GlaxoSmithKline, a British company, is one of the largest pharmaceutical firms in the world. Refer to GlaxoSmithKline's 2008 statement of cash flows and answer the following questions.

1. International accounting standards treat interest paid and interest received differently than those items are treated in the United States. Interest paid and interest received are classified as operating activities in the United States. Where are they classified on GlaxoSmithKline's statement of cash flows, and what do you think is the reasoning behind the classification?

2. Note that GlaxoSmithKline includes a reconciliation of operating profit to operating cash flow separate from the operating activities section of the statement of cash flows. Why do you think it would dothat?

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GlaxoSmithKline plc Consolidated Statement of Cash Flows 31st December 2008 (in millions of £) 2008 2007 2006 Reconciliation of operating profit to operating cash flows £m £m £m Operating profit Depreciation.. Impairment and assets written off. Amortization of intangible assets (Profit/Loss on sales of intangible assets Profit on sale of equity investments. Decrease/lincrease) in inventories Increase in trade and other receivables 7,593 7,141 920 7,808 732 796 436 206 208 311 226 226 (170) (5) (158) (33) (32) (18) (298) (411) (457) 541 (79) (529) 354 (201) (187) Increase/decrease) in trade and other payables (Decrease)/increase in pension and other provisions Share based incentive plans. 548 (123) (270) 241 237 226 Other (268) (95) (78) 8,080 9,055 8,203 Net cash inflow from operating actites Cash flow statement Cash flows from operating activities Cash generated from operations Taxation paid. Net cash inflow from operating actvities. 8,080 (1,919) 6,161 9,055 (1,850) 7,205 8,203 (3,846) 4,357 Cash flow from investing activities Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment. Proceeds from sale of intangible assets Purchase of intangible assets. Purchase of equity investments Proceeds from sale of equity instruments Share transactions with minority shareholders Purchase of businesses, net of cash acquired Disposal of businesses and interest in associates Investments in associates and joint ventures Decrease/lincrease) in liquid investments .. Interest received. Dividends from associates and joint ventures. Net cash outflow from investing activities (1,366) 43 (1,437) 20 (1,516) 35 171 175 (627) (186) (224) (57) (632) (87) 42 45 32 (157) (454) (1,027) (273) (9) (1) (39) (13) (55) 905 320 247 299 12 12 15 (1,149) (3,048) (1,576) Cash flow from financing activities Shares acquired by ESOP trusts. Proceeds from own shares for employee share options Issue of share capital. Share capital purchased for cancellation. Purchase of Treasury shares Increase in long-term loans. (19) (26) 9. I16 151 316 62 417 (213) (3,538) 3,483 (3,706) (1,348) 5,523