IAS 7 - STATEMENT OF CASHFLOWS

Question 1

What is the objective of IAS 7?

Answer 1

to require the presentation of information about the historical changes in cash and cash equivalents of an entity by means of a statement of cash flows, which classifies cash flows during the period according to operating, investing, and financing activities

Question 2

All entities that prepare financial statements in conformity with IFRSs are required to present a statement of cash flows

True or False?

Answer 2

True

Question 3

The statement of cash flows analyzes changes in what during a period?

Answer 3

cash and cash equivalents

Question 4

Comprises cash on hand and demand deposits, together with short-term, highly liquid investments that are readily convertible to a known amount of cash, and that are subject to an insignificant risk of changes in value

Answer 4

Cash and cash equivalents

Question 5

Guidance notes indicate that an investment normally meets the definition of a cash equivalent when it has a maturity of how many months?

Answer 5

Three months or less from the date of acquisition.

Question 6

This investments re normally excluded, unless they are in substance a cash equivalent (e.g. preferred shares acquired within three months of their specified redemption date).

Answer 6

Equity investments

Question 7

Those that are repayable on demand and which form an integral part of an entity’s cash management are also included as a component of cash and cash equivalents.

Answer 7

Bank overdrafts

Question 8

Cash flows must be analyzed between what following three activities?

Answer 8

operating, investing and financing activities

Question 9

Are the main revenue-producing activities of the entity that are not investing or financing activities, and includes cash flows such as cash received from customers and cash paid to suppliers and employees.

Answer 9

Operating activities

Question 10

Are the acquisition and disposal of long-term assets and other investments that are not considered to be cash equivalents.

Answer 10

Investing activities

Question 11

Are activities that alter the equity capital and borrowing structure of the entity.

Answer 11

Financing activities

Question 12

These accounts may be classified as operating, investing, or financing cash flows, provided that they are classified consistently from period to period.

Answer 12

Interest and dividends received and paid

Question 13

These are normally classified as operating, unless they can be specifically identified with financing or investing activities.

Answer 13

Cash flows arising from taxes on income

Question 14

For this type of cash flow activity, the direct method of presentation is encouraged, but the indirect method is acceptable.

Answer 14

Operating cash flows

Question 15

This method shows each major class of gross cash receipts and gross cash payments. This is also called an user-friendly method and would appear something like this:

Cash receipts from customers
Cash paid to suppliers
Cash paid to employees
Cash paid for other operating expenses
Interest paid
Income taxes paid
= Net cash from operating activities

Answer 15

Direct method

Question 16

This method adjusts accrual basis net profit or loss for the effects of non- cash transactions. This is also called an accountant-friendly method and would appear something like this:

Profit before interest and income taxes
Add back depreciation
Add back impairment of assets
Increase in receivables
Decrease in inventories
Increase in trade payables
Interest expense
Less Interest accrued but not yet paid
Interest paid
Income taxes paid
= Net cash from operating activities

Answer 16

Indirect method

Question 17

The exchange rate used for translation of transactions denominated in a foreign currency should be the rate in effect at the date of the cash flows.

True or False?

Answer 17

True

Question 18

Investing and financing transactions which do not require the use of cash should be excluded from the statement of cash flows, but they should be separately disclosed elsewhere in the financial statements.\

True or False?

Answer 18

True

Question 19

Entities shall provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities.

True or False?

Answer 19

True

Question 20

The components of cash and cash equivalents should be disclosed, and a reconciliation presented to amounts reported in the statement of financial position.

True or False?

Answer 20

True

Question 21

The amount of cash and cash equivalents held by the entity that is not available for use by the group should be disclosed, together with a commentary by management.

True or False?

Answer 21

True

Question 22

What are the benefits of cash flow statement?

Answer 22

Provides information that enables users to evaluate the

1. changes in net assets of an entity,
2. its financial structure (including its liquidity and solvency) and
3. its ability to affect the amounts and timing of cash flows in order to adapt to changing circumstances and opportunities

Question 23

Statement of Cash Flows is useful in assessing the ability of the entity to?

Answer 23

1. generate cash and cash equivalents and
2. enables users to develop models to assess and compare the present value of the future cash flows of different entities

Question 24

Statement of Cash Flows also enhances the?

Answer 24

• comparability of the reporting of operating performance by different entities because it eliminates the effects of using different accounting treatments for the same transactions and events.

Question 25

Statement of Cash Flows is useful in checking?

Answer 25

1. the accuracy of past assessments of future cash flows and 2. in examining the relationship between profitability and net cash flow and the impact of changing prices.

Question 26

Cash inflows of operating activities are;

Answer 26

1. Cash received from sales and revenue 2. Collection of AR 3. Refunds from Supplier

Question 27

Cash outflows of operating activities are;

Answer 27

1. Payment to suppliers 2. Payment of operating expenses 3. Payment of interest expense 4. Charity contributions 5. Cash refund from customers

Question 28

Formula to compute for Cash Receipts from Customers

Answer 28

Accounts Receivable, beginning balance Add: Net Sales Less: Accounts Receivable, ending balance =Cash Receipts from Customers

Question 29

Formula to compute Cash Paid to Suppliers

Answer 29

Merchandise Inventory, beginning balance Add: Net Purchases Less: Merchandise Inventory, ending balance Accounts Payable, beginning balance Accounts Payable, ending balance =Cash Paid to Suppliers

Question 30

Formula to compute Cash Paid to Employees

Answer 30

Salaries Payable, beginning balance Add Salaries Expenses Less: Salaries Payable, ending balance Cash Paid to Employees

Question 31

Formula to compute Cash Paid for Other Operating Expenses

Answer 31

Prepaid Operating Expenses, beginning balance Add: Operating Expenses Less: Prepaid Operating Expenses, ending balance Cash Paid for Other Operating Expenses

Question 32

Formula to compute for SCF Indirect Method.

Answer 32

Net Income +Non cash expenses (accumulated dep) = Operating Income before Working Capital Changes +Decrease in current assets (other than cash) - Increase in current assets (other than cash) +Increase in current liabilities -Decrease in current liabilities =Net cash flow from operating activities

Question 33

Cash inflows from investing activities.

Answer 33

1. Cash proceeds from selling productive assets like PPE 2. Cash proceeds from selling investments in equity securities of other companies

Question 34

Cash outflows from investing activities.

Answer 34

1. Payments for the purchase of productive assets like PPE 2. Payment to acquire investments in equity securities

Question 35

Cash inflows from financing activities.

Answer 35

1. Cash investments by the owner 2. Cash proceeds from issuance of share capital 3. Cash proceeds from a long term borrowing

Question 36

Cash outflows from financing activities.

Answer 36

1. Cash withdrawal by the owner 2. Payment of cash dividends 3. Payments of long term borrowing (principal amount only - interest on operating activities)