CS Executive · Corporate Accounting and Financial Management · Cash Flows
Ind AS 7 states that an entity presents cash flows from operating, investing and financing activities in a manner most appropriate to its business. What is the main purpose of this classification by activity?
The classification lets users assess how operating, investing and financing activities affect the entity's financial position and its cash and cash equivalents, and evaluate relationships among them. It is not meant to compute tax, replace the balance sheet or standardise every entity's presentation.
- ATo let users assess the impact of the activities on financial position and on cash and cash equivalentsCorrect
- BTo compute taxable profit of the entity for the year
- CTo eliminate the need for a separate balance sheet
- DTo ensure that every entity reports an identical split of cash flows
Explanation
Classification by activity gives information allowing users to assess the impact of those activities on financial position and on the amount of cash and cash equivalents. It also helps evaluate relationships among activities. It does not compute taxable profit, replace the balance sheet, or force an identical split, because presentation is by what suits the business.
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