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CS Executive · Corporate Accounting and Financial Management · Cash Flows

Under the indirect method of reporting cash flows from operating activities, the starting figure is adjusted for the effects of which of the following?

Under the indirect method, profit or loss is adjusted for changes in inventories and operating receivables and payables, for non-cash items such as depreciation and provisions, and for items whose cash effects are investing or financing cash flows, as stated in paragraph 20 of Ind AS 7 and AS 3.

  1. AChanges during the period in inventories and operating receivables and payables, non-cash items, and items whose cash effects are investing or financing flowsCorrect
  2. BOnly changes in cash and bank balances during the period
  3. COnly the dividends declared and interest accrued during the period
  4. DOnly the proceeds from issue of shares and borrowings during the period

Explanation

Paragraph 20 of Ind AS 7 and AS 3 says that under the indirect method profit or loss is adjusted for (a) changes in inventories and operating receivables and payables, (b) non-cash items such as depreciation and provisions, and (c) other items whose cash effects are investing or financing cash flows. The other options describe only unrelated or partial items.

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