SOCF Flashcards
Why are the users of the accounting information are particularly interested in the enterprise’s cash flows?
Assess the ability of the enterprise to remain solvent - pay its expenses, repay debts and provide returns to creditors and investors.
What kind of statement is providing information about the historical changes in cash and cash equivalents of an enterprise during the reporting period?
Statement of cash flow
The users of an enterprise’s financial statements are interested in?
How enterprise generates and uses cash & cash equivalents
The statement of cash flows, when used in conjunction with the rest of the financial statements enables users to?
(1) Evaluate the changes in net assets of an enterprise financial structure
This statement provides a cash balance at the reporting date, but it does not provide information on what happened during the period to arrive at the cash balance?
sofp
This statement provides information about income and expenses, but it does not provide information on how much income results in cash inflow and how much expenses result in cash outflow?
soci
What are the two things that only a cash flow statement tells?
Cash receipts and cash payments
Cash equivalents are short-term, highly liquid investments that are both?
(a) readily convertible to known amounts of cash
(b) are subject to an insignificant risk of changes in value
How do we qualify investments as a cash equivalent?
(a) short maturity - (90 days)3 months or less, from the date of acquisition
Where should the enterprise also disclose the policy that it adopts in determining the composition of its cash and cash equivalents?
Notes to fs
What is cash flow activity?
It is a transaction that results in inflow or outflow of cash and cash equivalents
What is a transaction that results in inflow or outflow of cash and cash equivalents?
Cash flow activity
What is not considered cash flow activities?
Conversion of cash into cash equivalents and conversions of cash equivalents into cash
The purchase of an instrument is classified as a?
Cash equivalent NOT a cash flow activity
The termination of investment placements is classified as?
Cash flows equivalents into cash is NOT a cash flow activity
Interest received is classified as?
it increases cash & cash equivalents, therefore as a cash inflow
The statement of cash flows should report cash flows during the period classified into?
(a) operating activities
(b) investing activities
(c) financing activities
The classification by activity provides information that allows users to?
(a) assess the impact of those activities on sofp
(b) amount of cash & cash equivalents
What is the general condensation format of a statement of cash flows?
Cash flows from:
Operating activities Pxx
Investing activities xx
Financing activities xx
Net increase (decrease) in cash & cash equivalents Pxx
Cash & cash equivalents at beginning of period xx
Cash & cash equivalents at end of period Pxx
The bottom figure in the statement of cash flows is the amount of cash & cash equivalents that are reported in the entity’s statement of?
Financial position
It is a key indicator of the extent to which the operations of the enterprise have generated sufficient cash flows to repay loans, maintain operating capability of the enterprise, pay dividends, and make new investments?
Operating activities
Operating activities is a key indicator of the extent to which the operations of the enterprise have generated sufficient cash flows to?
(a) repay loans
(b) maintain operating capability of the enterprise
(c) pay dividends
(d) make new investments
Cash flows from operating activities are primarily derived from the?
Principal revenue - producing activities of the enterprise
it generally results from the transactions and other events that enter into the determination of profit or loss?
Cash flows
Example of what is included in the determination of profit or loss that may give rise to a gain or loss?
A sale of an item of plant
What statement of cash flows relating to a sale of an item of plant?
Investing activities
What statement of cash flows relating with non-trade creditors?
Financing activities
This represents the extent to which expenditures have been made for resources intended to generate income & cash flows?
Investing activities
What are investing activities?
expenditures have been made for resources intended to generate income & cash flows
These statements of cash flows activities affect what?
non-trade assets, most of which are classified as non-current
What are financing activities?
useful in predicting claims on future cash flows by providers of capital to the enterprise
This is useful in predicting claims on future cash flows by providers of capital to the enterprise?
Financing activities
Cash flows from financing activities are cash flow transactions with?
Non-trade creditors and shareholders
Cash flows from interests and dividends received and paid shall each be disclosed?
separately
Interest and dividends shall be classified in what manner from period to period as either operating, investing or financing activities?
Consistent manner
How do you classify interest paid and interest and dividends received in entering the determination of profit or loss?
Operating activities
Interest paid is considered to be a burden of financing, hence, it is alternatively shown under?
Financing activities
How do you classify interest and dividends received that are considered as fruits of investments?
Investing activities
This total amount during a reporting period is disclosed in the statement of cash flows, whether the interest is recorded as expense or capitalized in accordance with IAS 23 Borrowing costs?
Interest paid
These are distributions to shareholders, who are considered to be providers of finance?
Dividends paid
Generally, dividends paid are classified as?
Financing activities
When do dividends paid can be classified as operating activities?
When it assist users to determine the ability of an enterprise to pay dividends out of operating cash flows
Cash flows arising from taxes on income should be?
Separately disclosed
Cash flows arising from taxes on income are generally classified as?
Operating activities
When it is practicable to identify the tax cash flows as investing or financing activities?
With an individual transaction that gives rise to cash flows
These cash flows should be translated into an enterprise’s reporting currency?
Foreign currency and foregin subsidiary
Can unrealized gains and losses arising from the changes in foreign currency exchange rates be considered to be cash flow?
NO
Where should be reported the effect of exchange rates that changes on cash & cash equivalents held or due in foreign currency in order to reconcile cash & cash equivalents at the beginning and end of the period?
socf
Are the events about investing and financing activities of an enterprise during a period that affect recognized assets or liabilities but do not result in cash receipts or cash payments should be reported in the statement of cash flows?
NO
An enterprise should report cash flows from operating activities using either of?
(1) Direct method (2) indirect method
It is where major classes of gross cash receipts and gross cash payments are disclosed?
Direct method
What is the direct method?
It is whereby major classes of gross cash receipts and gross cash payments are disclosed
Is the where the profit or loss is adjusted for the effect of transaction of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows?
Indirect method
What is an indirect method?
profit or loss is adjusted for the effect of transaction of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows
What does the direct method have that indirect method cannot provide?
Direct method provides information that may be useful in estimating future cash flows that are not available under the indirect method
Direct method shows each major class of?
Cash receipts and cash payments
Under this method the net cash flow from operating activities is determined by adjusting the profit or loss?
Indirect method
Under the indirect method the net cash flow from operating activities is determined by adjusting the profit or loss for the effects of?
(a) Changes in current assets (other than cash & cash equivalents) and current liabilities involved in the company’s operating cycle that affected cash flows differently than profit
(b) Non-cash items such as depreciation, deferred taxes, unrealized foreign currency gains and losses, undistributed earnings of associates
(c) All other items for which the cash effects are investing or financing cash flows
This method provides a useful link between the statement of cash flows and profit or loss in the statement of comprehensive income and the account balances listed in the statement of financial position?
Indirect method
