Under International Financial Reporting Standards (IFRS), reported operating cash flows are most likely to be increased by the classification choice made for: A) Dividends paid B) Interest expense C) Impairement losses on fixed assets The correct answer is B. Can anyone explain why. Thanks!
Under IFRS Interest Expense can be classified CFO (cash flow from operatings) or CFF (cash flow from financing), there is no bigger/deeper insight. I don’t see any alternative than learning those by heart.
Remember also, that under US GAAP interest expense is always CFO.
Similarly, using the same arguement, even dividends paid (in IFRS) can be classified as operating or financing cash flows. So, why is it the wrong answer?
That is a good point, I do not see why A) would not be correct.
Apart from that, both A) and B) would actually decrease the CFO, since they are cash outflows.
Where is the question from, maybe they made a mistake.
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Ah of course, thanks for pointing this out!
Under the direct method we deduct interest paid. Under the indirect we have to add it back to Net Income, since it is no cash as you said.