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CFA Level I · CFA Level I Exam · Analyzing Statements of Cash Flows I

Under IFRS, a company reports cash paid for income taxes of 30,000, of which 6,000 relates to a gain on the sale of a factory that is reported in investing activities. The company most likely reports taxes in:

Taxes paid are generally operating cash flows, but under IFRS a portion specifically identifiable with an investing or financing transaction is classified there. So the 6,000 tax on the factory gain may go to investing and the other 24,000 to operating. Financing treatment of all taxes is incorrect.

  1. Afinancing activities for the whole 30,000
  2. Boperating activities, unless a portion can be specifically identified with investing or financing, which is then classified accordinglyCorrect
  3. Coperating activities for the whole 30,000, with no exceptions

Explanation

IAS 7 says taxes paid are generally operating, but where the tax can be specifically identified with an investing or financing transaction, it is classified with that activity. So the 6,000 may be investing and the remaining 24,000 operating. A no-exceptions rule is the US GAAP approach.

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