Question

David has a good understanding of the differences between a statement of cash flows prepared using the direct method versus one prepared using the indirect method. Before making a final decision on which method Act Co. will use to prepare its statement of cash flows, David has asked the auditor, Laughlin, to explain the disclosure requirements specific to the indirect method, aside from the reconciliation requirements. Find authoritative guidance that responds to this inquiry. Enter your response in the answer fields below. Guidance on correctly structuring your response appears above and below the answer fields.

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Answer 1

Following are the disclosure requirement specific to indirect method aside from the reconciliation requirement:
We can find out Cash flows of a business under a indirect method by classifying it as:
(1) Cash flows from Operating activity
(2) Cash flows from Investing activity
(3) Cash flows from Financing activity
To find out cash flows from Operating activity following disclosure are required:
(a) Net income of the business
(b) Depreciation/Amortisation provided during the year
(c) Increase/Decrease in accounts receivable/payable
(d) Gain/Loss in sale of Asset
(e) Change in inventory
(f) Any provisions made during the year
To find out cash flows from Investing activity following disclosure are required:
(a) Purchase of property, plant, and equipment
(b) Proceeds from sale of an Fixed assets/Equipment
To find out cash flows from Financing activity following disclosure are required:
(a) Proceeds from issue of shares.
(b) Proceeds from issue of any debentures/Any bank loan taken
(c) Buy back of shares if any
(d) Dividends paid if any