Question

A company under IFRS standards decides to include interest paid in the Financing Section of their Statement of Cash Flows. How will this company's Statement of Cash Flows differ from how it would appear if the company were abiding by US GAAP standards?

1)There will be no difference in the statements.
2)The company under IFRS will have lower cash flow in the financing section and higher cash flow in the operating section than the company under US GAAP.
3)The company under IFRS will have lower cash flow in the financing section and lower cash flow in the operating section than the company under US GAAP.
4)The company under IFRS will have higher cash flow in the financing section and lower cash flow in the operating section than the company under US GAAP.
5)The company under IFRS will have higher cash flow in the financing section and higher cash flow in the operating section than the company under US GAAP.

Answer 1

The company under IFRS will have lower cash flow in the financing section and higher cash flow in the operating section than the company under US GAAP.

Explanation:

Interest payments are a capital outflow and are viewed as a part of the Cash Flow Statement under US GAAP. The Cash Flow from transactions under IFRS is higher than that under the US GAAP if it is presented in the finance segment of IFRS.

As, on the other hand, the cash outflow for the company is smaller under IFRS than the US GAAP, if interest payments is included in the funding segment of IFRS.

The company under US GAAP would be required to include interest paid in the operating section, which lowers cash flows for that section