ACCA Financial Reporting (F7) Practice Exam

What types of cash flows fall under investing activities?

1. Cash flows from issuing stocks and bonds.

2. Cash flows from the acquisition and disposal of long-term assets and investments.

3. Cash flows from routine operational expenses.

4. Cash flows related to employee salaries.

The correct answer is: Cash flows from the acquisition and disposal of long-term assets and investments.

Investing activities in the context of the statement of cash flows refer to cash transactions that involve the acquisition and disposal of long-term assets and investments. This encompasses a wide range of activities that are aimed at acquiring productive assets or investments that are expected to generate future economic benefits. The correct choice identifies cash flows that arise from these transactions, such as purchasing equipment, real estate, or investments in other companies, as well as receiving cash from selling these assets. This is essential for evaluating a company’s investment in future earnings growth, as it reflects the use of cash for long-term strategic goals. Options centered on issuing stocks and bonds pertain to financing activities rather than investing activities, as they involve raising capital rather than investing it. Similarly, cash flows associated with routine operational expenses or employee salaries relate to operating activities, which cover the day-to-day running of the business, rather than investment in long-term assets. Understanding these distinctions is crucial for accurately interpreting a company's financial position and its cash flow management.