Deck 17: The Cash Flow Statement

Question 1

Under AASB 107,which of the following must be included in notes attached to the cash flow statement?

A) Assets acquired by issuing shares
B) A reconciliation of cash flows from operating activities with net profit
C) Proceeds from the sale of an investment
D) Both A and B

Answer 1

D

Question 2

Which transaction would be included in a cash flow statement?

A) Receipts from customers
B) Credit sales
C) Acquisition of assets in exchange for shares
D) All of the above

Answer 2

A

Question 3

The cash flow statement provides information that enables users to evaluate changes in an entity's:

A) liquidity
B) solvency
C) ability to generate cash from core operating activities
D) all of the above

Answer 3

D

Question 4

A criticism of the indirect approach to presenting cash flows from operating activities is:

A) adding back expenses such as depreciation may suggest that these items are sources of cash
B) it is unnecessarily complicated
C) it requires cash inflows to be netted against cash outflows
D) A and B

Question 5

All of these are classified as operating items under AASB 107 'Cash Flow Statements',except:

A) cash received from sales
B) cash received from the sale of surplus machinery
C) cash dividends received
D) cash payment of expenses

Question 6

An exception to the AASB 107 rule that normally gross cash flows should be disclosed is:

A) the refinancing of long-term loans
B) some transactions of financial institutions
C) items where the turnover is quick, the amounts are large, and the maturities are short
D) both B and C

Question 7

In the cash flow statement,net cash flows from operating activities plus net cash flows from investing activities plus net cash flows from financing activities for the period equal:

A) the cash balances at the beginning of the period
B) net profit
C) the cash balances at the end of the period
D) the total net increase or decrease in cash held for the period

Question 8

Under AASB 107,it is not true that:

A) operating activities generally relate to transactions that are included in the income statement
B) cash flows are classified into operating, investing and financing groupings
C) each item in the externally presented income report that results in a cash flow is required to be disclosed separately in the cash flow statement
D) none of the above is untrue

Question 9

Which information is not readily available from the statement of comprehensive income and the statement of financial position?

A) Information about new borrowings and loan repayments
B) Information about the acquisition and disposal of non-current assets
C) Information about new share issues
D) All of the above

Question 10

The statement concerning a funds statement based on the total resources concept of funds that is incorrect is:

A) It excludes internal transactions such as depreciation
B) The total resources concept of funds is the broadest concept
C) Any transaction which increases liabilities or equity is a source of funds
D) Any transaction which reduces assets is a use of funds

Question 11

All of these are possible definitions of 'funds' except:

A) working capital
B) investment
C) total resources
D) cash

Question 12

Income tax paid,proceeds from long-term borrowing and loans made to directors would be presented in a statement of cash flows,as:

A) financing outflow: financing inflow; financing outflow
B) operating outflow: investing inflow; investing outflow
C) operating outflow: financing inflow; investing outflow
D) none of the above

Question 13

The approach to presenting cash flows from operating activities where reported net profit is adjusted for non-cash income statement items and changes in non-cash working capital accounts is known as:

A) the direct approach
B) the adjustment approach
C) the indirect approach
D) none of the above

Question 14

Under AASB 107,dividends paid by a company to its shareholders are classified as:

A) investing outflows
B) financing outflows
C) operating inflows
D) none of the above

Question 15

Which statement concerning a funds statement based on the working capital definition of funds is not correct?

A) It includes transactions that have no effect on the components of working capital, e.g., the purchase of inventory
B) It omits many transactions that could be important to users for decision making
C) The difference between sources and uses of working capital will be equal to the change in working capital between two successive balance sheets
D) None of the above, i.e., all of the statements are correct

Question 16

Studies such as Bowen,Burgstahler and Daley (1986)and Cleng and Hollie (2008)in the USA and Percy and Stokes (1992),Cotter (1996)and Clinch Sidhu and Sin (2002)in Australia have found:

A) cash flow data appeared to be similar to profit data
B) cash flow data was significantly different from profit data
C) there was no relation between profit and cash flow data
D) none of the above

Question 17

When was the first cash flow standard issued in Australia?

A) 1991
B) 1968
C) 1996
D) 1983

Question 18

AASB 107 provides for which method of reporting cash flows from operating activities?

A) Either the direct or the indirect method
B) The direct method
C) The indirect method
D) The working capital method

Question 19

Activities described as relating to the acquisition and/or disposal of non-current assets under AASB 107 are classified as:

A) investing activities
B) financing activities
C) operating activities
D) none of the above

Question 20

The first institution in Australia to require certain companies to include a funds statement in their published reports was:

A) the Australian Accounting Standards Board
B) the Australian Accounting Research Foundation
C) the Australian Stock Exchange
D) none of the above

Question 21

Discuss the arguments for and against the presentation of the cash flow statement using the indirect approach rather than the direct approach.

Question 22

Discuss how an entity that reports an after tax profit may be unable to generate positive cash flows from operating activities.

Question 23

Discuss the concept of cash and cash equivalents.Provide examples to illustrate your answer.

Question 24

All of these are classified as financing items under AASB 107 'Cash Flow Statements'-2 except:

A) in the cash flow statement of the lender cash repayments by borrowers
B) cash paid to buyback the company's shares
C) proceeds from the issue of debentures
D) none of the above, i.e., all are classified as financing items

Question 25

Distinguish between the three concepts of funds which can be used to construct a cash flow statement: cash,working capital and total resources.Which concept do you think provides the most useful information for decision making?