Question 1

To increase the cohesiveness of financial statements the IASB/FASB joint project is suggesting that the statements of comprehensive income; financial position and cash flow should use the same section names.Which of these is not one of the proposed sections?

A)Business
B)Outlay
C)Financing
D)Income taxes

B

Accepted Answer

The proposed sections are Business (operating activities), Investing, Financing, and Income taxes. Outlay is not one of the proposed sections.

Question 2

The definition of cash equivalents in IAS 7 includes short-term,highly liquid investments which can be converted to a known amount of cash,with an insignificant risk of changes in value

Accepted Answer

The definition of cash equivalents in IAS 7 includes short-term, highly liquid investments that can be readily convertible to known amounts of cash with insignificant risk of changes in value.

Question 3

Which of these best describes the direct method of determining cash flows from operating activities?&#10;A)Determination from adjusting net profit for non- cash receipts and payments&#10;B)Determination from the comprehensive statement of income&#10;C)Determination from the statement of financial position&#10;D)Determination from cash receipts and payments

Accepted Answer

The direct method determines cash flows from operating activities by directly examining cash receipts and payments. It involves categorizing cash inflows and outflows from operational activities such as sales, payments to suppliers, and operating expenses. This method is considered more accurate but more time-consuming than the indirect method, which adjusts net profit for non-cash transactions.

Question 4

Which of these is NOT a problem associated with drawing up a statement of cash flows?&#10;A)The choice of category for interest and dividends&#10;B)The historical nature of the statement of cash flows&#10;C)The arbitrary three- month cut off for cash equivalents&#10;D)The potential for confusion between indirect and direct cash flow statements

Accepted Answer

The answer of Which of these is NOT a problem...

Question 5

Cash flow and funds flow statements both concentrate on the inflow and outflow of cash

Accepted Answer

Cash flow statements focus specifically on the inflow and outflow of cash, while funds flow statements deal with the sources and uses of funds, highlighting changes in the financial position of a business, which includes both cash and non-cash items.

Question 6

The IASB views cash flow reporting as so important that there are no exemptions for any entities under IAS 7

Accepted Answer

The IASB recognizes the importance of cash flow reporting and therefore does not provide any exemptions for any entities under IAS 7.

Question 7

The UK ASB and IAS 7 both require the direct method of determining cash flow.

Accepted Answer

The UK ASB and IAS 7 allow both the direct and indirect methods for reporting cash flows from operating activities, but they do not require the direct method.

Question 8

Why do cash flow statements provide a useful addition to the statement of comprehensive income and statement of financial position of an entity?&#10;A)cash flow statements provide a useful insight into the entities compliance with IASB's regulations&#10;B)cash flow statements provide a useful insight into the entities incomplete transactions,where profit or loss can only be estimated by means of the accruals concept&#10;C)Cash flow statements provide a useful insight into the entities profit margins&#10;D)Cash flow statements provide a useful insight into the entities income

Accepted Answer

Cash flow statements complement the statement of comprehensive income and the statement of financial position by providing insights into the actual cash flows of an entity, highlighting how cash is generated and used. This is particularly useful for understanding transactions that are not fully settled and where the accruals concept (recognizing revenues and expenses when they are incurred, not necessarily when cash is exchanged) is applied, making it possible to estimate profit or loss.

Question 9

Cash flow statements can deal with non- cash transactions

Accepted Answer

Cash flow statements are specifically designed to track the cash inflows and outflows of a business, and do not deal with non-cash transactions such as depreciation, amortization, or accruals.

Question 10

How does IAS 7 require cash flows during a period to be reported?&#10;A)The cash flows generated by operating activities,investing activities and financing activities are listed,together with the net change in cash and cash equivalents.&#10;B)Only the net change in cash and cash equivalents is required&#10;C)The cash flows generated by operating activities,investing activities and financing activities are listed in their constituent parts,together with the net change of cash and cash equivalents&#10;D)Total cash flows must be generated on a monthly basis to show trends over the financial year

Accepted Answer

IAS 7 requires the cash flows generated by operating activities, investing activities, and financing activities to be listed separately, along with the net change in cash and cash equivalents. This provides a more detailed breakdown of how the cash flows have been generated or used during the period. Option A reflects this requirement accurately. Option B is incorrect because it only reports the net change, without breaking it down into the different types of activities. Option D is incorrect because there is no requirement to report cash flows on a monthly basis; the report should cover the period for which the financial statements are presented.

Deck 24: Statements of Cash Flows