IAS 7 - STATEMENT OF CASHFLOWS Flashcards

1
Q

What is the objective of IAS 7?

A

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

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2
Q

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

True or False?

A

True

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3
Q

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

A

cash and cash equivalents

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4
Q

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

A

Cash and cash equivalents

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5
Q

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

A

Three months or less from the date of acquisition.

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6
Q

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).

A

Equity investments

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7
Q

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.

A

Bank overdrafts

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8
Q

Cash flows must be analyzed between what following three activities?

A

operating, investing and financing activities

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9
Q

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.

A

Operating activities

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10
Q

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

A

Investing activities

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11
Q

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

A

Financing activities

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12
Q

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

A

Interest and dividends received and paid

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13
Q

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

A

Cash flows arising from taxes on income

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14
Q

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

A

Operating cash flows

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15
Q

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

A

Direct method

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16
Q

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

A

Indirect method

17
Q

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?

A

True

18
Q

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?

A

True

19
Q

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

True or False?

A

True

20
Q

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?

A

True

21
Q

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?

A

True

22
Q

What are the benefits of cash flow statement?

A

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
23
Q

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

A
  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
24
Q

Statement of Cash Flows also enhances the?

A
  • 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.
25
Q

Statement of Cash Flows is useful in checking?

A
  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.
26
Q

Cash inflows of operating activities are;

A
  1. Cash received from sales and revenue
  2. Collection of AR
  3. Refunds from Supplier
27
Q

Cash outflows of operating activities are;

A
  1. Payment to suppliers
  2. Payment of operating expenses
  3. Payment of interest expense
  4. Charity contributions
  5. Cash refund from customers
28
Q

Formula to compute for Cash Receipts from Customers

A

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

29
Q

Formula to compute Cash Paid to Suppliers

A

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

30
Q

Formula to compute Cash Paid to Employees

A

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

31
Q

Formula to compute Cash Paid for Other Operating Expenses

A

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

32
Q

Formula to compute for SCF Indirect Method.

A

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

33
Q

Cash inflows from investing activities.

A
  1. Cash proceeds from selling productive assets like PPE
  2. Cash proceeds from selling investments in equity securities of other companies
34
Q

Cash outflows from investing activities.

A
  1. Payments for the purchase of productive assets like PPE
  2. Payment to acquire investments in equity securities
35
Q

Cash inflows from financing activities.

A
  1. Cash investments by the owner
  2. Cash proceeds from issuance of share capital
  3. Cash proceeds from a long term borrowing
36
Q

Cash outflows from financing activities.

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