CFA Level I · CFA Level I Exam · Analyzing Statements of Cash Flows I
During the year, an IFRS reporter acquired equipment by issuing a long-term note payable directly to the seller, with no cash exchanged. This transaction is most likely:
Because no cash changes hands, the equipment purchase financed by a seller note is excluded from the statement of cash flows. It is disclosed separately as a significant non-cash investing and financing transaction, rather than shown as matching investing outflow and financing inflow.
- Areported as an investing outflow and a financing inflow
- Bdisclosed separately as a non-cash transactionCorrect
- Creported as an operating outflow only
Explanation
Transactions with no cash movement are excluded from the cash flow statement and disclosed elsewhere in the financial statements as non-cash investing and financing activities. Grossing up the investing and financing flows would misstate cash flows.
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