Question 1

In accordance with AASB 107 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 considered as part of operating activities because they are part of the day-to-day operations of the business.

Question 2

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 3

The statement of cash flows effectively provides a reconciliation of the opening and closing cash balances in the statement of financial position.

Accepted Answer

The statement of cash flows shows the sources and uses of cash during a period, which ultimately results in the change in cash balance from the beginning to the end of the period. Therefore, it effectively reconciles the opening and closing cash balances presented in the statement of financial position.

Question 4

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

The statement of cash flows provides important information about cash inflows and outflows, but alone it may not provide enough information for users to fully understand a company's financial performance and health. The accrual statements, such as the income statement and balance sheet, provide complementary information about revenues, expenses, assets, and liabilities that help users make informed decisions. Therefore, a balanced view would suggest that both the cash flow statement and accrual statements are necessary to meet the accountability needs of general purpose financial statement users.

Question 5

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

Accepted Answer

Direct method provides more detailed information about cash inflows and outflows from operating activities, making it a preferred method for reporting operating cash flows.

Question 6

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 7

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 8

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 9

In accordance with AASB 107 Statement of Cash Flows,a bonus share issue is to be classified under financing activities.

Accepted Answer

A bonus share issue does not involve cash flows and therefore is not reported in the statement of cash flows under any category, including financing activities.

Question 10

AASB 107 requires ledger accounts to be reconstructed in order to calculate cash flows from operating activities.

Accepted Answer

AASB 107 (Statement of Cash Flows) does not require the reconstruction of ledger accounts but rather the presentation of cash flows during the period, classified by operating, investing, and financing activities, which can be prepared using either the direct or indirect method for operating activities.

Question 11

A reporting entity is required to prepare a statement of cash flows that is in accordance with the requirements of AASB 107 and shall be presented as an integral part of the notes to the accounts.

Accepted Answer

A statement of cash flows is required to be prepared in accordance with AASB 107, but it is presented as a primary financial statement rather than as part of the notes to the accounts.

Question 12

The statement of cash flows is argued by researchers to be a more reliable statement than accrual statements.

Accepted Answer

The statement of cash flows is considered to be a more reliable statement than accrual statements because it shows the actual cash flow movements in and out of the organization during a given period, which can help in identifying potential cash flow problems and assessing liquidity. Accrual-based financial statements, on the other hand, are prepared on the basis of accrual accounting principles, which may involve assumptions and estimates and do not provide a true picture of cash flows.

Question 13

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 14

In accordance with AASB 107 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 AASB 107 Statement of Cash Flows.

Question 15

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 of actual net cash flows that occurred during a specific period of time. It reflects the inflow and outflow of cash from operating activities (such as sales and expenses), investing activities (such as buying or selling assets), and financing activities (such as issuing or repaying debt or issuing or repurchasing stock).

Question 16

In accordance with AASB 107 Statement of Cash Flows,dividends paid may be classified as an investing or a financing cash flow.

Accepted Answer

Dividends paid are classified as a financing cash flow in the statement of cash flows. Investing activities involve the acquisition and disposal of long-term assets and investments, while financing activities involve obtaining or repaying funds to finance the operations of the business.

Question 17

To calculate the cash flow associated with an accrued expense,any increase in the associated liability should be added to the expense.

Accepted Answer

Accrued expenses are already reflected in the income statement as expenses when incurred, not when paid. Therefore, an increase in the accrued expenses liability does not affect the cash flow directly since it represents expenses that have been recognized but not yet paid in cash.

Question 18

AASB 107 requires disclosures about non-cash financing and investing activities.

Accepted Answer

AASB 107 requires entities to disclose information about non-cash items related to financing and investing activities, such as the acquisition of assets through lease agreements or the issuance of shares in exchange for property. This information provides users of financial statements with a more complete understanding of an entity's financing and investing activities.

Question 19

In accordance with AASB 107,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 required to be included in the statement of cash flows according to AASB 107; instead, they should be disclosed elsewhere in the financial statements.

Question 20

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...

Quiz 19: The Statement of Cash Flows