Skip to content

ACCA Applied Knowledge · Financial Accounting · Statement of cash flows (excluding partnerships)

Omega Co's retained earnings were $310,000 at 1 January and $365,000 at 31 December. Profit for the year was $95,000. There was no other movement in equity apart from dividends. Dividends declared were all paid during the year. Omega's income tax payable was $22,000 at 1 January and $30,000 at 31 December, and the tax charge in profit or loss was $40,000. What was the cash paid for tax?

Tax paid is the opening liability plus the profit or loss charge minus the closing liability. Here 22,000 plus 40,000 minus 30,000 equals 32,000. Using the charge alone or reversing the liability movement would give wrong figures; dividends are unrelated to the tax calculation.

  1. A$32,000Correct
  2. B$48,000
  3. C$40,000
  4. D$30,000

Explanation

Tax payable account: opening 22,000 + charge 40,000 - paid = closing 30,000, so paid = 32,000. The $48,000 option reverses the sign of the movement in the liability. The $40,000 option uses the charge unadjusted. The dividend data (95,000 - 55,000 = 40,000 paid) is irrelevant to tax.

Did you get it right without looking?

One question tells you little. A timed set on Statement of cash flows (excluding partnerships) shows your real accuracy, how long you take and where you lose marks.

Practise Statement of cash flows (excluding partnerships)Free diagnostic mock

More Statement of cash flows (excluding partnerships) questions