CA Cash Flow Management 2

Question 1

Under IAS 7, which of the following is classified as a financing activity?

Accepted Answer

Payment of dividends to shareholders

Answer

IAS 7 classifies dividends paid to shareholders as financing activities because they represent cash flows related to the entity's capital structure.

Question 2

A company has net income of $500,000, depreciation of $80,000, an increase in accounts receivable of $30,000, and a decrease in accounts payable of $20,000. What is the net cash from operating activities using the indirect method?

Accepted Answer

$530,000

Answer

$500,000 + $80,000 (add back non-cash) - $30,000 (AR increase uses cash) - $20,000 (AP decrease uses cash) = $530,000.

Question 3

Which cash flow statement presentation method shows individual cash receipts and payments from operating activities?

Accepted Answer

Direct method

Answer

The direct method lists actual cash inflows and outflows from operations, such as cash received from customers and cash paid to suppliers.

Question 4

A company's cash conversion cycle is calculated as Days Sales Outstanding plus Days Inventory Outstanding minus:

Accepted Answer

Days Payable Outstanding

Answer

The cash conversion cycle (CCC) = DSO + DIO - DPO, measuring how long cash is tied up in the operating cycle.

Question 5

Under the indirect method, how is an increase in prepaid expenses treated in the operating activities section?

Accepted Answer

Subtracted from net income

Answer

An increase in prepaid expenses represents cash paid but not yet expensed, so it is subtracted from net income to arrive at operating cash flow.

(CA) Chartered Certified Accountant Practice Test

(CA) Chartered Certified Accountant Practice Test

CA Cash Flow Management 2