Reconciliation?

IAS 7 Statement of Cash Flows was first published in 1992 and allows users of financial statements to assess how different types of activity affect the financial position of a company by classifying cash flows accordingly. Which of the following classifications is not required by IAS 7?

Investing activities

Funding activities

Operating activities

Financing activities

The operating activities in the cash flow statement can be presented in one of two ways. The direct method and the indirect method. Which of the following statements is incorrect concerning the direct and indirect methods?

The indirect method reconciles profit or loss with financing cash flows

The direct method is seldom used

The indirect method is more commonly used to present operating activities

The direct method of accounting tracks cash changes from the bottom up to arrive at net income

If net income is higher than the operating cash flow, a user would seek further explanations as to the reasons for this occurrence. The presentation of operating profit under the indirect method is the starting point for the calculation of operating cash flow. What is the starting point, under the indirect method, for the calculation of operating cash flow?

Either profit or loss before or after tax

Profit or loss before  tax

Profit or loss after tax and dividends

Profit or loss after tax

Free cash flow is used by analysts in various valuation models and is thought to be a better measure than using the figure for operating cash flow. What is the common definition of free cash flow?

Financing cash flows

The excess of capital expenditure over operating cash flows

The excess of operating cash flows over capital expenditure

Operating cash flows

There are concerns over the current classification of items in the statement of cash flows. Which of the following statements is not a current classification issue?

Depreciation is added back to arrive at operating cash flow

Research and development expenditure is classified as cash from operating activities but is often considered to be a long-term investment

A loan repayment would see the interest classified as operating or financing activities, whereas the principal will be classified as a financing activity

Dividends and interest paid can be classified as either operating or financing activities

Some argue that research and development cash outflows should be included within investing activities, because they relate to items which are intended to generate future income and cash flows. What is the view of IAS 7 regarding the classification of investing cash flows?

The expenditure must result in an asset being recognised in the statement of financial position

The expenditure must result in a liability being recognised in the statement of financial position

The expenditure must result in a potential increase in free cash flow

The expenditure must result in the generation of future income

Some items of property, plant and equipment (PPE) are purchased from suppliers on similar credit terms to those for inventory and for amounts payable to other creditors. As a result, transactions for property, plant and equipment may be incorrectly included within changes in accounts payable for operating items. Under what heading should purchases of PPE be shown in the statement of cash flows?

Investing activities

Operating activities

None of the above

Financing activities

There are currently different views as to how to show lessee cash flows in the statement of cash flows. Which of the following views is not one commonly held by users?

Some users take the view that the lessee should be allowed to classify interest payments within operating activities or within financing activities as this is currently not allowed

Some users would like the statement of cash flows to reflect lessee cash outflows in a way that is comparable to those of a financed purchase

Some users would like all lease cash outflows to be included within the free cash flow measure

Some users take the view that lease cash payments are similar in nature to capital expenditure and should be classified within investing activities

In December 2014,the IASB published an Exposure Draft (ED), which proposes amendments to IAS 7. What are the main objectives of the ED?

To improve information about changes in liabilities that relate to financing activities and the availability of cash

To improve information about changes in assets

To improve information about changes in assets and the availability of cash and cash equivalents

To improve information about changes in liabilities that relate to financing activities and the availability of cash and cash equivalents

For a number of years, users have been requesting the IASB to require companies to provide net debt reconciliation. How will the proposed amendment to IAS 7 help users in this regard?

It will help users by providing them with sufficient information to prepare net debt reconciliation themselves

It will help users by suggesting that issuers should prepare net debt reconciliation

It will help users by providing them by requiring additional information on operating activities

It will help users by providing entities with a pro-forma debt reconciliation statement

IAS 7 Statement of Cash Flows was first published in 1992 and allows users of financial statements to assess how different types of activity affect the financial position of a company by classifying cash flows accordingly. Which of the following classifications is not required by IAS 7?

The operating activities in the cash flow statement can be presented in one of two ways. The direct method and the indirect method. Which of the following statements is incorrect concerning the direct and indirect methods?

Free cash flow is used by analysts in various valuation models and is thought to be a better measure than using the figure for operating cash flow. What is the common definition of free cash flow?

There are concerns over the current classification of items in the statement of cash flows. Which of the following statements is not a current classification issue?

Some argue that research and development cash outflows should be included within investing activities, because they relate to items which are intended to generate future income and cash flows. What is the view of IAS 7 regarding the classification of investing cash flows?

There are currently different views as to how to show lessee cash flows in the statement of cash flows. Which of the following views is not one commonly held by users?

In December 2014,the IASB published an Exposure Draft (ED), which proposes amendments to IAS 7. What are the main objectives of the ED?

For a number of years, users have been requesting the IASB to require companies to provide net debt reconciliation. How will the proposed amendment to IAS 7 help users in this regard?

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