Cash Flow

Question 1

What is the affect of buying a three months treasury bill on SCF

Answer 1

No Affect - Cash will be reduced but cash equivalent will increase resulting in no net affect.

Question 2

what is the criteria for classifying Tbills as CE?

Answer 2

The maturity from the date of purchase should be 3 months or less.

A t-bill that had a maturity of 4 months on the date of purchase does not become a CE after holding it for a month. Term on the date of purchase is important

Question 3

How does the indirect method show the operating cashflows?

Answer 3

1. the OCF by classes of source and uses
2. the reconciliation of net income and net operating cashflow.
3. It does not therefore the actual operating cashflow.

Question 4

What does the investing category of SCF relate to?

Answer 4

It reports cfs that relate to

1. “investing in”
2. Disposal of noncash assets

Question 5

How does indirect method report interest expense and income tax payments?

Answer 5

Since indirect method does not report actual operating cash flow it discloses interest payments and income tax payment in the disclosure.