IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

Wiley IFRS: Practical Implementation Guide and Workbook

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MULTIPLE-CHOICE QUESTIONS 1. An entity purchases a building and the seller accepts payment partly in equity shares and partly in debentures of the entity. This tra nsaction should be treated in the cash flow statement as follows: (a) The purchase of the building should be in– vesting cash outflow and the issuance of shares and the debentures financing cash outflows. (b) The purchase of the build ing should be in– vesting cash outflow and the issuance of de– bentures financing cash outflows while the issuance of shares inves ting cash outflow. (c) This does not belong in a cash flow state– ment and should be disclosed only in the footnotes to the financial statements. (d) Ignore the transac tion totally since it is a Answer: (c) 2. An entity (other than a financial institution) re– ceives dividends from its investment in shares. How should it disclose the dividend s received in the cash flow statement prepared under lAS 7? (a) Operating cash inflow. (b) Either as operating cash inflow or as invest– ing cash inflow. (c) Either as operating cash inflow or as financ– ing cash inflow. (d) As an adjustment in the "operating activi– noncash transaction. No mention is required in either the cash flow statement or any– where else in the financial statements. Answer: (b) 3. How should gain on sale of an office building owned by the entity be presented in a cash flow statement? (a) As an inflow in the investing activities sec– tion of the cash flow because it pertains to a long-term asset. (b) As an inflow in the "financ ing activities" section of the cash flow statement because the building was cons tructed with a long– term loan from a bank that needs to be re– paid from the sale proceeds. (c) As an adjustment to the net income in the "operating activities" section of the cash flow statement prepared under the indirect method. (d) Added to the sale proceeds and presented in the "investing activities" section of the cash flow statement. Answer: (c) 4. How should an unrealized gain on foreign cur– rency translation be presented in a cash flow state– ment? (a) As an inflow in the "financing activities" ties" section of the cash flow because it is included in the net income for the year and as a cash inflow in the "financing activities" section of the cash flow statement.

(b) It should be ignored for the purposes of the cash flow statement as it is an unrealized gain. (c) It should be ignored for the purposes of the cash flow statement as it is an unrealized gain but it should be disclosed in the foot– notes to the financial statements by way of abundant precaution. (d) As an adj ustment to the net income in the "operating activities" sectio n of the state– ment of cash flows. Answer: (d) 5. How should repayment of a long-term loan com– prising repayment of the principal amount and interest due to date on the loan be treated in a cash flow statement? (a) The repayment of the principal portion of the loan is a cash flow belonging in the "in– vesting activities" section; the interest pay– ment belongs either in the "operating activi– ties" section or the "financing activities" section. (b) The repayment of the principal portion of the loan is a cash flow belonging in the "in– vesting activities" section; the interest pay– ment belongs either in the "operating activi– ties" section or the "investing activities" section . (c) The repayme nt of the principal portion of the loan is a cash flow belonging in the "in– vesting activities" section; the interest pay– ment belongs in the "operating activities" section (because lAS 7 does not permit any alternatives in case of interest payments). (d) The repayment of the principal portion of

the loan is a cash flow belonging in the "in– vesting activities" sectio n; the interest pay– ment should be netted against interest re– ceived on bank deposits, and the net amount of interest should be disclosed in the "oper– ating activities" section.

Answer: (a)

section of the cash flow statement because it arises from a foreign currency translation.