IAS 7: CONSOLIDATED STATEMENT OF CASH FLOWS:
GS Vol 2: Chap 17; IAS 7 & IAS 1
− Basically: What happened to Bank Account from O/B to C/B.
− Heading:
o NAME OF GROUP
o Consolidated Statement of Cash Flows for the year ending…
Objective
− Useful info wrt how the entity generated cash and how they spent their money.
− Headings:
o Operating activities +
o Investing activities +
o Financing activities =
o Net change in cash and cash equivalents (=C/B of Bank – O/B of Bank =
Movement)
Scope (Par .1-.3)
− Applicable to all companies that comply with IFRS
− IAS 7 requires comparatives BUT for FA 379 only disclose 1 year
Benefits of cash flow information (Par .4-.5)
Definitions (Par .6)
− Demand deposit: savings account
− Cash equivalents: 32 day investment account
Cash and cash equivalents (Par .7-.9)
− (.8) Bank overdraft and Credit cards = short term = cash equivalents (Loan are usually
long-term)
− (.9) Transfer from savings to CC → Not inflow or outflow (NOT CASH FLOW) and thus is
not on SCF
Presentation of a statement of cash flows (Par .10-.12)
− (.12) Sometimes a single transaction is more than one type of activity
o E.g. Dt Interest paid(P/L); Dt Loan (SFP) and Ct Bank (SFP)
Operating activities (Par .13-.15)
− Normal course of trading, day-to-day and generated from main business.
− (.15) Normally loans/securities would fall under financing activity, BUT for should they trade
in those items → will be an operating activity
o THUS DEPENDENT ON THE TYPE OF BUSINESS
Investing activities (Par .16)
Financing activities (Par .17)
− Providers of capital = lenders
− Concerns equity and loans payable
− Finance lease liability
o Purchase asset on a fiancé lease: Dt Asset (SPF) Ct Finance lease loan (SFP)
o Pay finance lease: Dt Finance lease loan (SFP) Ct Bank (SFP)
− Equity Transactions
o NB: Proceeds/ payments on sale/ purchase of partial interest in existing subsidiary
o Sub →acquire → sub
o Sub → sell → sub
o RI by sub
o All the rest will be investment activities
1
,Reporting cash flows from operating activities (Par .18-.20)
− DIRECT METHOD only
Reporting cash flow from investing and financing activities (Par .21)
− General rule: Can’t set off receipts and payments against each other, EXCEPT:
Reporting cash flows on a net basis (Par .22-.24)
− .22(a): E.g. a leasing agent – pay agent, but the agent pays the owner immediately.
− .22(b): E.g. shares on JSE buy + sell
Interest and dividends (Par .31-.34)
− Classify based on nature (.33 – .34)
− BUT will always be operating activities (for our purposes)
− Dt Interest (P/L)– operating; Ct Bank (SFP)
− Borrowing costs capitalized: Dt Loan (SFP)– financing; Ct Bank (SFP)
− Not to disclose Total Interest
Taxes on income (Par .35-.36)
− E.g. Tax recoupment relating to sale of PPE of which proceeds on sale are included in
investing activities.
− Always an operating activity (for our purposes)
Investments in S, A and J (Par .37)
− Purchase of a sub: Dt Investment; Ct Bank
− Restrict reporting in SCF to actual cash flows.
o Dt Bank; Ct Div/Interest
− Profit entitlement? Cash flow?
o No, as not actually receiving it – transferred to the P via dividends.
− Ass: Dt Investment; Ct Equity Profit
o NO BANK; NO CASH FLOW.
o Profit portion attributable to H not cash flows
Acquisition and disposal of subsidiaries and other businesses (Par .39-.42)
− Disclosure in a note (.40)
o Total consideration paid/received: Set off with the Bank of the Sub
− See Appendix A:Notes to SCF (A)
− E.g. INVESTING ACTIVITIES:
o 0 → Sub
o Ass → Sub
o Sub → 0
o Sub → Ass
o 0 (Inv)→ Ass
o Ass → Ass (sell and buy)
o Ass → 0 (Inv)
− FINANCING ACTIVITY:
o Sub →Sub (sell and buy)
o RI by Sub
Non-cash transactions (Par .43-.44)
− Acquisition of assets by means of a finance lease
o Purchase an asset with a loan – no cash involved – but part of investing and
financing activities (effects these transactions): Dt Asset; Ct Finance Lease Loan
− Acquisition of an entity by means of an equity issue
o Dt Investment in Sub; Ct Share capital
− Conversion of debt to equity
o E.g. converting debentures into share capital: Dt Debentures; Ct Share capital
− The above are disclosed in Notes, not in the SCF
2
,Components of cash and cash equivalents (Par .45-.47)
− Disclosed in the notes (Bank consists of…)
− Appendix A: Notes to SCF (C)
Note:
Debtors: (increase)/decrease
- Cash receipts from clients
Inventory: (increase)/decrease
Creditors: increase/(decrease)
- Cash paid to suppliers and employees
3
, Example 1:STEP BY STEP METHOD – BASIC CASH FLOW
Pure cash concept ie only transactions of which one entry affects the bank account as included in
the cash flow statement.
1. Know the format:
Outflows = amounts between brackets; Inflows = amounts without brackets (also applicable to
notes)
STATEMENT OF CASH FLOWS OF ZZZ LIMITED FOR THE YEAR ENDED 30 JUNE 2004
Calc. / Note
Net cash ...(in/out) flow from operating activities TOTAL
Cash receipts from clients (sales/revenue) 2+3 xxx
Cash payments to suppliers and employees (purchases/salaries) 4+5 (xx)
Net cash generated by operations total
Interest received xxx
Dividends received xxx
Interest paid (xxx)
Dividends paid 6 (xxx)
Taxation paid → include C/Y + deferred tax 7 (xxx)
Net cash ...flow from investing activities
TOTAL
Replacement of plant and equipment (xxx)
Additions/Expansions to plant and equipment (xxx)
Additions to fixed property (xxx)
Proceeds on sale of plant and equipment xxx
Net cash ...flow from financing activities
TOTAL
Proceeds from shares issued (share capital account increased) xxx
Proceeds from long term loans incurred xxx
Long term loans repaid (xxx)
Net ...(in/de)crease in cash and cash equivalents = movement for the year Sum of
Totals
BUT
RATHER
WORK
FROM THE
BOTTOM
XXX
Cash and cash equivalents opening of period (SFP) XX
Cash and cash equivalents end of period (SFP) 1 XX
2. Calculation of cash receipts of clients xxx
Revenue – services rendered/Sales - goods xxx
(Increase)/decrease in debtors (xx)/xx
3. Reconcile debtors Dr
Cr
Opening balance (add back any allowance for credit losses) xx
Bad debt (include) xx
Increase / decrease in debtors xx
End balance (add back allowance for credit losses) xx
xx xx
Balance's are before allowance for credit losses
4
GS Vol 2: Chap 17; IAS 7 & IAS 1
− Basically: What happened to Bank Account from O/B to C/B.
− Heading:
o NAME OF GROUP
o Consolidated Statement of Cash Flows for the year ending…
Objective
− Useful info wrt how the entity generated cash and how they spent their money.
− Headings:
o Operating activities +
o Investing activities +
o Financing activities =
o Net change in cash and cash equivalents (=C/B of Bank – O/B of Bank =
Movement)
Scope (Par .1-.3)
− Applicable to all companies that comply with IFRS
− IAS 7 requires comparatives BUT for FA 379 only disclose 1 year
Benefits of cash flow information (Par .4-.5)
Definitions (Par .6)
− Demand deposit: savings account
− Cash equivalents: 32 day investment account
Cash and cash equivalents (Par .7-.9)
− (.8) Bank overdraft and Credit cards = short term = cash equivalents (Loan are usually
long-term)
− (.9) Transfer from savings to CC → Not inflow or outflow (NOT CASH FLOW) and thus is
not on SCF
Presentation of a statement of cash flows (Par .10-.12)
− (.12) Sometimes a single transaction is more than one type of activity
o E.g. Dt Interest paid(P/L); Dt Loan (SFP) and Ct Bank (SFP)
Operating activities (Par .13-.15)
− Normal course of trading, day-to-day and generated from main business.
− (.15) Normally loans/securities would fall under financing activity, BUT for should they trade
in those items → will be an operating activity
o THUS DEPENDENT ON THE TYPE OF BUSINESS
Investing activities (Par .16)
Financing activities (Par .17)
− Providers of capital = lenders
− Concerns equity and loans payable
− Finance lease liability
o Purchase asset on a fiancé lease: Dt Asset (SPF) Ct Finance lease loan (SFP)
o Pay finance lease: Dt Finance lease loan (SFP) Ct Bank (SFP)
− Equity Transactions
o NB: Proceeds/ payments on sale/ purchase of partial interest in existing subsidiary
o Sub →acquire → sub
o Sub → sell → sub
o RI by sub
o All the rest will be investment activities
1
,Reporting cash flows from operating activities (Par .18-.20)
− DIRECT METHOD only
Reporting cash flow from investing and financing activities (Par .21)
− General rule: Can’t set off receipts and payments against each other, EXCEPT:
Reporting cash flows on a net basis (Par .22-.24)
− .22(a): E.g. a leasing agent – pay agent, but the agent pays the owner immediately.
− .22(b): E.g. shares on JSE buy + sell
Interest and dividends (Par .31-.34)
− Classify based on nature (.33 – .34)
− BUT will always be operating activities (for our purposes)
− Dt Interest (P/L)– operating; Ct Bank (SFP)
− Borrowing costs capitalized: Dt Loan (SFP)– financing; Ct Bank (SFP)
− Not to disclose Total Interest
Taxes on income (Par .35-.36)
− E.g. Tax recoupment relating to sale of PPE of which proceeds on sale are included in
investing activities.
− Always an operating activity (for our purposes)
Investments in S, A and J (Par .37)
− Purchase of a sub: Dt Investment; Ct Bank
− Restrict reporting in SCF to actual cash flows.
o Dt Bank; Ct Div/Interest
− Profit entitlement? Cash flow?
o No, as not actually receiving it – transferred to the P via dividends.
− Ass: Dt Investment; Ct Equity Profit
o NO BANK; NO CASH FLOW.
o Profit portion attributable to H not cash flows
Acquisition and disposal of subsidiaries and other businesses (Par .39-.42)
− Disclosure in a note (.40)
o Total consideration paid/received: Set off with the Bank of the Sub
− See Appendix A:Notes to SCF (A)
− E.g. INVESTING ACTIVITIES:
o 0 → Sub
o Ass → Sub
o Sub → 0
o Sub → Ass
o 0 (Inv)→ Ass
o Ass → Ass (sell and buy)
o Ass → 0 (Inv)
− FINANCING ACTIVITY:
o Sub →Sub (sell and buy)
o RI by Sub
Non-cash transactions (Par .43-.44)
− Acquisition of assets by means of a finance lease
o Purchase an asset with a loan – no cash involved – but part of investing and
financing activities (effects these transactions): Dt Asset; Ct Finance Lease Loan
− Acquisition of an entity by means of an equity issue
o Dt Investment in Sub; Ct Share capital
− Conversion of debt to equity
o E.g. converting debentures into share capital: Dt Debentures; Ct Share capital
− The above are disclosed in Notes, not in the SCF
2
,Components of cash and cash equivalents (Par .45-.47)
− Disclosed in the notes (Bank consists of…)
− Appendix A: Notes to SCF (C)
Note:
Debtors: (increase)/decrease
- Cash receipts from clients
Inventory: (increase)/decrease
Creditors: increase/(decrease)
- Cash paid to suppliers and employees
3
, Example 1:STEP BY STEP METHOD – BASIC CASH FLOW
Pure cash concept ie only transactions of which one entry affects the bank account as included in
the cash flow statement.
1. Know the format:
Outflows = amounts between brackets; Inflows = amounts without brackets (also applicable to
notes)
STATEMENT OF CASH FLOWS OF ZZZ LIMITED FOR THE YEAR ENDED 30 JUNE 2004
Calc. / Note
Net cash ...(in/out) flow from operating activities TOTAL
Cash receipts from clients (sales/revenue) 2+3 xxx
Cash payments to suppliers and employees (purchases/salaries) 4+5 (xx)
Net cash generated by operations total
Interest received xxx
Dividends received xxx
Interest paid (xxx)
Dividends paid 6 (xxx)
Taxation paid → include C/Y + deferred tax 7 (xxx)
Net cash ...flow from investing activities
TOTAL
Replacement of plant and equipment (xxx)
Additions/Expansions to plant and equipment (xxx)
Additions to fixed property (xxx)
Proceeds on sale of plant and equipment xxx
Net cash ...flow from financing activities
TOTAL
Proceeds from shares issued (share capital account increased) xxx
Proceeds from long term loans incurred xxx
Long term loans repaid (xxx)
Net ...(in/de)crease in cash and cash equivalents = movement for the year Sum of
Totals
BUT
RATHER
WORK
FROM THE
BOTTOM
XXX
Cash and cash equivalents opening of period (SFP) XX
Cash and cash equivalents end of period (SFP) 1 XX
2. Calculation of cash receipts of clients xxx
Revenue – services rendered/Sales - goods xxx
(Increase)/decrease in debtors (xx)/xx
3. Reconcile debtors Dr
Cr
Opening balance (add back any allowance for credit losses) xx
Bad debt (include) xx
Increase / decrease in debtors xx
End balance (add back allowance for credit losses) xx
xx xx
Balance's are before allowance for credit losses
4
