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Questions and Answers
Interest and dividends received and paid should each be disclosed separately in the cash flow statement.
True
Cash flows arising from interest paid should be classified as cash flows from operating activities.
False
Dividends paid should be classified as cash flows from financing activities.
True
The total amount of interest paid during the period is disclosed in the cash flow statement whether it has been recognized as an expense in the statement of profit and loss or capitalized in accordance with AS-10: Accounting For Fixed Assets.
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Interest paid and interest and dividends received are usually classified as operating cash flows for a financial enterprise.
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Non-cash transactions, such as acquisition of assets by assuming directly related liabilities, should be excluded from the cash flow statement.
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Non-cash transactions, like the acquisition of an enterprise by means of issuing shares, should be included in the cash flow statement.
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The conversion of debt to equity is an example of a non-cash transaction that should be excluded from the cash flow statement.
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Investing and financing activities that do not impact current cash flows but affect the capital and asset structure of an enterprise should be included in the cash flow statement.
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The objective of the cash flow statement supports the exclusion of non-cash transactions as they do not involve cash flows in the current period.
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Study Notes
Cash Flow Classification
- Separate disclosure is required for cash flows from interest and dividends received and paid.
- Interest paid should be classified under operating activities for most enterprises, while it can be classified as financing activities in certain cases.
- Dividends received are typically classified as cash flows from investing activities.
- Dividends paid are classified as cash flows from financing activities.
Disclosure Requirements
- The total amount of interest paid must be disclosed in the cash flow statement regardless of how it is treated in profit and loss statements.
- Interest and dividends are usually considered operating cash flows for financial enterprises, but classifications may vary.
Non-Cash Transactions
- Investements or financing activities that do not use cash or cash equivalents must be excluded from cash flow statements.
- Such non-cash transactions should be disclosed in other financial statements to provide relevant information.
- Common examples of non-cash transactions include:
- Acquisition of assets through directly related liabilities.
- Acquisition of an enterprise via share issuance.
- Conversion of debt into equity.
Impact on Financial Statements
- Non-cash activities can affect the capital and asset structure but do not impact current cash flow.
- Excluding non-cash transactions aligns with the objectives of the cash flow statement, focusing solely on current cash movements.
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Description
Test your knowledge of cash flow statement classification with this quiz. Practice identifying and categorizing cash flows from interest and dividends received and paid as operating, investing, or financing activities.
