Cash equivalents or not cash

In order to be awarded CPD units you must answer the following five random questions correctly. If you fail the test, please re-read the article before attempting the questions again.

  1. IAS 7, 'Statement of cash flows', requires the reporting of movements of cash and cash equivalents. Which of the following headings is not required to be disclosed in the statement of cash flows?

  2. 'Improvements to IFRSs' April 2009 amended IAS 7 such that cash flows on investing activities could only be classified as such under certain circumstances. What circumstances must exist for a cash flow to be recognised as an investing activity?

  3. Operating cash flows may be shown using the direct method, or the indirect method. Which of the following statements is true?

  4. The illustrative statement of cash flows in IAS 7 starts with 'profit before tax'. There are alternatives which start with operating profit which is not defined in IFRS. Which of the following definitions of 'profit before tax' figure is most accurate?

  5. Cash equivalents are defined as 'short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value'. IAS 7 does not define 'short-term'. What is the normal interpretation of 'short term' in this context?

  6. It is often impracticable to identify tax cash flows with individual transactions and tax cash flows often arise in a different period from the cash flows of the underlying transactions. As a result, how are taxes paid generally classified in the statement of cash flows?

  7. The cash flows arising from dividends, and interest receipts and payments should be classified in the cash flow statement in a consistent manner from period to period. These items are required to be disclosed separately on the face of the cash flow statement. What advice does IAS 7 give regarding the classification of these items?

  8. In consolidated financial statements, cash flows arising from changes in the ownership of a subsidiary that does not result in a loss of control, are classified as cash flows from financing activities. How is consideration paid in a business combination normally treated?

  9. In consolidated financial statements, cash flows arising from changes in the ownership of a subsidiary that does not result in a loss of control, are classified as cash flows from financing activities. Which of the following treatments of deferred consideration would not normally be acceptable?

  10. Foreign currency movements on cash and cash equivalents should be reported separately in the cash flow statement to allow the reconciliation of the opening and closing balances of cash and cash equivalents. When the reporting entity holds foreign currency cash and cash equivalents, these are monetary items that will be retranslated at the reporting date in accordance with IAS 21. Any exchange differences arising on this retranslation will have increased or decreased these cash and cash equivalent balances. How are these exchange differences treated in the statement of cash flows?