Question

1. How many periods should be shown in a complete set of financial statements? Is there a difference between the financial statements (as in one financial statement might require a different number of periods than a different financial statement).
2. What is the complete definition for determining whether an asset or liability should be classified as current or non-current (time period and exception)? Think back to Principles I or Intermediate I.
3. What is the difference in appearance/approach for the indirect method and the direct method of creating a cash flow statement? What sections of the cash flow statement differ between the two methods?
4. In ASC 230-10-50, it states “information about all investing and financing activities of an entity during a period that affect recognized assets or liabilities but that do not result in cash receipts or cash payments in the period shall be disclosed. Those disclosures may be either narrative or summarized in a schedule, and they shall clearly relate the cash and noncash aspects of transactions involving similar items.” Give at least 2 examples of non-cash events that may need to be disclosed on the cash flow statement.

Answer 1

A complete set of financial statement comprises the following:-

• a statement of financial position as at the end of the period
• a statement of profit and loss and other comprehensive income for the period
• a statement of cash flows for the period
• a statement showing change in equity for the period

And twelve(12) months should be shown in a complete set of financial statement.

Yes, there is difference between financial statements ( as in one financial statement might require a different number of periods than a different financial statement). For eg. Quarterly-3 months, half yearly- 6 months and annually-12 months.

Current assets are those assets which are likely to get converted into cash or cash equivalent within one year or the normal operating cycle of the business, whichever is longer.

Non-current assets are those assets which represents long term investments and cannot be converted into cash quickly. They are likely to be held by the company for more than a year.

Current liabilities are obligations that are reasonably expected to be paid from existing current assets or through the creation of other current liabilities.Current liabilities are obligations due within 1year or the normal operating cycle, whichever is longer.

Non-current or long-term liabilities are debts of the business that are due beyond one year or the normal operating cycle of the business.

In direct method of preparation of cash flow statement, operating activities are prepared on the basis of cash received from customers or payment made to vendors.

Whereas in indirect method, operating activities are prepared from the data of income statement.

The indirect method uses net income as the base and converts the income into cash flow through the use of adjustments. The direct method only takes the cash transactions into account and produces the cash flow from operations.

Non-cash events that may need to be disclosed on the cash flow statement are:-

• depreciation
• loss on sale of assets