Question Bank Issue - IFRS Dividends paid CFO or CFF

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S666

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I have an issue with one of the questions on Schweser Level 1 Question Bank:
Use the following financial data for Moose Printing Corporation to calculate the cash flow from operations (CFO) using the indirect method.
  • Net income: $225
  • Increase in accounts receivable: $55
  • Decrease in inventory: $33
  • Depreciation: $65
  • Decrease in accounts payable: $25
  • Increase in wages payable: $15
  • Decrease in deferred taxes: $10
  • Purchase of new equipment: $65
  • Dividends paid: $75
A)
Increase in cash of $248.
B)
Increase in cash of $173.
C)
Increase in cash of $183.
Your answer: B was incorrect. The correct answer was A) Increase in cash of $248.
CFO for Moose Printing Corporation is calculated as follows:
+Net Income $225 − A/R $55 + Inventory $33 + Depreciation $65 − A/P $25 + Wages Payable $15 − Deferred taxes $10 = $248.
The purchase of new equipment would be an investing activity and, therefore, would not be included in the CFO. Dividends paid would be a financing activity and would not be included in the CFO.
So I was ton between A and B, knowing that under IFRS, dividends paid can be classified as EITHER Cash Flow from Operations OR Cash Flow from Financing.
I have had it recommended to me that when no accounting rules are mentioned (i.e. USGAAP or IFRS) - then assume IFRS. So how would you guys have answered thsi question knowing that the last item “Dividends” could be CFO or CFF.
Or am I missing something?
 
Ah could it be something as subtle as the use of Dollars as the currency meaning we should use USGAAP?
Damn it!! lol
Mind you - it doesn’t HAVE to be referring to US Dollars does it…
 
Dividends paid is usually CFF, even though it’s allowed to include them in CFO.
Use that by default.
 
Thanks for the response - I guess the answer to this question would imply that you are correct in assuming we should classify dividends paid as CFF by default.
I guess this raises a more general question of other situations like this that occur, when two choices are valid but one should be chosen as default.
I don’t suppose anyone has a list anywhere - whether it’s just “ones they can think of” or something more formal. It would be a real shame to get questions “wrong” when in fact you answer was perfectly valid in the real world.
 
S666 wrote:
Thanks for the response - I guess the answer to this question would imply that you are correct in assuming we should classify dividends paid as CFF by default.
I guess this raises a more general question of other situations like this that occur, when two choices are valid but one should be chosen as default.
I don’t suppose anyone has a list anywhere - whether it’s just “ones they can think of” or something more formal. It would be a real shame to get questions “wrong” when in fact you answer was perfectly valid in the real world.
Click to expand...
Should be made clear on the CFAI questions.
 
Never in my professional life have I seen dividends as a CFO. I understand its acceptable under IFRS, but I think its ridiculous and apparently so does every CFO in the world.
 
Hi Geo - yeah I guess that shows up my complete lack of exposure to FRA in the real world - I work as a derivatives trader so little need to start clasifying cash flows etc.
What’s obvious to one, isn’t always obvious to another. Saying as this is preperation for the “real world” though, I guess that’s just the way it is :D
 
^ I’m sure there were derivatives questions that I felt the same on as you do about FRA. Just the nature of the game.
However, I’d agree this is a bad question as your answer could technically be right.
 
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