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As a first-year accounting student, Irene is confused. She thought she was learning that accrual accounting provided more useful information about the financial performance and position of an organisation than the statement of cash flows. The statement of cash flows is a step in the wrong direction in her opinion. Help Irene with her dilemma.
Question 2 (10 marks) (approximately 500 words) Financial accounting statements tend to reflect past events. In view of this, how can they help a user make a decision when decisions, by their very nature, can only be made about future actions?
Question 3 (10 marks) (approximately 500 words) Critically examine the following statements about depreciation. 1. Depreciation is a valuation adjustment. 2. Depreciation equals physical wear and tear. 3. Depreciation provides funds for replacement. 4. There is no point in depreciating buildings because their value increases.
Question 4 (10 marks) (approximately 500 words) Why would a business choose to make the following entity structure changes? (a) From a proprietorship or partnership to a private company. (b) From a public company to a private company.
Question 5 (10 marks) (approximately 500 words) What information does the cash flow statement provide that is not available from the statement of financial position or the statement of financial performance?
Question 6 (10 marks) (approximately 500 words) What would you expect to observe in the reconciliation of ‘net profit after tax’ to ‘cash flow from operating activities’ over a period of years in a business suffering financial stres