Question 1

Cash flow from operating activities is the default classification in a statement of cash flows.

Accepted Answer

Cash flow from operating activities is the default classification in a statement of cash flows as it represents the cash flows generated or used in the operations of the business. However, under certain circumstances, cash flows may be classified under investing or financing activities.

Question 2

A Ltd acquires 100% of shares of B Ltd for $195 000,financed by an issue of 100 000 x $1.50 shares and $45 000 cash.B Ltd has cash balances of $35 000 at the date of acquisition.Which amount will A Ltd record for cash flow from investing in its consolidated statement of cash flows?
A) ($195 000)
B) ($450 000)
C) ($10 000)
D) ($35 000)

Accepted Answer

A Ltd will record the cash flow from investing activities as the net cash paid for the acquisition, which is the cash paid ($45,000) minus the cash acquired from B Ltd ($35,000), resulting in a net cash outflow of $10,000.

Question 3

The carrying amount of property,plant and equipment is $1000 at the start of the year and $1400 at the end of the year.During the year,the following occurred: Sale of equipment-carrying amount $40
Acquisition of equipment-financed by share issue $200
Depreciation expense for year-$120
Investing cash flow is:
A) ($400).
B) ($200).
C) ($160).
D) ($360).

Accepted Answer

The change in carrying amount of property, plant and equipment is $1400 - $1000 = $400. This includes the sale of equipment for $40, which means the net change due to other transactions is $400 - $40 = $360. The acquisition of equipment financed by share issue is a non-cash transaction, so it is not included in investing cash flow. The depreciation expense for the year is also a non-cash transaction and is not included in investing cash flow. Therefore, the net change in property, plant and equipment due to investing activities is ($360).

Question 4

AASB 107 requires the use of the direct method of calculating cash flows from operating activities.

Accepted Answer

AASB 107 - Statement of Cash Flows requires the use of the direct method for calculating cash flows from operating activities. This method involves presenting the actual cash inflows and cash outflows from operating activities, rather than simply adjusting or reconciling profit or loss to net cash flow.

Question 5

Which of the following items must be separately disclosed in a statement of cash flows?
A) Interest paid and received
B) Dividends paid and received
C) Both A and B
D) No separate disclosure required

Accepted Answer

Both interest paid and received and dividends paid and received must be separately disclosed in a statement of cash flows. This is because they are considered cash flows from investing or financing activities and are separate from the operating cash flows section.

Question 6

The issue of shares to purchase non-current assets will be disclosed:
A) as a financing activity.
B) as an investment activity.
C) as both a financing and investment activity.
D) in the note disclosure to the statement of cash flows.

Accepted Answer

Issuing shares to purchase non-current assets does not directly affect cash flow, hence it is not classified under financing or investing activities in the statement of cash flows. Instead, it is disclosed in the notes to the statement of cash flows to provide additional information about the transaction.

Question 7

Discuss the basis of classifying cash flows arising from interest paid.

Accepted Answer

The answer of Discuss the basis of classifying cash flows...

Question 8

Why is cash flow from operating activities seen as a performance measure?

Accepted Answer

The answer of Why is cash flow from operating activities...

Question 9

Accounting Standard AASB 107 Statement of Cash Flows mandates the provision of cash flow information from operating,financing and investing activities.

Accepted Answer

AASB 107 Statement of Cash Flows does mandate the provision of cash flow information from operating, financing, and investing activities.

Question 10

Cash flows from operating activities can be calculated using:
A) the direct method.
B) the indirect method.
C) either the direct or indirect method.
D) none of the above.

Accepted Answer

Cash flows from operating activities can be calculated using either the direct or indirect method, so both options are valid. The direct method reports cash receipts and payments directly related to operating activities, while the indirect method adjusts net income for non-cash items and changes in current assets and liabilities to arrive at the operating cash flow. Each method has its advantages and disadvantages, but both ultimately provide useful information for analyzing the cash flows of a business.

Question 11

The purpose of holding a cash equivalent is irrelevant for the classification in the statement of cash flows.

Accepted Answer

The purpose of holding a cash equivalent is relevant for its classification in the statement of cash flows because it determines how the cash flows are presented (operating, investing, or financing activities).

Question 12

A company calculates its cash flows from operating activities as profit +/- accruals.This is:
A) the direct method.
B) the indirect method.
C) neither the direct or the indirect method.
D) none of the above.

Accepted Answer

The formula of calculating cash flows from operating activities as profit +/- accruals is indicative of the indirect method of cash flow statement preparation. The direct method involves calculating cash inflows and outflows directly from operating activities without using accruals. Therefore, option B is the correct choice.

Question 13

A company holds $100 000 in a term deposit account as an interest-generating investment.For purposes of the statement of cash flows,the term deposit will be classified as:
A) a cash equivalent.
B) an investment.
C) either a cash equivalent or an investment.
D) none of the above.

Accepted Answer

The term deposit account is an investment, as it generates interest for the company. It is not considered a cash equivalent because it is not readily convertible into cash without a significant risk of changes in value. Therefore, the term deposit account should be classified under the "investing activities" section of the statement of cash flows.

Question 14

Insurance proceeds from the destruction of a factory by fire would be classified as:
A) operating cash flow.
B) financing cash flow.
C) investing cash flow.
D) none of the above.

Accepted Answer

The answer of Insurance proceeds from the destruction of a...

Question 15

A company records a net profit of $220 for the year.Other information for the year: Depreciation expense $40
Increase in accounts receivable $60
Decrease in accounts payable $30
Cash flow from operating activities is:
A) $260.
B) $330.
C) $270.
D) $170.

Accepted Answer

Cash flow from operating activities is calculated by adjusting net profit for non-cash expenses and changes in working capital. Starting with net profit of $220, add back depreciation of $40 (a non-cash expense), subtract the increase in accounts receivable of $60 (as it represents cash not yet received), and subtract the decrease in accounts payable of $30 (as it represents cash paid out). This results in a cash flow from operating activities of $170.

Question 16

Cash payments to buy back shares will be classified as:
A) cash flow from operating activities.
B) cash flow from investing activities.
C) cash flow from financing activities.
D) none of the above.

Accepted Answer

Cash payments to buy back shares represent the use of cash to reduce the equity component of the company's balance sheet. Thus, they are classified as cash flow from financing activities.

Question 17

Discuss why Australia moved from a requirement to prepare a statement of sources and application of funds to a statement of cash flows.

Accepted Answer

The answer of Discuss why Australia moved from a requirement...

Question 18

A statement of cash flows can be prepared using:
A) the reconstruction of ledgers approach.
B) the formula approach.
C) the spreadsheet approach.
D) all of the above.

Accepted Answer

All of the mentioned approaches (reconstruction of ledgers, formula, and spreadsheet) are valid methods for preparing a statement of cash flows. Each approach offers a different way to analyze and present the cash inflows and outflows of a business over a period.

Question 19

The time to maturity is relevant in the classification of cash equivalents.

Accepted Answer

The time to maturity is a key factor in determining whether an investment can be classified as a cash equivalent. Cash equivalents are short-term and highly liquid investments that can be easily converted to cash, typically within 90 days or less from the date of purchase. Therefore, if an investment has a maturity date beyond 90 days, it would not be classified as a cash equivalent.

Question 20

The classification of an item as a cash equivalent means that changes in the balance:
A) will be disclosed in the statement of cash flows.
B) will not be disclosed in the statement of cash flows.
C) may be disclosed at discretion of the entity.
D) none of the above.

Accepted Answer

Cash equivalents are highly liquid investments that can be quickly converted into cash, typically with maturities of three months or less at the time of purchase. Changes in the balance of cash equivalents are not disclosed in the statement of cash flows as they are already part of the cash and cash equivalents balance.

Quiz 7: Consolidated Cash Flow Statements

Cash flow from operating activities is the default classification in a statement of cash flows.

A Ltd acquires 100% of shares of B Ltd for $195 000,financed by an issue of 100 000 x $1.50 shares and $45 000 cash.B Ltd has cash balances of $35 000 at the date of acquisition.Which amount will A Ltd record for cash flow from investing in its consolidated statement of cash flows?

AASB 107 requires the use of the direct method of calculating cash flows from operating activities.

Which of the following items must be separately disclosed in a statement of cash flows?

The issue of shares to purchase non-current assets will be disclosed:

Discuss the basis of classifying cash flows arising from interest paid.

Why is cash flow from operating activities seen as a performance measure?

Accounting Standard AASB 107 Statement of Cash Flows mandates the provision of cash flow information from operating,financing and investing activities.

Cash flows from operating activities can be calculated using:

The purpose of holding a cash equivalent is irrelevant for the classification in the statement of cash flows.

A company calculates its cash flows from operating activities as profit +/- accruals.This is:

A company holds $100 000 in a term deposit account as an interest-generating investment.For purposes of the statement of cash flows,the term deposit will be classified as:

Insurance proceeds from the destruction of a factory by fire would be classified as:

A company records a net profit of $220 for the year.Other information for the year: Depreciation expense $40 Increase in accounts receivable $60 Decrease in accounts payable $30 Cash flow from operating activities is:

Cash payments to buy back shares will be classified as:

Discuss why Australia moved from a requirement to prepare a statement of sources and application of funds to a statement of cash flows.

A statement of cash flows can be prepared using:

The time to maturity is relevant in the classification of cash equivalents.

The classification of an item as a cash equivalent means that changes in the balance: