In question 206 of the ACCA F3 exam kit. It gives the extract: Interest receivable..............13,000
And treats this as part of net cash inflow for Investing Activities.
But this is obviously wrong right? Interest Receivable account would mean that the interest has been earned but not yet received so should be ignored for cashflow purposes ..?
From my experience, the account "Interest Receivable" contains interest actually received, and, if appropriate, an adjustment for earned but not received.. I am sure they would tell you, if there was an accrued income adjustment within it?
But thats just me looking at it from a profit and loss point of view.. Im not ACCA, so perhaps when talking about it as an asset, its a different definition?
-- Edited by FoxAccountancyServices on Sunday 5th of May 2013 07:55:28 PM
"Is it that the £13000 is the difference between an opening and closing balance? And so cash has gone up by £13k based on the change?"
It just gives that as an extract amoung other things from the financial statements, no other information. It was for a multiple choice exam so that
"But thats just me looking at it from a profit and loss point of view.. Im not ACCA, so perhaps when talking about it as an asset, its a different definition?"
ACCA don't have standard ways of presenting questions as far as i can see. How the questions are presented is the hardest thing I've encountered so far at least for the multiple choice exams.
"From my experience, the account "Interest Receivable" contains interest actually received" this is interesting, thanks.
When i google it, it is defined as interest due but not received. Which makes sense, because why else call it receivable. Call it interest income, or interest received..
Nobus is producing the statement of cash flows for the year ended 31 December 20X5. The accountant has identified the following balances in the financial statements: Interest accrual b/f.......................................4,900 Interest accrual c/f.......................................1,200 Interest payable...........................................20,000 Interest receivable........................................13,000 Preference dividend payable b/f.......................120,000 Preference dividends payable c/f......................140,000 (I'm not sure why one dividend is plural and one singular.) Dividends (statement of changes in equity).......600,000 What is the net cash flow from investing activites A ($10,700) B $13,000 C ($603,700) D ($590,700)
Maybe this will clarify my orignal post, but my question is simply how am I suppose to know what interest receivable means in this context. I would have thought it must mean that the end of year balance on the interest receivable account is $13,000 therefore the company is owed but has not yet received $13,000 for interest
-- Edited by Soar on Monday 6th of May 2013 11:42:25 AM
-- Edited by Soar on Monday 6th of May 2013 11:43:10 AM
Doesn't help that its a trick question to find out if you know what should come under investing as opposed to financing and operating activities.
First up look for movements.
The Accruals position has changed by an outflow of £3,700
everything else can actually be argued!
Interest paid is considered by many an operating activity but as such is the result of financing the business then an equal arguement exists for interest paid to be classified as a financing activity.
Interest receieved may be considered an operating activity or an investing activity
A similar debate exists for dividends.
In the case shown you have dividends paid of £600,000 taking us to an investing activities outflow for the period of £603,700.
Now what about that Interest payable / receivable?
The tempation is to set them off against each other but that would not be right in that the interest payable is a financing activity where the interest receivable can be argued to be an investing activity (and both can be argued to be operating activities).
Therefore we have an investing inflow of £13k taking our answer to £590,700.
So my answer would be (D).
That is my answer, I can argue it but it may not be the same answer that the examiner has as with Cashflow statements some of the classifications are not set in stone.
It could of course also be argued the the interest paid and received are operating activities in which case they would be offset, not effect investing activities and your answer would have been (C) rather than (D).
In an exam you can generally state your reasoning and even though answers may not be the same as those that the examiner has, if your reasoning is good enough you will still pick up the points.
My reading of the above is that the Interest payable and the movement in preference dividends are financing rather than investing activities.
My reasoning behind not treating the words payable and receivable as pending movements is that interest accrual is shown seperately.
HTH,
Shaun.
p.s. welcome to ACCA style questions! At times you seem to spend half of the exam trying to figure out what the question actually is and the rest of it looking for the twist where you are being led towards an obvious answer that's the wrong one. That said, if ACCA had join the dots style questions as some other bodies do then that wouldn't make very good accountants. Also, you get to explain why you came to the conclusions that you did and you can pick up the marks for an answer different to the one expected if you argue your conclusions well enough.
p.s.2 accidentally wrote paid rather than received in one of the interest paragraphs.... My brain and fingers are just acquintances and occassionally one doesn't seem to do what the other is telling it.
p.s.3 Also added the arguement to show my point about different equally valid answers, of how one could justify (C) as the answer by offsetting the interest as operating activities.
-- Edited by Shamus on Monday 6th of May 2013 01:20:49 PM
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
The answer and explanations given are: B - Interest received = $13,000 - Interest and dividends paid are normally shown within cash form operating activities. An alternative presentation may place them within cash form financing activities.
Still apart from all its other tricks which seem fair to me, (maybe cos I'm still dumb enough to not see different interpretatinos ^^).. Interest Receivable is being used to mean Interest Received which I dont get, so still left wondering if this is a mistake or is it actually used that way in the real world..
ACCA use $ because their exams are not completely limited to the UK, but about international accounting standards, or something like this, I'm not sure, some papers you can choose a global or UK version as well.
-- Edited by Soar on Monday 6th of May 2013 03:26:49 PM
It hard to help, as I cant see what you are looking at, to be able to put it into context, and I am not quite sure if you are trying to answer the question, or if you simply think the ACCA kit is wrong because it has treated the £13k as cash inflow?
I'm AAT and my clients are all non audit, so I havent needed to do a Cashflow statement in yeeeeeeears. My thought about the different definition was mainly related to the fact that you are doing cashflow statements, and maybe on that document Interest Receivable means earned but not received? If the extract is from the profit and loss, yes it can be received and owed interest. If its a balance sheet item, its probably the debtor, in which case yes, it would be income earned but not received.
You originally said: ---------------------------------------------------------------------------------------------- It gives the extract: Interest receivable..............13,000
And treats this as part of net cash inflow for Investing Activities. ----------------------------------------------------------------------------------------------
This suggests that the £13k has then been shown as an extract of the cashflow statement - which might mean that the balance sheet debtor fell year on year...
Lets say in 2012 there was "Debtor - Interest Receivable" on the balance sheet of £20000 and by 2013 it was only £7000 - then the cash inflow has increased by £13000.
(That's how I understand it.)
However, then in your last post you said - ------------------------------------------------------------------------------------------------ It just gives that as an extract amoung other things from the financial statements, no other information. ------------------------------------------------------------------------------------------------
Are you deciding whether it should be included on the cashflow statement? If you are looking at information from financial accounts, is it telling you that its from the balance sheet? Does it give you balance sheet that shows 2 years figures?? I think then you would want to calculate the increase/decrease.
I hate it when questions leave you confused. :$ I cant answer the question for you as much as I'd love to, but hopefully my comments will trigger a thought train and you will have the light bulb moment :)
I noticed this question shows dollars rather than pounds and that made me search the term "Interest Receivable is interest due but not received", and the only websites I see coming up are american. Is the US terminology perhaps different to the UK? Is this an american or UK question?
Also, are the dividends paid or received? As "paid" would be part of financing activities, as would the Interest payable.. and this question ask about Investing activities??
Sooooo... by american standards, the answer could actually be B?
no, your not mad but the ACCA don't use USGAAP (who would as it's rules rather than principles based... And yes, I'm saying that all those Americans are wrong, lol).
The question is international. The answer that I gave was per IAS7 (rather than FRS1).
Dollar rather than pound signs are used in all ACCA questions now to denote that international rather than local standards are being used.
As for the interest receivable, it doesn't come into the question anyway as that would be a financing rather than investing cashflow.
Soar has the answer so interested to know how the book thinks that the answer should be.
Personally I think D, can see an arguement for C but don't think that A or B are correct although happy to be told with reasoning that I am wrong.
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
they're giving an answer based on one interpretation where two others are both equally as valid.
Personally I would always have used Investment activities and financing activities rather than Operating activities.
You would expect that sort of trickery at F7 but not really at F3 as after F3 you get to give proper answers but at F3 you cannot give your reasoning for your answer as it's just multi choice so I presume that you would actually be marked down for giving an equally correct answer.
As for the interest receivable line that is quite bad wording in the question but the inclusion of a seperate interest accrual does indicate what they meant rather than what was written.
Great little bank holiday puzzler there. I enjoyed that one... Words that I never thought that I would utter in conjunction with Cashflow statements.
With the ACCA you can mix and match papers doing both UK and Int versions for different papers.
for instance you could do F7 (financial reporting) under UK GAAP but F9 (Audit) under international if you so wished.
Other variant papers are Law and Tax.
HTH,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
"As for the interest receivable line that is quite bad wording in the question but the inclusion of a seperate interest accrual does indicate what they meant rather than what was written."
Ahh I didnt register this, so there is a T-account named Interest Accruals, and a T-account named Interest Receivable. I was trying to put the interest accruals bf and cf in the Interest Receivable account which didnt help me figure out what they meant.
I had so much fun with thinking about that one that I've just put the F3 and F2 exam kits on my Amazon save for later list.
Its the Kaplan versions that I've slapped in there. Could you just confirm that it is the Kaplan rather than the BPP versions than you are using.
Many thanks in advance,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Glad you enjoyed it, it was the f3 Kaplan exam kit. I have the most recent one and the one before and they are identical except the recent one has 6 questions added on to the end of the 252.
It used to be that Kaplan would alternate between sittings usng the time between revision texts to bring old questions up to date but as with your experience with F3 I've found similar with P7 in that they now make minimum change and just add a new sittings questions and answers and remove a similar number of old ones.
I've also noticed some study texts shrinking. Do you think that they mat be getting a little complacent in their psoition?
On the enjoying it front. I think that at the latter stages it's too much about getting through the papers and you sometimes lose track of what drew you to this profession in the first place.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Not sure about kaplan. I will be looking at other options for the next books I buy though.
But yes they update every year for the sake of 6 questions or a few paragraphs in a study text, which is fine i guess, but people should know that this is the case and feel comfortable buying secondhand texts (tons on amazon for example). At least, somehow, it should be clear what they are missing out on, so they can make an easy decision.
I would say that at least 50% of my texts and exam kits are second hand. Generally from Amazon resellers but a few from Ebay as well.
The only books never to buy second hand are the tax ones and for those Kaplan wins hands down (And the size of them puts a king James bible to shame!).
Between 2007 and 2010 financial reporting standards were changing that often that during that period old versions of those were also false economies but for the management accounting papers I'm sure that you could still answer most of the current papers from 2002 texts (actually a classic year for BPP texts back in the good old days before they dumbed down with highlighting, and emphasis paragraphs and key words all of which are just Kryptonite for dyslexics like myself).
I've got the F2 and F3 exam kits (2009 version) on order and looking forward to getting a chance to sit down and work through those... I figured 2009 would be fine as at F3 it's not going to be all about group accounts and financial instruments and those are the main area's that have been changing since 09.
As for alternate texts.
I tried GTG but couldn't take to them.
BPP is still good but I just prefer the Kaplan ones due to the try it yourself approach and I love that they have similar questions with variations in order to build up your understanding.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
