From my experience, the account "Interest Receivable" contains interest actually received, and, if appropriate, an adjustment for earned but not received.. I am sure they would tell you, if there was an accrued income adjustment within it?  

 

But thats just me looking at it from a profit and loss point of view.. Im not ACCA, so perhaps when talking about it as an asset, its a different definition?

-- Edited by FoxAccountancyServices on Sunday 5th of May 2013 07:55:28 PM

"Is it that the £13000 is the difference between an opening and closing balance? And so cash has gone up by £13k based on the change?"

It just gives that as an extract amoung other things from the financial statements, no other information. It was for a multiple choice exam so that

"But thats just me looking at it from a profit and loss point of view.. Im not ACCA, so perhaps when talking about it as an asset, its a different definition?"

ACCA don't have standard ways of presenting questions as far as i can see. How the questions are presented is the hardest thing I've encountered so far at least for the multiple choice exams.

"From my experience, the account "Interest Receivable" contains interest actually received" this is interesting, thanks.

When i google it, it is defined as interest due but not received. Which makes sense, because why else call it receivable. Call it interest income, or interest received..

Doesn't help that its a trick question to find out if you know what should come under investing as opposed to financing and operating activities.

First up look for movements.

The Accruals position has changed by an outflow of £3,700

everything else can actually be argued!

Interest paid is considered by many an operating activity but as such is the result of financing the business then an equal arguement exists for interest paid to be classified as a financing activity.

Interest receieved may be considered an operating activity or an investing activity

A similar debate exists for dividends.

In the case shown you have dividends paid of £600,000 taking us to an investing activities outflow for the period of £603,700.

Now what about that Interest payable / receivable?

The tempation is to set them off against each other but that would not be right in that the interest payable is a financing activity where the interest receivable can be argued to be an investing activity (and both can be argued to be operating activities).

Therefore we have an investing inflow of £13k taking our answer to £590,700.

So my answer would be (D).

That is my answer, I can argue it but it may not be the same answer that the examiner has as with Cashflow statements some of the classifications are not set in stone.

It could of course also be argued the the interest paid and received are operating activities in which case they would be offset, not effect investing activities and your answer would have been (C) rather than (D).

In an exam you can generally state your reasoning and even though answers may not be the same as those that the examiner has, if your reasoning is good enough you will still pick up the points.

My reading of the above is that the Interest payable and the movement in preference dividends are financing rather than investing activities.

My reasoning behind not treating the words payable and receivable as pending movements is that interest accrual is shown seperately.

HTH,

Shaun.

p.s. welcome to ACCA style questions! At times you seem to spend half of the exam trying to figure out what the question actually is and the rest of it looking for the twist where you are being led towards an obvious answer that's the wrong one.
That said, if ACCA had join the dots style questions as some other bodies do then that wouldn't make very good accountants. Also, you get to explain why you came to the conclusions that you did and you can pick up the marks for an answer different to the one expected if you argue your conclusions well enough.

p.s.2 accidentally wrote paid rather than received in one of the interest paragraphs.... My brain and fingers are just acquintances and occassionally one doesn't seem to do what the other is telling it.

p.s.3 Also added the arguement to show my point about different equally valid answers, of how one could justify (C) as the answer by offsetting the interest as operating activities.

-- Edited by Shamus on Monday 6th of May 2013 01:20:49 PM

Morning :)

It hard to help, as I cant see what you are looking at, to be able to put it into context, and I am not quite sure if you are trying to answer the question, or if you simply think the ACCA kit is wrong because it has treated the £13k as cash inflow?

I'm AAT and my clients are all non audit, so I havent needed to do a Cashflow statement in yeeeeeeears. My thought about the different definition was mainly related to the fact that you are doing cashflow statements, and maybe on that document Interest Receivable means earned but not received? If the extract is from the profit and loss, yes it can be received and owed interest. If its a balance sheet item, its probably the debtor, in which case yes, it would be income earned but not received.


You originally said:
----------------------------------------------------------------------------------------------
It gives the extract:
Interest receivable..............13,000

And treats this as part of net cash inflow for Investing Activities.
----------------------------------------------------------------------------------------------

This suggests that the £13k has then been shown as an extract of the cashflow statement - which might mean that the balance sheet debtor fell year on year...

Lets say in 2012 there was "Debtor - Interest Receivable" on the balance sheet of £20000 and by 2013 it was only £7000 - then the cash inflow has increased by £13000.

(That's how I understand it.)

However, then in your last post you said -
------------------------------------------------------------------------------------------------
It just gives that as an extract amoung other things from the financial statements, no other information.
------------------------------------------------------------------------------------------------

Are you deciding whether it should be included on the cashflow statement? If you are looking at information from financial accounts, is it telling you that its from the balance sheet? Does it give you balance sheet that shows 2 years figures?? I think then you would want to calculate the increase/decrease.

I hate it when questions leave you confused. :$ I cant answer the question for you as much as I'd love to, but hopefully my comments will trigger a thought train and you will have the light bulb moment :)

Failing that, ask your boss tomorrow :)

Hi Michelle,

no, your not mad but the ACCA don't use USGAAP (who would as it's rules rather than principles based... And yes, I'm saying that all those Americans are wrong, lol).

The question is international. The answer that I gave was per IAS7 (rather than FRS1).

Dollar rather than pound signs are used in all ACCA questions now to denote that international rather than local standards are being used.

As for the interest receivable, it doesn't come into the question anyway as that would be a financing rather than investing cashflow.

Soar has the answer so interested to know how the book thinks that the answer should be.

Personally I think D, can see an arguement for C but don't think that A or B are correct although happy to be told with reasoning that I am wrong.

kind regards,

Shaun.

"As for the interest receivable line that is quite bad wording in the question but the inclusion of a seperate interest accrual does indicate what they meant rather than what was written."

Ahh I didnt register this, so there is a T-account named Interest Accruals, and a T-account named Interest Receivable. I was trying to put the interest accruals bf and cf in the Interest Receivable account which didnt help me figure out what they meant.

Glad you enjoyed it, it was the f3 Kaplan exam kit. I have the most recent one and the one before and they are identical except the recent one has 6 questions added on to the end of the 252.

Not sure about kaplan. I will be looking at other options for the next books I buy though.

But yes they update every year for the sake of 6 questions or a few paragraphs in a study text, which is fine i guess, but people should know that this is the case and feel comfortable buying secondhand texts (tons on amazon for example). At least, somehow, it should be clear what they are missing out on, so they can make an easy decision.