QCAA Accounting Cash management
5 sample questions with marking guides and sample answers · Avg. score: 55%
In January 2021, a public company acquired a business using cash basis accounting, which
changed when the company reported its end of financial year results.
complicated the comparison of its financial statements over time.
had no effect on horizontal ratio analysis.
affected the industry benchmarks.
Reveal Answer
changed when the company reported its end of financial year results.
The fiscal year-end is determined by the parent company's existing policy and is not typically altered simply by acquiring a new subsidiary.
complicated the comparison of its financial statements over time.
Acquisitions disrupt the consistency of financial data over time because the post-acquisition results include assets and revenues that were not present in prior periods. Furthermore, harmonizing the acquired company's cash-basis records with the public company's accrual-basis reporting adds complexity to historical comparisons.
had no effect on horizontal ratio analysis.
Horizontal analysis compares financial data over time; an acquisition significantly changes the scale of the financial statements, which directly distorts trend analysis.
affected the industry benchmarks.
Industry benchmarks are aggregate standards derived from the entire sector; a single acquisition by one firm generally does not have the weight to shift benchmarks for the whole industry.
Statement of Cash Flows (extract)
| Cash flows from financing activities | Previous year ＄ | Current year ＄ |
|---|---|---|
| Inflows | ||
| Proceeds from loans and borrowings | 25 000 | 75 000 |
| Capital contributions | 5 000 | 0 |
| Outflows | ||
| Payment of drawings | (2 750) | (10 000) |
| Repayment of loans and borrowings | (10 000) | (25 000) |
| Net cash provided by financing activities | 17 250 | 40 000 |
Based on the data, the financial stability of the business has
weakened, as there was an increase in debt finance.
remained consistent, as the business has increased its payments to suppliers.
strengthened, as the net cash provided from financing activities has increased.
improved, as the owner did not contribute any further capital in the current year.
Reveal Answer
weakened, as there was an increase in debt finance.
The business significantly increased its borrowing (proceeds of ＄75,000 compared to ＄25,000 in the previous year). Higher reliance on debt financing increases financial risk (gearing), which weakens financial stability.
remained consistent, as the business has increased its payments to suppliers.
Payments to suppliers are classified as operating activities, not financing activities, and are not listed in this extract. The extract shows payments for drawings and loan repayments.
strengthened, as the net cash provided from financing activities has increased.
While the net cash inflow increased, it was driven by taking on more debt. Increased debt obligations generally reduce long-term financial stability, even if they provide immediate liquidity.
improved, as the owner did not contribute any further capital in the current year.
The lack of capital contributions forced the business to rely on external debt to generate cash. Relying on debt rather than equity increases financial risk, rather than improving stability.
The following information is provided for a business.
| Cash flows from operating activities | ＄634 000 |
| Cash inflows from investing activities | ＄425 000 |
| Cash inflows from financing activities | ＄50 000 |
For this business, the greatest increase in the cash generating power ratio would be caused by a
＄500 000 loan from a bank.
＄485 000 increase in net profit.
＄320 000 increase in cash sales.
＄324 000 injection from the sale of a building.
Reveal Answer
＄500 000 loan from a bank.
A bank loan is classified as a financing activity. This increases the total cash inflows (the denominator) while operating cash flows (the numerator) remain unchanged, causing the ratio to decrease.
＄485 000 increase in net profit.
Net profit is an accrual accounting figure that includes non-cash items and credit sales. An increase in net profit does not guarantee a direct or equivalent increase in cash flow from operations.
＄320 000 increase in cash sales.
The cash generating power ratio is calculated as . Cash sales directly increase the numerator (operations) and the denominator; mathematically, adding the same positive value to both the numerator and denominator of a fraction less than 1 increases the value of the fraction.
＄324 000 injection from the sale of a building.
The sale of a building is an investing activity. This increases total cash inflows (the denominator) without affecting operating cash flows (the numerator), which results in a lower ratio.
After completing their final reports for the 2024 financial year, a business has calculated the data shown.
| Data | 2023 | 2024 |
|---|---|---|
| Current ratio | 3.5:1 | 3:1 |
| Turnover of accounts receivable | 90 days | 70 days |
| Turnover of inventories | 5 times | 3.5 times |
| Cash at bank | (＄567 556) | (＄478 321) |
The ratios show that in 2024, accounts receivable are
paying their accounts more slowly and inventory is moving quickly.
paying their accounts more quickly and inventory is moving slowly.
paying their accounts more slowly and inventory turnover has improved.
paying their accounts more quickly and inventory turnover has improved.
Reveal Answer
paying their accounts more slowly and inventory is moving quickly.
This is incorrect because the decrease in accounts receivable days (from 90 to 70) indicates faster payments, not slower, and the decrease in inventory turnover (from 5 to 3.5 times) means inventory is moving slower, not quickly.
paying their accounts more quickly and inventory is moving slowly.
The reduction in accounts receivable turnover from 90 to 70 days means customers are settling debts faster (more quickly). Simultaneously, the decrease in inventory turnover from 5 to 3.5 times indicates that stock is being sold less frequently, meaning it is moving slowly.
paying their accounts more slowly and inventory turnover has improved.
This is incorrect because accounts receivable are being paid faster (fewer days to collect), and a lower inventory turnover ratio (dropping from 5 to 3.5) represents a decline in efficiency, not an improvement.
paying their accounts more quickly and inventory turnover has improved.
While it is true that accounts are being paid more quickly, the inventory turnover has not improved; it has deteriorated from 5 times to 3.5 times, indicating slower sales.
Read Case study 2 (Stimulus 2–3) in the stimulus book.
Prepare a fully classified Statement of Profit or Loss to project the profitability of Business 1 at 30 June 2021 after implementing the proposed changes. Round to the nearest dollar.
Business 1
Statement of Projected Profit or Loss for the year ended 30 June 2021
| ＄ | ＄ | ＄ | |
|---|---|---|---|
Reveal Answer
Adjustments
Marking Bands| Descriptor | Marks |
|---|---|
Correctly identifies the affected accounts and adjusts amounts for 5 accounts | 5 |
Correctly identifies the affected accounts and adjusts amounts for 4 accounts | 4 |
Correctly identifies the affected accounts and adjusts amounts for 3 accounts | 3 |
Correctly identifies the affected accounts and adjusts amounts for 2 accounts | 2 |
Correctly identifies the affected accounts and adjusts amounts for 1 account | 1 |
Does not satisfy any of the descriptors above | 0 |
Classification
Marking Bands| Descriptor | Marks |
|---|---|
Correctly classifies and records revenue and expenses for all 17 accounts | 5 |
Correctly classifies and records revenue and expenses for 14 accounts | 4 |
Correctly classifies and records revenue and expenses for 10 accounts | 3 |
Correctly classifies and records revenue and expenses for 6 accounts | 2 |
Correctly classifies and records revenue and expenses for 3 accounts | 1 |
Does not satisfy any of the descriptors above | 0 |
Profit & Statement
| Descriptor | Marks |
|---|---|
Correctly determines gross and net profit figures | 1 |
Correctly classifies Statement of Profit or Loss | 1 |
List all underlying assumptions you have made in 12a).
Reveal Answer
Depreciation on Vehicle 1 was using the straight-line method.
Purchase of vehicle was paid in cash.
| Descriptor | Marks |
|---|---|
Provides plausible assumptions | 2 |
Provides one plausible assumption | 1 |
Does not satisfy any of the descriptors above | 0 |
Use Stimulus 2 and 3 to propose and justify two strategies to fund the purchase of the second delivery vehicle.
Reveal Answer
Actively manage accounts receivable by following up with outstanding amounts. Tighten credit sales policy, e.g. provide incentives for cash sales or early payment (discount). This will also reduce bad debts and administration loads. Currently, accounts receivable are at ＄52 800, which is 30% of credit sales. Cash collected from outstanding debtors could be used to partially finance the purchase of a new vehicle or purchase a second-hand vehicle.
Sell some or all of the shares held. The shares have a value of ＄17 000 and are returning 4.2% (＄720), so they do not make a high contribution to the overall revenue. They are reported at historical cost, so may be sold at a higher value. The cash flow from selling the shares could be used to partially finance the purchase of a new or used vehicle.
Strategy 1
Marking Bands| Descriptor | Marks |
|---|---|
States a first plausible strategy, explains the first strategy, identifies source of funding in this explanation, supports the first strategy with relevant financial data and information | 4 |
States a first plausible strategy, explains this first strategy, refers to the stimulus | 3 |
States a first plausible strategy, explains this first strategy | 2 |
States a first plausible strategy | 1 |
Does not satisfy any of the descriptors above | 0 |
Strategy 2
Marking Bands| Descriptor | Marks |
|---|---|
States a second plausible strategy, explains this second strategy, identifies source of funding in this explanation, supports this second strategy with relevant financial data and information | 4 |
States a second plausible strategy, explains this second strategy, refers to the stimulus | 3 |
States a second plausible strategy, explains this second strategy | 2 |
States a second plausible strategy | 1 |
Does not satisfy any of the descriptors above | 0 |