Lecture 8

Question 1

What are the different methods for producing a statement of cash flows?

Answer 1

• Direct method
• Indirect method

Question 2

What are the parts of a cash flow statement?

Answer 2

• Cash from investing activities
• Cash from financing activities
• Cash from operating activities

Question 3

Is repaying trade payables an example of operational or financing activities?

Answer 3

Operational

Question 4

How does the direct method for cash flow statements work?

Answer 4

• Identify cashflows in accounting equation
• Sort into investing / financing / operating

Question 5

What sort of cashflows is the direct method mostly used for?

Answer 5

Investing & financing

Question 6

How does the indirect method for cash flow statements work?

Answer 6

Infer cashflows from income statements & SoFPs

Question 7

What sort of cashflow is the indirect method mostly used for?

Answer 7

Operating

Question 8

Why is the indirect method more suited to operating cashflows?

Answer 8

High volume of operating cashflows - too unwieldy to process directly

Question 9

What type of activities are paying interest & dividends?

Answer 9

Technically financing, but typically classified as operating - IFRS allows either

Question 9

How would investing cashflows be deduced from financial statements?

Answer 9

• Difference in tangible assets (SoFP)
• Difference in financial assets (SoFP)
• Interest / dividend income (income statement)

Question 10

How would financing cashflows be deduced from financial statements?

Answer 10

• Difference in non-current liabilities (SoFP)
• Difference in equity (except retained profit & dividend payments) (SoFP)