Under IAS 7, which item would appear under cash flows from operating activities?

Under IAS 7, which item would appear under cash flows from operating activities?

• A. Interest income
• B. Impairment of an asset
• C. Tax paid
• D. Loss on disposal of machinery

Answer: (C)

Under IAS 7, cash flows from operating activities reflect the cash effects of the entity’s primary revenue-generating activities, including cash taxes paid to tax authorities. Taxes paid are a direct cash outflow tied to operations, so they appear in the operating section (whether you use the direct or indirect method). Impairment of an asset is a non-cash charge that reduces profit but does not involve an immediate cash outflow in the period; in the indirect method, it is added back to net profit to reconcile to cash from operations, and in the direct method it isn’t shown as a separate operating cash outflow. A loss on disposal of machinery affects the income statement but the actual cash flow relates to the sale of the asset, which is an investing activity; the loss itself is used to adjust net profit in the operating section if using the indirect method, rather than being a standalone operating cash outflow. Interest income can be classified as operating or investing depending on policy, so it isn’t as definite a fit as taxes paid.

Under IAS 7, cash flows from operating activities reflect the cash effects of the entity’s primary revenue-generating activities, including cash taxes paid to tax authorities. Taxes paid are a direct cash outflow tied to operations, so they appear in the operating section (whether you use the direct or indirect method).

Impairment of an asset is a non-cash charge that reduces profit but does not involve an immediate cash outflow in the period; in the indirect method, it is added back to net profit to reconcile to cash from operations, and in the direct method it isn’t shown as a separate operating cash outflow. A loss on disposal of machinery affects the income statement but the actual cash flow relates to the sale of the asset, which is an investing activity; the loss itself is used to adjust net profit in the operating section if using the indirect method, rather than being a standalone operating cash outflow. Interest income can be classified as operating or investing depending on policy, so it isn’t as definite a fit as taxes paid.