State TWO items that affect profit but do NOT affect cash flow, and TWO items that affect cash flow but do NOT affect profit. (4 marks)
Explain why an increase in inventories is deducted from profit from operations in the operating activities section of the statement of cash flows, while an increase in trade payables is added. (4 marks)
Explain TWO limitations of published financial statements for stakeholders trying to assess the performance of a limited company. (4 marks)
The following information relates to the plant and machinery of Hargreaves Plc for the year ended 31 March 2026: Transactions during the year: - New plant purchased on 1 June 2025 for £85 000 - Plant originally purchased for £60 000 (accumulated depreciation at date of disposal: £38 400) was sold on 30 November 2025 for £17 000 Depreciation policy: 20% per annum, reducing balance. A full year's depreciation is charged in the year of purchase; no depreciation is charged in the year of sale. Prepare the schedule of non-current assets for plant and machinery for the year ended 31 March 2026. (8 marks)
The following equity balances are taken from the statement of financial position of Collingwood Plc at 1 January 2025: The following transactions took place during the year ended 31 December 2025: 1. 1 March: 400 000 new ordinary shares issued at £0.55 each 2. 30 June: Non-current assets revalued upwards by £75 000 3. 31 October: Bonus issue of 1 share for every 4 in issue (funded from share premium) 4. 31 December: Profit after tax for the year £285 000; dividends paid £120 000 Prepare the statement of changes in equity for the year ended 31 December 2025. (8 marks)
The following information is available for Radcliffe Plc for the year ended 28 February 2026: Prepare the operating activities section of the statement of cash flows for the year ended 28 February 2026. (8 marks)
The following information relates to the non-current assets of Pemberton Plc at 1 October 2025: Transactions during year ended 30 September 2026: - Land and buildings revalued to £700 000 on 1 October 2025 - New plant and machinery purchased for £48 000 on 1 January 2026 - Motor vehicle originally purchased for £32 000 (accumulated depreciation £19 200) sold for £9 500 on 30 June 2026 Depreciation policy: - Land and buildings: 2% per annum straight-line on revalued amount - Plant and machinery: 25% per annum reducing balance; full year in year of purchase - Motor vehicles: 20% per annum reducing balance; full year in year of purchase, none in year of sale Prepare the schedule of non-current assets for the year ended 30 September 2026. (10 marks)
The following is a summarised statement of cash flows for Harrington Plc for the year ended 31 March 2026: Assess the cash flow position of Harrington Plc for the year ended 31 March 2026. (10 marks)
Limited companies are required by law to publish audited financial statements each year. The directors of Caldwell Plc are aware that their competitors also have access to these published accounts. The accounts include the income statement, statement of financial position, statement of cash flows, statement of changes in equity, and notes (including the schedule of non-current assets). Evaluate the extent to which the requirement to publish financial statements benefits all stakeholders of Caldwell Plc. (10 marks)