CFA Level I · CFA Level I Exam · Analyzing Statements of Cash Flows I
Under IFRS, a manufacturer pays interest on its bank borrowings. Which classification of the interest paid in the statement of cash flows is most likely permitted?
Under IFRS, interest paid may be reported in either operating or financing activities, as an accounting policy choice applied consistently. It is not an investing outflow for a manufacturer, and IFRS does not force it into financing only. US GAAP, by contrast, requires operating classification.
- AInvesting activities only
- BOperating or financing activitiesCorrect
- CFinancing activities only
Explanation
IFRS permits interest paid to be classified as either an operating or a financing cash flow, provided the choice is applied consistently. Classifying it only as financing or only as investing is too restrictive; investing is not permitted for interest paid by a non-financial entity.
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