What Method Does AASB 107 Require for the Reporting of Cash

question 4

Multiple Choice

What method does AASB 107 require for the reporting of cash flows from operating activities and what does it mean for the presentation of this category in the statement of cash flows?

• A) The derivative method is required. This means that the amounts are presented as increases or decreases in balance sheet working capital accounts.
• B) The indirect method is required. This means that the cash flows are presented as accrual amounts from the operating section of the income statement adjusted for non-cash effects.
• C) The direct method is required. This means that the gross cash flows from operating items are presented.
• D) Either the derivative method is required. This means that the amounts are presented as increases or decreases in balance sheet working capital accounts or the direct method is required. This means that the gross cash flows from operating items are presented is permitted.
• E) None of the given answers.

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Definitions:

Cash Flow

The total amount of money being transferred into and out of a business, particularly affecting liquidity.

Cost Of Capital

The return rate that a company must earn on its investment projects to maintain its market value and attract funds.

NPV

Net Present Value; a method used in capital budgeting to evaluate the profitability of an investment or project by discounting future cash flows.

Cash Flow

Cash flow represents the net amount of cash and cash equivalents being transferred into and out of a business, crucial for assessing its liquidity, flexibility, and overall financial health.