Financial Reporting And Analysis - Financial Reporting And Analysis Section 1
96. The excerpt from a company’s cash flow statement is presented below
| Operating activities: | |
| Cash received from customers | £50,000 |
| Investing activities: | |
| Interest and dividends received | £10000 |
| Financing activities: | |
| Net repayment of revolving credit loan | £ 25000 |
Which of the following standards and formats did the company most likely use in the preparation of its financial statements?
- Option : A
- Explanation : The direct method of cash flow statement presentation shows the specific cash inflows and outflows that result in reported cash flow from operating activities (cash from customers, cash to suppliers, etc.). Companies using IFRS can decide to report interest and dividend receipts as either an investing or operating activity, whereas under U.S. GAAP, they must report such income as an operating activity. The listed operating and investment activities indicate that the company reports under IFRS, using the direct method.
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- Option : B
- Explanation : The direct method cash flow statement presents specific operating cash flows by source and use.
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- Option : C
- Explanation : Providing insight on the differences between net income and cash flow is a benefit of the indirect method. The indirect method starts with net income and integrates a series of adjustments to calculate cash flow from operations.
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- Option : C
- Explanation : An increase in a liability is a source of cash and is added. A decrease in liability is a use of cash and is subtracted.
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- Option : A
- Explanation : Since cash collections exceeded revenue by $5 million, the accounts receivable balance should come down by $5 million.
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