*****************Target**************************** Give an opinion on whether y
ID: 2602385 • Letter: #
Question
*****************Target****************************
Give an opinion on whether you would have used the same method to present the statement of cash flows. What changes would have been made if the company had chosen to use the other method available?
Find a recent annual report for a firm with business acquisitions (e.g., Compaq, GE). Locate the firm's consolidated statement of cash flows and answer the following:
Does the firm employ the direct or indirect method of accounting for operating cash flows?
How does the firm account for the balances in balance sheet operating accounts (e.g., accounts receivable, inventory, accounts payable) in determining operating cash flows?
Describe the accounting for cash paid for business acquisitions in the statement of cash flows.
Describe the accounting for any noncontrolling subsidiary interest, acquired in-process research and development costs, and any other business combination–related items in the consolidated statement of cash flows.
Explanation / Answer
The preparation of cash flow statements there is two metals that are
1) Direct method
2) Indirect method
If the company want to choose another method instead of current method of preparing cash flow statements the company needs to show the fact of change in method in notes to accounts.
If there is change in any method does not lead to change in accounting policy so there will be only prospective effect.
In the case of change in method for preparing cash flow statements there will be no difference in cash flows.
Normally companies adopt indirect method for preparing cash flow statements.
In the case of current assets increasing in current assets leads to reduction of cash flows so we have to deduct it from net profit before taxes and extraordinary items. In the case of current liabilities the increase in current liabilities should be added to the above to know the operating cash flows.
When a business required then that should be shown under the held cash flows from investment activities.
In the case of consolidated financial statements the cash investment in associate will be treated as investment activity and should be shown in the activity of cash flow from investment activities. Of cash flow from investment activities
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