Question 1

In accordance with IAS 7 Statement of Cash Flows,dividends paid may be classified as an investing or a financing cash flow.

Accepted Answer

Dividends paid are always classified as a financing cash flow in the statement of cash flows under IAS 7.

Question 2

In accordance with IAS 7 Statement of Cash Flows,cash payments to suppliers for goods and services are classified as cash flows from operating activities.

Accepted Answer

Cash payments to suppliers for goods and services are part of a company's normal, day-to-day operations and are therefore classified as cash flows from operating activities in accordance with IAS 7.

Question 3

To calculate the cash flow from the issue of debentures,the face value of the debentures would have to be adjusted by deducting any premium or adding any discount on issue.

Accepted Answer

The cash flow from the issue of debentures is calculated based on the actual cash received from the issue, which includes the face value plus any premium received or minus any discount given at the time of issue, not by adjusting the face value itself.

Question 4

Entities are encouraged to report their operating cash flows using the direct method.

Accepted Answer

The direct method is encouraged by accounting standards as it provides a more accurate and transparent view of a company's operating activities by showing the actual cash inflows and outflows. However, entities may choose to use the indirect method if they find it more practical or cost-effective.

Question 5

Both IASB and FASB propose that financial statements should be presented in a more aggregated manner.

Accepted Answer

IASB and FASB have been working towards improving the clarity and usefulness of financial statements, which includes enhancing disaggregation of information to provide more detailed and relevant data to users, rather than proposing more aggregated presentations.

Question 6

IAS 7 requires disclosures about non-cash financing and investing activities.

Accepted Answer

IAS 7 requires disclosures about non-cash financing and investing activities, including the nature and terms of such activities and any significant restrictions or obligations associated with them. It also requires disclosure of the amount of cash and cash equivalents acquired or disposed of through those activities.

Question 7

Accounts that represent cash or cash equivalents include:
A)bank overdrafts.
B)accounts receivable.
C)short-term money market deposits.
D)bank overdrafts and short-term money market deposits.

Accepted Answer

The answer of Accounts that represent cash or cash equivalents...

Question 8

If a business consistently has positive cash flows from financing and negative cash flows from investing and operating activities,this is a positive sign for the business.

Accepted Answer

Consistently having positive cash flows from financing means that the business is borrowing money or issuing stocks to raise funds. This is not sustainable in the long run and can lead to high levels of debt. On the other hand, consistently having negative cash flows from investing and operating activities means that the business is spending more money on investments and operating expenses than it is generating from its operations. This can also be a red flag and suggest issues with profitability and efficiency. Therefore, having positive cash flows from financing and negative cash flows from investing and operating activities is not necessarily a positive sign for a business.

Question 9

While the statement of cash flows is presently required along with the accrual statements,taking a balanced view,it would be sufficient to meet the accountability needs of general purpose financial statement users on its own.

Accepted Answer

While the statement of cash flows provides important information about a company's cash flows, it does not provide a complete picture of its financial performance or position. The accrual statements, including the income statement and balance sheet, are necessary to provide a more comprehensive view of the company's financial situation.

Question 10

Investing activities are defined by IAS 7 as those that:
A)relate to the changing size or composition of the capital management structure of the entity.
B)relate to the acquisition or disposal of inventory.
C)relate to the acquisition and/or disposal of non-current assets and other investments not included in cash equivalents.
D)relate to changes in capital or liabilities used to fund long-term assets.

Accepted Answer

Investing activities are defined as those that relate to the acquisition and/or disposal of non-current assets and other investments not included in cash equivalents. Option A refers to capital management activities, option B refers to operating activities, and option D refers to financing activities.

Question 11

The statement of cash flows should be subdivided into selling,financing and investing categories.

Accepted Answer

The statement of cash flows is subdivided into operating, financing, and investing categories.

Question 12

In accordance with IAS 7,non-cash investing and financing transactions are required to be included in the statement of cash flows.

Accepted Answer

Non-cash investing and financing transactions are not included in the statement of cash flows but are disclosed elsewhere in the financial statements, typically in the notes.

Question 13

IAS 7 states that for a money market deposit to be classified as cash:
A)It must normally have a maturity of 3 months or less from the date of acquisition.
B)It must be scheduled to mature within the operating cycle of the entity.
C)It must normally mature 3 months or less from balance date.
D)It must be within 1 month of maturing at balance date.

Accepted Answer

IAS 7 states that cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. They are typically investments with original maturities of three months or less from the date of acquisition.

Question 14

Sharma (1996)argues that cash flows from operating activities divided by current debt should replace the current ratio as a measure of liquidity.

Accepted Answer

The answer of Sharma (1996)argues that cash flows from operating...

Question 15

All cash flows from investing and financing activities are required to be reported on a gross basis.

Accepted Answer

Not all cash flows from investing and financing activities are required to be reported on a gross basis. Some are reported on a net basis, depending on the nature of the transactions and the specific requirements of the accounting standards.

Question 16

In accordance with IAS 7 Statement of Cash Flows,cash receipts from sales of property,plant and equipment are classified as cash flows from operating activities.

Accepted Answer

Cash receipts from sales of property, plant, and equipment are classified as cash flows from investing activities according to IAS 7.

Question 17

A reporting entity is required to prepare a statement of cash flows that is in accordance with the requirements of IAS 7 and shall be presented as an integral part of the notes to the accounts.

Accepted Answer

A statement of cash flows is required by IAS 7 to be presented as a primary financial statement, not as part of the notes to the accounts.

Question 18

A statement of cash flows is a forecast of net cash flows from operating,investing and financing activities.

Accepted Answer

A statement of cash flows is not a forecast, but rather a report that shows the actual cash flows from operating, investing and financing activities over a specific period of time.

Question 19

An item considered to be a cash equivalent in one company may not be considered as such in another.This is because:
A)The operating cycle varies between companies.
B)Companies have different balance dates and this will affect the measurement of the term to maturity.
C)Companies use highly liquid items for purposes other than as part of their cash-management function.
D)The working capital management policies of companies vary so an item may be considered very liquid in one company and not in another.

Accepted Answer

The answer of An item considered to be a cash...

Question 20

IAS 7 defines cash equivalents to include:
A)highly liquid investments with short periods to maturity that are readily convertible to cash on hand at the investor's option and are subject to an insignificant risk of changes in value.
B)term borrowing.
C)working capital items such as prepayments and accruals.
D)highly liquid investments with short periods to maturity that are readily convertible to cash on hand at the investor's option and are subject to an insignificant risk of changes in value and term borrowing.

Accepted Answer

IAS 7 defines cash equivalents as highly liquid investments with short periods to maturity that are readily convertible to cash on hand at the investor's option and are subject to an insignificant risk of changes in value.

Quiz 16: The Statement of Cash Flows