Question

All of the following statements related to preparation of the statement of cash flows under U.S. GAAP and IFRS are true except: Multiple Choice Both U.S. GAAP and IFRS permit the reporting of cash flows from operating activities using either the direct or indirect method. IFRS permits classification of interest expense under operating or financing activities provided it is consistently applied across periods. IFRS permits the splitting of income tax cash flows among operating, investing, and financing depending on the sources of that tax. U.S. GAAP requires cash outflows for income tax be classified as operating activities. IFRS permits classification of cash outflows for interest expense under operating or financing based on which one results in better cash flows from operating activities.

Answer 1

Answer: IFRS permits the classification of cash outflows for interest expense under operating or financing based on which one results in better cash flows from operating activities.

Explanation: The cash flow statement includes only inflows and outflows of cash and cash equivalents; it excludes transactions that do not directly affect cash receipts and payments. These non-cash transactions include depreciation or write-offs on bad debts or credit losses to name a few.