Question 1

Section A

In preparing its statement of cash flows using the indirect method, a company starts with a profit before tax of $150,000. During the year, the company sold a machine for $30,000. The machine had a carrying amount of $22,000 at the date of disposal.

What is the net adjustment required to the profit before tax in respect of this disposal to arrive at cash generated from operations? (Enter the number only. If it is a deduction, include a minus sign, e.g., -5000)

Accepted Answer

Calculate the profit or loss on disposal. Since it's a non-cash item included in profit before tax, you must reverse it. A profit is deducted; a loss is added back.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Adding the $8,000 instead of deducting it, or adjusting by the proceeds ($30,000).

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 5

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