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ACCA Applied Knowledge · Financial Accounting · Statement of cash flows (excluding partnerships)

Which of the following statements about the statement of cash flows under IAS 7 is correct?

The correct statement is that purchases of property, plant and equipment are investing cash flows, while non-cash transactions such as shares issued in exchange for land are excluded from the statement. Bonus issues and depreciation involve no cash, and interest received is operating or investing, not financing.

  1. ACash flows from the purchase of property, plant and equipment are shown in investing activities, and a non-cash issue of shares in exchange for land is excluded from the statementCorrect
  2. BA bonus issue of shares is shown as a financing inflow
  3. CDepreciation is shown as an operating cash outflow under the direct method
  4. DInterest received is always shown in financing activities

Explanation

Purchases of non-current assets are investing outflows. IAS 7 requires transactions that do not involve cash, such as shares issued in exchange for land, to be excluded and disclosed elsewhere. A bonus issue involves no cash. Depreciation is a non-cash expense and never a cash flow. Interest received is classified as operating or investing, not as financing.

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