Action Carpets Ltd. recently became publicly traded. A few years ago, the company reported under ASPE and it did not really change the way that it presented the statement of cash flows when it adopted IFRS upon going public. The CEO of Action has just read a newspaper article comparing her company with Discount Carpets Ltd., which is another public company. She is angry because the article claimed that Discount was "better" because it had higher net cash flows from operating activities. As the CFO of Action, you have been asked to explain to your boss how the author of the newspaper article may be mistaken because he is unaware of the choices that can made under IFRS when presenting the statement of cash flows. You are pretty sure that the choices made by Discount were ones that would maximize its operating cash flow.
Instructions
(a) Using your understanding of the differences between IFRS and ASPE with regard to the presentation of information on the statement of cash flows, explain the choices that Discount Ltd. management probably made when preparing this statement for their company.
(b) Based on your answer to part (a) above, explain how each difference you covered would affect the cash current debt coverage, cash total debt coverage, and free cash flow ratios?