Skip to content

ACCA Strategic Professional · Strategic Business Reporting (International) · Group accounting including statements of cash flows

Lyra Group's finance director wants to classify $6m of cash received from a short-term bank facility, repayable in 60 days and used to fund working capital at the year end, as an operating inflow to improve reported operating cash flow. Under IAS 7 and professional ethics, what is the appropriate response?

The $6m bank borrowing must be presented as a financing inflow, because proceeds from borrowings are financing cash flows however the money is used. Presenting it as operating would mislead users and breach the accountant's ethical duty of integrity and objectivity.

  1. AClassify it as a financing inflow, and decline to present it as operating cash flowCorrect
  2. BClassify it as operating because it funded working capital
  3. CClassify it as investing because the bank is an external party
  4. DOffset it against trade payables to avoid disclosure

Explanation

Cash received from borrowings is a financing activity under IAS 7, regardless of how the funds are used. Reclassifying it to inflate operating cash flow would be misleading and conflicts with the accountant's duty of integrity and objectivity.

Did you get it right without looking?

One question tells you little. A timed set on Group accounting including statements of cash flows shows your real accuracy, how long you take and where you lose marks.

Practise Group accounting including statements of cash flowsFree diagnostic mock

More Group accounting including statements of cash flows questions