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Answers to supplementary objective test questions

17.2 D Capital = net assets

If a supplier is paid by cheque, assets reduce as do liabilities, therefore there is
no change to net assets.

If raw materials or non-current assets are purchased on credit, assets increase
as do liabilities; again there is no change to net assets.

If wages are paid in cash, assets decrease (the other effect is to reduce profits
which in turn reduces capital).

CHAPTER 18 – THE STATEMENT OF CASH FLOWS

18.1 D $320,000

$
Issue of shares 170,000

Issue of loan notes 150,000
–––––––
320,000

–––––––
Interest paid is included within the ‘operating activities’ heading of the cash flow
statement.

18.2 C

Bonus issues do not involve the transfer of cash, whereas rights issues result in
a cash inflow.

The revaluation of non-current assets does not involve the transfer of cash.

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