QUESTIONS

IAS 7 – STATEMENT OF CASH FLOWS

1. The statement of cash flows is

a. another name for statement of financial position.
b. a financial statement showing revenues earned by a business, the expenses incurred in
earning the revenues, and the resulting profit or loss.
c. a financial report showing the assets, liabilities, and equity of an enterprise on a specific
date.
d. a financial statement that reports the cash inflows and outflows for an accounting
period.

2. What is the primary purpose of the statement of cash flows?

a. To provide information about an entity’s financial position at a point in time.
b. To provide information about an entity’s financial performance for a period of time.
c. To provide information that is useful in assessing the ability of the entity to generate
cash and cash equivalents.
d. To provide information about an entity’s financial structure.

Financial structure refers to the mix of debt and equity that a company uses to finance its operations.
This composition directly affects the risk and value of the associated business. (Usually one of the loan
covenants)

3. Which of the following will appear a manufacturing company’s statement of cash flows
operating activities using the direct method?
a. Payment for ordinary shares called by the reporting entity.
b. Payment of interest on bonds payable
c. Cash paid to acquire a subsidiary
d. Payment for salaries and wages

4. Which of the following is classified as an operating activity in the statement of cash flows?
a. Cash receipts and payments involving property, plant and equipment, intangible assets,
and other long-term assets.
b. Cash receipts and payments involving equity and debt instruments of other entities.
c. Cash advances and loans made to other parties, other than advances and loans made by
financial institution.
d. Cash receipts and payments from contracts held for dealing and trading purposes.

5. Which of the following is presented on the face of the statement of cash flows as a cash-flow
activity?
a. Acquisition of an asset either by assuming directly related liability or by means or a
finance lease.
 b. Acquisition of an entity by means of an equity issue.
c. Purchase of treasury shares for cash at more than par value.
d. Conversion of debt to equity.

6. Which of the following will not appear in a bank’s Statement of Cash Flows operating activities
using the indirect method?
a. Depreciation and amortization expense
b. Payment for salaries and wages
c. Profit before income tax
d. Impairment losses

7. Which of the following will not appear in a Quick Service Restaurant Corporation’s statement
of cash flows investing activities using the direct method?
a. Proceeds from sale of Available-for-Sale financial assets. (Equity/Debt investment at fair
value through OCI).
b. Proceeds from disposal of plant, properties, and equipment.
c. Proceeds from sale of intangible assets.
d. Proceeds from long-term debt.

8. Which is a financing activity?

a. Payment of interest on bonds payable when the reporting entity is engaged in the retail
business.
b. Payment of interest of demand deposits when the reporting entity is a bank.
c. Receipt of dividends from wholly owned subsidiaries.
d. Receipt of proceeds from a 1-month money market placement earmarked to pay a
major supplier whose term is EOM.

9. Which of the following will be presented in the Statement of Cash Flows as financing activity?
a. Pre-payment of an onerous loan before due date.
b. Cash paid for the acquisition of a wholly owned subsidiary.
c. Monthly purchase of cellphone cards to be used by drivers of company delivery vans.
d. Build, operate, and transfer (BOT) contract signed on December 31, 2020 with the
government to build an underwater motor expressway to connect an international
airport to the Capital City.

10. Which is the proper treatment for non-cash investing activities?

a. Show on the face of the statement of cashflows but do not extend the amount to the
money column.
b. The transaction may or may not be shown on the face of the statement of cash flows.
c. Show in the notes to financial statements.
d. No correct answer given.
 11. Cash flows from operating activities may be presented using the direct or the indirect method.
When using the indirect method, the profit or loss are adjusted for the effects of the following,
except:
a. Changes during the period in inventories and operating receivables and payables.
b. Non-cash items such as depreciation, provisions, deferred taxes, unrealized foreign
currency gains or losses and undistributed profits of associates.
c. All other items for which the cash effects are investing or financing cash flows.
d. Proceeds from sale of reporting entity’s equity securities.

12. Cash equivalent is defined as:

> Short term (where the original maturity is 3 months or less, irrespective of maturity timing
post balance date)
> Highly liquid investments
> Readily convertible to known amounts of cash
> Subject to insignificant risk of changes in value

Based on the foregoing, which cannot be classified as cash equivalent?

j. Investment in blue chip shares (stocks)
k. Investment in the money market, due within 60 days from date of investment.
l. Investment in a bond, maturing within 90 days from the date of placement.
m. Short-term credit line from which the reporting entity can draw money any time.

Possible answer
a. J, k, l, m b. j, m c. k, l d. none

13. Which of the following should be observed in preparing Statement of Cash Flows?
j. Non cash investing and financing activities must be disclosed separately
k. Cash flows must be reported gross. Set-off is only permitted in very limited cases and
additional disclosures are required (refer to IAS 7.24 for examples relating to term deposits and loans)
IAS 7 paragraph 24
Cash flows arising from each of the following activities of a financial institution may be reported on a net
basis:
1.Cash receipts and payments for the acceptance and repayment of deposits with a fixed maturity date;
2.Placements of deposits with and withdrawal of deposits from other financial institutions; and
3.Cash advances and loans made to customers and the repayment of those loans.
l. Foreign exchange transactions should be recorded at the rate at the date of the cash flow
m. Acquisition and disposal of subsidiaries are investment activities and specific additional
disclosures are required
n. Where the equity method is used for joint ventures and associates, the statement of cash
flows should only show cash flows between the investor and investee
o. Disclose cash not available for use by the group (ie., under garnishment, sinking fund)
p. Assets and liabilities denominated in a foreign currency generally include an element of
unrealized exchange difference at the reporting date (differentiate transact from translate)
 q. Disclose the components of cash and cash equivalents and provide a reconciliation back to
the statement of financial position amount if required
r. Non-cash investing and financing transactions are not included in the statement of cash flows
and should be disclosed elsewhere in the financial statements (ie., acquisition of plant assets by
assuming a mortgage or other liability, no cash payment involved.)
s. Disclose changes in liabilities arising from financing activities, distinguishing between changes
from:  financing cash flows;  obtaining or losing control of subsidiaries and other businesses;  the
effect of changes in foreign exchange;  fair value movements; and  other changes.
Possible answer
a. All should be observed b. j, k, o, s c. l, m, n d. p, q, and r
14. (TRUE OR FALSE) The cash and cash equivalent balance appearing at the bottom of the
Statement of Cash Flows should tie up with the balance of cash and cash equivalent reported in
the Statement of Financial Position.
a. True b. False

15. When preparing the Statement of Cash Flows, The Effects of Exchange Rate Changes on Cash
and Cash Equivalent should be presented
a. Before the NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENT
b. After the NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENT
c. It can be before or after the NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENT
for as long as it is before the balance of CASH AND CASH EQUIVALENT AT THE
BEGINNING OF THE YEAR
d. It does not matter for as long as the explanation for the increase or decrease can be
found on Note 6.

16. Which statement ignores the accrual principle?

a. Statement of Financial Position and Statement of Comprehensive Income
b. Statement of Changes in Shareholders’ Equity
c. Statement of Cash Flows
d. Statement of Income

17. Which of the following is presented on the face of the statement of cash flows as a cash-flow
activity?
a. Acquisition of an asset either by assuming directly related liability or by means of a
finance lease.
b. Purchase of treasury shares for cash at more than par value.
c. Acquisition of an entity by means of an equity issue.
d. Conversion of debt to cash.
18. Which of the following is presented as an operating activity?
a. Cash repayments of amounts borrowed.
b. Cash advances and loans made by financial institutions.
c. Cash proceeds from issuing shares or other equity instruments.
d. Cash payments by a lessee for the reduction of the outstanding liability relating to a
finance lease.
19. Financing cash flow activities are those activities
a. that involve the production or purchase and the sale of goods and services to
customers, including expenditures to administer the business.
b. that involve making and collecting loans or purchasing and selling plant assets and other
productive assets.
c. with owners or long-term creditors of the business or that involve borrowing cash on a
short-term basis.
d. that include receipts of interest payments, cash collections from customers and receipt
of cash dividends from other companies.

20. Investing activities of a consumer goods manufacturing corporation are those activities
a. that involve the production or purchase and the sale of goods and services to
customers, including expenditures to administer the business.
b. that involve purchasing and selling plant assets and other productive assets.
c. with owners or long-term creditors of the business or that involve borrowing cash on a
short-term basis.
d. that involve creating demand for the corporation’s products.

21. A company acquired a building, paying a portion of the purchase price in cash and issuing a
mortgage note payable to the seller for the balance. In a statement of cash flows, what amount
is included in investing activities for the above transaction.
a. Cash payment
b. Acquisition price
c. Mortgage amount
d. Zero

22. In a statement of cash flows, receipts from sale of property, plant and equipment would be
classified as cash inflows from
a. Liquidating activity
b. Operating activity
c. Investing activity
d. Financing activity

23. Under the indirect method, which of the following items would be added to profit to arrive at
cash flows from operating activities?
a. Gain on sale of investments
b. Increase in prepaid expense
c. Decrease in accounts payable
d. Decrease in accounts receivable
24. Cash inflows from investing activities result from
a. decrease in liabilities.
b. increase in liabilities.
c. decreases in non-cash non-current assets.
d. decreases in non-cash current assets.

25. A company’s wages payable decreased from the beginning to the end of the year. In the
company’s statement of cash flows in which the operating activities section is prepared under
the direct method, the cash paid for wages would be
a. salary expense plus wages payable at the beginning of the year.
b. salary expense plus the decrease in wages payable from the beginning to the end of the
period.
c. salary expense less the decrease in wages payable from the beginning to the end of the
period.
d. the same as salary expense.

26. In a statement of cash flows, proceeds from the sale of company’s own bonds should be
classified as
a. leveraging activities
b. operating activity
c. investing activity
d. financing activity

27. Which of the following would be subtracted from profit when using the indirect method to derive
net cash flows from operating activities?
a. Increase in salaries and wages payable
b. Gain on sale of long-term investments
c. Decrease in net accounts receivable
d. Depreciation expense

28. Which of the following would appear in the statement of cash flows using the indirect method?
a. Cash payments for operating expenses.
b. Cash receipts from customers.
c. Depreciation expense.
d. Cash receipts for money borrowed from a bank.

29. The declaration of cash dividends by the board of directors

a. would be reported as an operating activity in the statement of cash flows.
b. would be reported as an investing activity in the statement of cash flows.
c. would be reported as a financing activity in the statement of cash flows.
d. is an activity that would not be reported in a statement of cash flows.
30. Which of the following may qualify as cash equivalents?
j. Money market instruments.
k. Commercial paper
l. Investments in BSP treasury bills
m. Investments in non-trading equity securities.

Possible answers
a. j, k, l b. k, l, m c. l, m, n d. j, m