STATEMENT

OF CASH FLOWS
PAS 7
Objective
• The objective of this Standard is to require the provision of
information about the historical changes in cash and cash equivalents
of an entity by means of a statement of cash flows which classifies
cash flows during the period from operating, investing and financing
activities.
Benefits of cash flow information
Provides information that enables users to evaluate the changes in net
assets of an entity, its financial structure (including its liquidity and
solvency) and its ability to affect the amounts and timing of cash flows
in order to adapt to changing circumstances and opportunities. Cash
DEFINITION
Statement of cash flows is a component of FS summarizing the
operating, investing and financing activities of an entity.

Simply, this provides information on cash receipts and cash payments

Cash & Cash Equivalents
• Cash – comprises cash on hand and demand deposits
• Cash equivalents- are short-term highly liquid investments that are
readily convertible to known amount of cash and which are subject to
an insignificant risk of change in value

• PAS 7 provides that an investment normally qualifies as a CE only

when it has a short maturity of 3 months or less from date of
acquisition (in other words the investment must be acquired 3
months or less before the date of maturity)
Cash & Cash Equivalents
• Cash also includes money and other negotiable instruments that is
payable in money and acceptable by the bank for deposit and
immediate credit.

• Postdated checks –not cash

• Cash set aside for payroll- CURRENT
• Cash set aside for long term loan- non current
Measurement of cash
• FACE VALUE

• Cash in foreign currency – at the current exchange rate, inlcuded in

cash
• However if subject to foreign exchange restricition, if material- non
current asset
Bank overdraft
• Liability, should not be offset on the FS

• Except if:
• Can be offset if there’s another similar account with debit balance
• immaterial
Compensating balance
• Minimum account balance
• If not legally restricted : cash
• Legally restricted: look at the related loan
• If short term loan: cash and CE
• Long term: noncurrent investment
Investments in time deposits, money market
instruments & treasury bills
• If 3 months or less- cash and cash eq
• If 3 months- 1 year- current financial asset
• If >1 yr – long term , however reclassified to 1 yr later
Classification of cash flows
Operating activities
-Cash flows from operating activities are primarily derived from the
principal revenue-producing activities of the entity

Trading securities- operating since this is there main revenue producing

activity
Classification of cash flows
Investing
-cash flows derived from the acquisition and disposal of long-term
assets and other investments not included in cash equivalent

Distinguish from securities held for trading

Classification of cash flows
Financing
Are cash flows derived from the equity capital and borrowings of the
entity

Equity financing
Debt financing
Interest
Interest paid and interest received shall be classified as operating cash
flows because they enter into the determination of income or loss.

ØFinancing because interest paid is a cost of obtaining financing

ØInvesting – ROI

ØFor financial institutions – cash flows

Dividends
• Dividends received shall be classified as operating cash flows because
they enter into the determination of income or loss.
• Investing- dividends received is ROI
• Financing- dividends paid is a cost of obtaining financing
• Operating- dividends paid – in order to assist users to determine the
ability of the entity to pay dividends out of operating cash flows
Income taxes
• Operating activities unless they can be classified as investing and
financing