oti tn CHAPTER 63 STATEMENT OF CASH FLOWS paumples f ash OWS from operating activteg 5 cash receipt fom sae of gad ind rendering ash receipts fom royalties, re Ser revente a es, missin an «Cash payments to suppliers for goods and QUESTION 63-1 Define a stacement of cash Hows. ANSWER 63-1 Adterent of cath of atements which 4 cash payments for selling, administeative and othe cxpensee . cash reeipts and cash payments of an a . inwrane entity fr fremiums and claims, annuities and ober pehey bnchis QUESTION 63-2 What are cash equivalents? «cash payments or refunds of income tans ule they ean te specifically identified with fnaning and investing ‘cities ANSWER 63-2 : $7, paragraph 15, provides that an entity may hold securities Be ar — eee i PAS i paragraph 7, provides that an investment 2 qualifies as a saber There arising from the purchase and sale of fare classed os operating Sinilaely, made by a Ginancial institution are ust sino! ‘uy relate to the main revenue p entity an In other words, the investmentQUESTION 63-4 What are investing activities? ANSWER 63-4 Investing activities are the cash ows derive trom thy ‘and other investments, property, plant and equipment and other noncurrent aseete, Examples of cash flows from investing activities 8. Cash payments to acquire property, plant and intangibles and other long-term asseta , Cash receipts from sales of property, plant and intangibles and other long-term assets ©. Cash payments to acquire equity or debt other entities and interest in joint venture 4. Cash receipts from sales of equity or debt ina ‘other entities and interest in joint venture receipta from repaymient of advances and to other parties & Cash payments for futures contract, forward contract and swap contract QUESTION 63-5 What are financing activities? ANSWER 63-5 Financing activities are the cash = derived tom equity Financing activities are th t from ince bes cen ae financi y financing). Asa simple guide, cee ‘ranssctions involving Examples of cash flows from financing activities 4. Cash receipts from issuing ordinary and preference shares or other equity instruments ' Cash payments to owners to anquire or redeem the entity's shares, for example, payment for treasury shares 6. Cash rocipt from ining debentures, loans, oes, bod, iortgnges, and other bor or longterm borrowings 4. Cash payments for amounts borrowed n of the © Cash payments by a lessee for the reduetir outstanding liability relating to a finance leaseyESTION 63-8 " 6 nificant noncash transactions reported in the QUESTION 63-8 How pnt of cash owe? ‘What isthe treatment of interest paid ond interest sever es SO sosmenu id aes siameem spears identi ae astra roy int pit ao oto Arg ere ald ert aig Interest received may be classified as investing cash flow Resause it is a retuen on investment, Pam a Ss iss from interest paid and at pots sate QUESTION §3-7 What is the trestmiont of dividend paid and dividend received? frees PAS 7, paragraph 34, provides that dividend pai is classified 2457 pre in a de pe eee ‘tert end paid maybe dase a cash flow in order to assist users to determine the Sor he ea ee cern be a 7AS 7, parr 2 proves iat aides Sol sdarevep th pit a Sie amid as oorating cu paragraph 43, transactions sh veal oo deena samples of noncash transactions 1) Acquisition of noncurrent ate ther by asuming dire Sod labor by mesne of foun lease = Acquisition of roncurrentaiset by means of issuing share capital or bonds payable Pe an Conversion of debits equity, or oample conversion bende fajuble to share capital Conversion of preference share to ordinary share QUESTION 68-9 Explain the direct method of determining the net cash flow from oporating activities. ANSWER 63-9 activities using nentity lows from: ether the or direct method shows in the cash payments are ieee the tener represn he et cash ‘orm operating actives » cagence, the direct method is the “cash basis” Alternatively, dividend received may be investing ca Dow because ii reburn on i f dividend received and di vesting or financing activity ae osQUESTION 63-11 Multiple choice (Pag D QUESTION 63-10 1, The primary purpose of a statement of sh flows Bapinin the “indret method” of determining the net ch toy provide relevant information about" ne fom operating activities. ANSWER 68-10 cane that the net incotne or ‘The indirect method means that loan djsted for the llowing. 4. Dilforences between net income and associa receipts and disbursementa ‘ed can An entity abil to generate pov net aah flows (¢ The cash reospta and eah ts ofan entity during a period 4. The 6808 of transactions of « noneash nature 4 An entity’ ability to mec cash operating needs . ofpaat or ftare operating ci HR cash receipts from ryuhies tnd conmisoca are Cosh outows for operating activites Cash infowe from operating acres Cash inflows fom investing saris 4 Cash cutiows for Snanring aan 38 uldlines that may be used in adjusting the accrual bet sane ean bl nes ens sethol ae 1 Al increases in trade noncaah current aseets are from nt income, activities &. Not reported in the cash fow statement ‘back to net Income, : 4 Cosh payments to acquire equity instruments are 3. All increases in trade current liabilities are added et income. 8. Cash outflows for financing activities . > Cash inflows from investing activities & Cash outflows for investing activities Cash inflows from financing activities ‘4 All decreases in trade current linbilitios are net income 5. Depreciation, amortization cones aan Amortization and other noneash S. Cash receipte from issuing shares are — {Cash inflows from investing activities $y un ondspotl of property ia deduced from: D Gath Stow for ivan ein ie iti 8 nonaperatng iene ash inflowe cing activites © Cash outdlows for financing activities 1. Aayloason, Secu boul of property i added back to.6, Interest payments to lenders are classified ag Operating activities Borrowing activities e. Lending activities 4. Financing activitien 17, Dividend payments to sharcholders are classified aa ‘a Cash outflows for investing activities 1b. Cash inflows from investing activities Cash inflow from financing activities 1G) Cash outiows for Snancing activitien 8 Interot rosived and dividend rocsived may be alternatively as cash flow from aS ee 1, Operating activities Investing activities €. Financing activities . 4. Revenue activities 9, Bank overdrafts that are repayable on demand and the| balance often fluctuates from positive ta overdrawn be classified as ‘a. Operating activities D. Investing activities ¢. Financing activities & Component of cash and cash equivalents 10. Cash advances and loans made by a are usually classified as Operating activities Investing activities ©. Financing activities 4. Component of cash and cash equivalents ANSWER 63-11 Le Bae Be aa 2b te Ba ab QUESTION 69-12 Multiple choice (rR) ih ft lowing eh f 1 pio he lg ale rl de ash Employes cota Property revaluation Fedenpion af deeareg (i. Development costs called in the prot 2, All of the following can be equivalents, except os ied as cash and cash + Redeemable preference shares aqui nd due ip 60 ays 7 Treasury bila due fr repayment n 9 da 1 Equity investments 4 [A bank overdraft Which classification of the cash fow arising from the ‘prooeeds from an earthquake disaster settlement would be fost appropriate? Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities 4 Does not appeat in the statement of cash fows An entity purchased a building and the seller scxepted Sayinent partly in equity shares and partly in debentures The pusehase ofthe bung i iaesting cash tow nd Bae anane of abares and the debentures sre Goancieg east ae = Sane ca Pte ung is neni cash tow Ts Be toc f debentures ie Snag ck ‘hie eure ae mage le the issu px telong ng sent of Bi Te mei be ced ony ine steno nancial g. Siatemere om should be ignored totaly sine i ie 0 roneash tran. 318so opis an si wae © Se nt smn In operating activities & Either heating atin 0F financing activitieg Th ewtng scutes or Snancing activin inder IFRS, the dividend received from share Uo dase oe ‘ovmtneny activity ear me ereut my race al rn contig ty Sain Bee ere ae ety d. Only an operating activity uh advance an lane, from bank oerdraf 7 Crea inte stemeat ef sak Rows so rang econ Boe aes oe : SO ee cath actos 8. How should repayment of a long-term loan comprising repayment ofthe principal amount and interest due fo ds evtrcaced in aeetement of cash Dow . ‘2. The repayment ofthe principal loan is an investing cash flow and the interest payment is either an operating ‘cath flow or a cath flow. Bi ‘The repayment ofthe principal loan isa Binancing Tee ean te ne cashflow or w ish flow. The repayment of the principal loan ie a financing flow and the interest payment is ether an cach flow or investing cash ow. 4. The repayment ofthe principal loan is a financing flow and the interest payment is netted against reczivedon bank depaeite and the net amount of is chown es operating cash flow, : ANSWER 62-12 La ctivition an re from the sale *® ® © reduction ofthe cash inflow In investing activities In operating activities 2 How should os on sal f machinery be pee nement of ath Gow ung nde et «A dedution from net ecome [hn adition to nt income ‘inflow and outdow of ath An oatow of eah 4 statement of cash fms using indiretapproQch for erating aetna reat in rena ecg 1. Outow ofeath & Tw and two ash Addition to ant come (a) Deduton from ne income {. Supplemental disclosures required only when the statement of cash flows is prepared using the indirect method include a A schedule reconciling net income with net cashflows ‘rom operating activities. Amounts paid for interest and taxes. Amounts deducted for depreciation and amortization. Significant noneash investing and Ghancing activites, Which of the following should not be disclosed in the statement of cash flows using the indret method? «Intrepid © Tasome axe pid Cah fw pee share Se oer teas sarepat tng ofthe eres oon al ° at reach amour ping cal SBE Anta poms Dante 027 at Pots cunmet pinch end ety = QUESTION 63-14 Multiple choice (AICPA Adapted) 1 When an entity purchased a d how would the purchase be tatement of cash flows? three-month Treasury bill, tteated in preparing the ae come Tie a Squipment. How should these equipment tranaadt 9 Not reported ‘porad in the entity’s statement of cash lowest by An outtlon for financing activities An outflow for lending setivities ‘An outflow for investing activities Cashin equal othe cash received and a eas, qual tothe cash paid and note payable jig. Ghshintow equal othecash received and cash qual fo the exsb paid . 4, In a statement of cash flows, if used equipinent i sold at @ faa, the amount shown a8 a cash flow from investin fctvities equals the carrying emount of te equipment a oe 7, Ima statement of eash flows, which of the fo an Es, gpatniaid lee he emountt fax attcbut tena fst rg. ig of te ern mst in nde he ann ctr aie ee es ott gt ee sce pesitena ean 4. With no addition or subtraction [ig Payment to retire mortgage note and dividend p F 4. Ina statement of cash flows, if used equipment is sold at a Joss, the amount shown as a cash inflow from investing activities equals the carrying amount of the equipment ‘4 Less the loss and the amount of tax attributable to the Toss Less both the loss and the amount of tax attributable to the loss Less the loss With no addition or subtraction would «Ina statement of eth dows, whic of tn filoring woul oeate reported cash dvs m oeaig aces ws the dvect method? 8. At the beginning of the current year, an entity aign building lease that it reported as a finance lease. The pad the monthly lease payment when due, How eho entity report the effect of the lease payment in Bnancing activities section of the statement ofa 4 An inflow equal to the present vilue of papment atthe begining of the yeas lee p Interest payment = auow egal the principal and interest An outlow equal w the’ principal pavment a G thctease ftpmone should tar Be epee Snancing activities setion ANSWER exis se wal a. Dil ns tr ee be >. Gain on sale of equipment Keo Gin one ot iy : sent mae cain itor? HU Gn ot fa ert ne to 25. Dividends received from an equity invest j ona statement of ath tow presented inthe statement of cash flows ag *°* AI by justment to reported net "8 depreciation ig args bo teat an an 1 direct source of cash, {Deduction from cash ows fom operating sting teduces reported ne Addition to cash flows from investing aetingey Aiton to cash Dows from operating actives, Reduces Tpead net earings and inven og Deduction from cash fw ffom investing act cfeash volves an inlow . 4. Tgan now fetta rere ant or nplionnes 6. An entiy’s wages payable increased trom the begin of asoet te the end ofthe year. Tn the statement of cash flosai which the operating activites aston is prepared gt 1 reparation of the satoment of as Qons wing the the direct method, the cash paid for wages would tone indirect method involves allo the folowing estne determining 4. Salary expense plus wages payable at the b the year . Salary expense plus the increase in wages |G Solary expen less the increase in wages ‘The same as salary expense a Cash provided by operations | Gash flows in investing and financing activities (Change in cash and cash equivalent during the period the vayable 7. An entity’s accoiinte receivable deer besinning tothe end ofthe year. In the statement be Be ows, the cash collected from customers would be be es rn ar & Sales revenue plus accounts receivable at the beg is) ates af the year AEs ven pln the decree in enanta 6. Sales revenue less the decease ison 4. The so as sale sevones 8. In @ statement of cash flows using indirect meth ‘gerease in prepaid expenses ig &. Reported as an outflow and inflow of cash . Reported as an outflow of cash ©. Deducted from net income Added to net incomeQUESTION 63-15 Multiple choice (LAA) eyecare fee ig nig Se en eee se mh mig ten i a oe eo 2, When prpering a statement of cash flows using the trethnd, amortization of goodwill is os ‘a. Shown as an increase in each flows from operating activities, tb Shown as a reduction in each lows from operating activitis. ¢. Included w transactions J Not reported in the statement of eash flows or elated Aliselosure 4. The amortization of bond discount related to longterm, debt is presented in a statoment of cash flows prepared using the indirect method as Jn supplemental disclosure of noncash a. Inflow and outflow of cash 1, Outflow of cash ©. Deduction from net income Bastion net inom ‘ 4. The amortization of a bond premium related to long term debt is presented in the statement of cash flows as 8. Apesitive adjustment to net income in determining cash flows from operating activities b, Avuse of each in determining eash flows from in activities, © A source of cash in determining cash flows, from Financing activities JB. A negative adjustment to net income in determining flows from operating activiti 226 «which statement about the method of vement of cash flowe is true? sal Preparing the ‘The indirect method starts with income bre inc, a de td ria i Oe ay Sry ate a waa ote ee ee hs prepare ner te ee atenet of 1. The maja classes of gross cash recta and pre cash payments {fhe amount of income taxes paid A reconciliation of net income to net ca fw from Gpcrations % reconciliation of ending retained earn ca We tom eperatoen aca + The statement of eash flows reports all of the following except 1. The net change in cash for the period , The cash flows from operations during the period. ‘The free cash flow generated during the period Investing transactions 5 Free eash flow is calculate’ as net cash provided by nperating activities less Sapital expenditures Dividends and depreciation Capital expenditures and dividends Capital expenditures and depreciation NSWER 63-156 ale of trem0ury shares would bg a. Transfer nctfty Operating actity Investing: activity fj Binsncing seuray QUESTION 68-16 Multiple choice (LAA) ex oy ate mci cof les. Readily convertible to known amount of cash, [i All of these are features of cash equivalents, All of the following could potentially be classified » ather operating or investing cash flow, except °* + Wuch snot add to nts ander ng a Iperease in an aecrued Habil i. Amortization of dicount on Wd pyaie n sale of operational ne [iPircvease in deferred tax ance SACRE NTN seit + Operating cash flow 1 Investing cash flow Financing eash flow Hf 4s.an tem reconciling earnings and operating cash Dow 4, Deters tax expense shoul! be presented ina etatement sash flows kag indirect sppreash ac * amen Financing activity 1 Redon rom nt ime Noncash financing and investing sci ima PI pata schedule oS sheer: a, Interest received by Dividend received : ‘Taxes paid specifically identified with investing iy piesa pad 3. Making and collecting losns are a. Operating activities Investing activities Financing activities a. Liquidity activities 4, The statement of cash flows typically would not di the effects of 4 Ordinary shares issued for cash. Share dividends declared. : Cash dividends paid. 4. The purchace for cash and immediate re treasury ahares. lation to net inoome 10 Noncash investing and Snancing activities are » Reported in the statement ofcash flows ony ifthe direct, method is used. Reported in the statement of cash flows only ifthe indirect method is used. IB Disclosed in a note or separate schedule accompanying the statement of cash flows. |. Not reported. 5. A cash dividend that is declared during an a period, to be paid in the next accounting period, is 1m the statement of cash flows for the current Ig) As_afeas tom operating activities ‘A noncash trancaction presented in a separate ANSWER 68.16 & ‘Awe of ash fom Gnancing actives 4. A wae of ach from investing activites i eet st 4 4b ea esa co