CFA Level I · CFA Level I Exam · Analyzing Statements of Cash Flows I
Under IFRS, a manufacturer pays interest on its bank borrowings. The company's accounting policy choice for this payment is most likely to result in it being classified as an:
Under IFRS, interest paid by a non-financial company may be shown as an operating or a financing outflow, depending on policy. It is not classified as investing for a manufacturer. Operating-only treatment is the US GAAP requirement, not the IFRS rule.
- Aoperating or financing outflowCorrect
- Binvesting outflow only
- Coperating outflow only
Explanation
IAS 7 permits interest paid to be classified as either operating or financing activity for non-financial entities. It is not an investing item for a manufacturer. Restricting it to operating only reflects US GAAP, which requires interest paid in CFO.
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