Chapter 5: The Statement of cash flows

Question 1

IAS 7 Cash flows

Answer 1

standard provides us with guidelines for the presentation of the statement of cash flows

Question 2

Operating activities

Answer 2

Cash flows from normal revenue activities of the business

Indirect method - net profit is adjusted for non cash items and workings capital adjustments

Direct method - Shows actual cash receipts and payments from customers and to suppliers

Question 3

Indirect method

Answer 3

net profit is adjusted for non cash items and workings capital adjustments

Question 4

Direct Method

Answer 4

Shows actual cash receipts and payments from customers and to suppliers

Question 5

Investing activities

Answer 5

cash flows from acquisitions and disposal of non current assets and cash return from investments (dividends and interest)

Question 6

Financing activities

Answer 6

cash flows which change the size and composition of the contributed equity (Share capital) and borrowings of the equity

Question 7

what happens if an asset increases or a liability increases?

Answer 7

asset increase - take away

Liability increases - add

Question 8

operating cash flows using indirect method

Answer 8

starts with profit before interest and tax and then adjusts for :

non - cash items - for example depreciation / profit and loss on sales of assets

Items that are dealt with elsewhere - i.e investment income

Working capital movements

Question 9

If a non cash item reduces profit …

Answer 9

add back

Question 10

If a non cash item increases profit

Answer 10

take away

Question 11

interest paid and income taxes paid

Answer 11

After cash generated from operations, interest paid and tax paid must be deducted

Once happened everything will be on a cash basis