Chapter 16 Group Cash Flow

chapter 16
Group cash flow statements
Contents
Introduction
Examination context
Topic List
1 Individual company cash flow statements
2 Group cash flow statements
Summary and Self-test
Technical reference
Answers to Self-test
Answers to Interactive questions
© The Institute of Chartered Accountants in England and Wales, March 2009 611
Financial accounting
Introduction
Learning objectives Tick off

 Prepare a cash flow statement for an individual entity including the effects of payments of
instalments under finance leases
 Prepare a consolidated cash flow statement including the effects of
– Dividends paid to the minority interest
– Dividends received from associates
– Acquisitions/disposals of subsidiaries/associates
Specific syllabus references for this chapter are: 2c, 3e.
Practical significance
As we saw in Chapter 3, a company’s performance and prospects often depend not so much on the profits
earned in a period, but on liquidity and cash flows. This same principle is also true of a group of companies.
Stop and think

What do you think are the benefits of a consolidated cash flow statement to the shareholders of the parent
company?
Working context
As we saw in Chapter 3, the cash flow statement forms an important part of the financial statements which
will need to be prepared and audited. The work performed in preparing a consolidated cash flow statement
will be very similar to that performed in preparing an individual cash flow statement. However, the impact
of a number of additional issues will need to be considered. These include the impact of minority interests,
the treatment of associates and the treatment of acquisitions and disposals of associates or subsidiaries.
Syllabus links
This chapter develops many of the ideas which were introduced in Chapter 3. As you will see, the process
involved in preparing a consolidated cash flow statement is very similar to that used in the preparation of a
cash flow statement for an individual entity.
The preparation of individual and consolidated cash flow statements is also highly relevant in the Financial &
Corporate Reporting paper at the Advanced Stage, where the emphasis will change to the analysis and
interpretation of these statements.
612 © The Institute of Chartered Accountants in England and Wales, March 2009
GROUP CASH FLOW STATEMENT 16
Examination context
Exam requirements
Group accounts represent 35% of the syllabus and it is likely that the consolidated cash flow statement will
be examined regularly either in the written test section of the paper or in the short-form questions section.
In an examination you could either be asked to prepare a full consolidated cash flow statement (from
consolidated income statement, consolidated balance sheet and notes) or to prepare consolidated cash flow
extracts and/or answer a number of short-form questions.
In the examination candidates may be required to:
 Prepare and present a consolidated cash flow statement for a group of companies including
subsidiaries and associates
 Prepare extracts from a consolidated cash flow statement
 Prepare simple cash flow statement extracts in accordance with BFRS
1 Individual company cash flow statements
Section overview
 The cash flow statement of an individual entity was covered in Chapter 3.
 An instalment paid under a finance lease must be split between interest and capital repaid and the
two elements presented separately in the cash flow statement.
1.1 Revision
As we saw in Chapter 3 the objective of a cash flow statement is to provide information about the
historical changes in cash and cash equivalents during the accounting period.
In accordance with BAS 7 Cash Flow Statements cash flows are classified under the following headings:
 Cash flows from operating activities
 Cash flows from investing activities
 Cash flows from financing activities
Cash generated from operations is shown as part of cash flows from operating activities. A note to the cash
flow statement is then presented showing how the cash generated from operations has been calculated
using:
 The direct method; or
 The indirect method.
Refer back to Chapter 3 if you need a reminder of the proforma for a cash flow statement and its
supporting note.
1.2 Finance leases

The payment of an instalment under a finance lease represents a cash outflow which must be reflected in
the cash flow statement. As we saw in Chapter 8, however, an individual instalment may represent
the repayment of interest accrued to date and a repayment of a proportion of the capital
outstanding. For the purposes of preparing the cash flow statement these two elements must be
presented separately as follows:
 The repayment of interest is presented within interest paid as part of cash flows from
operating activities
 The repayment of capital is presented as a separate item under cash flows from financing
activities.
Points to note
1 The acquisition of assets under a finance lease requires separate disclosure as a non-cash transaction (see
Chapter 3 section 6).
2 For the purposes of the cash flow statement additions to PPE should exclude the effects of any new assets
acquired under finance leases as these have not been purchased for cash.
Interactive question 1: Finance lease [Difficulty level: Easy]

Camel Ltd enters into a finance lease on 1 January 20X7. Lease payments comprise three annual payments
of CU10,000 commencing on 31 December 20X7. The asset would have cost CU24,869 to buy outright.
The implicit interest rate is 10%.
Requirement
Show the effect of the finance lease on the cash flow statement on the basis that Camel Ltd uses the
actuarial method to allocate interest to the periods of borrowing.
Complete the proforma below.
Solution
Cash flow (extract) statement for the year ended 31 December 20X7 CU
Cash flows from operating activities

Interest paid
Cash flows from financing activities
Payment of finance lease liabilities
WORKING
Interest Payment 31
Bal b/f accrued December Bal c/f
Year ended 31 December 20X7 1.1.X7 at 10% 20X7 31.12.X7
CU CU CU CU
See Answer at the end of this chapter.
Section overview
 The consolidated cash flow statement shows the cash flows of the group (i.e. parent and subsidiaries)
with third parties.
 The basis of preparation is essentially the same as for the individual cash flow statement.
 Dividends to the minority interest are disclosed separately, classified as cash flows from financing
activities.
 Dividends received from associates are disclosed separately classified as cash flows from investing
activities.
 The net cash effect of the acquisition/disposal of a subsidiary should be disclosed separately and
classified as cash flows from investing activities.
 Cash receipts/payments to acquire/dispose of associates should be classified as cash flows from
investing activities.
2.1 Basic principle

In principle the preparation of the group cash flow statement is the same as that for the individual entity in
that balance sheet and income statement information is converted into cash flow information, the difference
being that this source information is consolidated.
The aim of the consolidated cash flow statement is to show the cash flows of the group with
third parties. (This is consistent with the preparation of the consolidated balance sheet and consolidated
income statement.) This is achieved ‘automatically’ as the information forming the basis of the preparation
of the consolidated cash flow statement (i.e. the consolidated income statement and consolidated balance
sheet) has already been adjusted for intra-group transactions.
A number of additional issues do need to be considered however:
 Cash flows to the minority interest
 Cash received from associates
 Acquisitions/disposals of subsidiaries
 Acquisitions/disposals of associates
We will consider each of these in the remainder of this chapter.
2.2 Cash flows to the minority interest

The minority interest represents a third party so dividends paid to the minority interest should be
reflected as a cash outflow. This payment should be presented separately and classified as ‘Cash flows
from financing activities’.
As we saw in Chapter 3 many of the cash flows were calculated by using a T account working. This
technique also applies to the consolidated cash flow statement. Dividends paid to the minority interest may
be calculated using a T account as follows:
MINORITY INTEREST
CU CU
b/f MI (CBS) X
MI (CIS) X
MI dividend paid (balancing figure) X
c/f MI (CBS) X
X X
Interactive question 2: Minority interest [Difficulty level: Exam standard]

Consolidated income statement (extract) for the year ended 31 December 20X7
CU'000
Group profit before tax 60
Income tax expense (20)
Profit for the period 40
Attributable to: 30
Equity holders of the parent 10
Minority interest 40
Consolidated balance sheet (extract) as at 31 December
20X7 20X6
CU'000 CU'000
Minority interest 204 200
Requirement
Calculate the dividend paid to the minority interest during 20X7.
Complete the T account below.
MINORITY INTEREST
CU'000 CU'000
2.3 Associates
There are two issues to consider with regard to the associate:
1 The aim of the cash flow statement is to show the cash flows of the parent and any subsidiaries with
third parties, therefore any cash flows between the associate and third parties are irrelevant.
As a result, the group share of profit of the associate must be deducted as an adjustment in
the reconciliation of profit before tax to cash generated from operations. This is because
group profit before tax includes the results of the associate.
Worked example: Cash flows from operating activities

CU'000
Group profit from operations 273
Share of profit of associates 60
Profit before tax 333
Consolidated balance sheet (extracts) as at 31 December
20X7 20X6
CU’000 CU’000
Inventories 867 694
Receivables 1,329 1,218
Cash generated from operations would be calculated and shown as follows:
CU'000
Adjustments for:
Share of profit of associates (60)
273
Increase in trade receivables (1,329 – 1,218) (111)
Increase in inventories (867 – 694) (173)
Cash absorbed by operations (11)
2 Dividends received from the associate must be disclosed as a separate cash flow classified as
‘Cash flows from investing activities’. The cash receipt can be calculated as follows:
INVESTMENTS IN ASSOCIATES
CU CU
b/f Inv in A (CBS) X
Share of profit of A (CIS) X Dividend received (balancing figure) X
c/f Inv in A (CBS) X
X X
Interactive question 3: Dividends received from associates

[Difficulty level: Exam standard]
CU'000
Consolidated balance sheet (extract) as at 31 December
20X7 20X6
CU’000 CU’000
Investments in associates 184 176
Requirement
Calculate the dividend received from associates during 20X7.
Complete the T account below.
CU'000 CU'000
2.4 Acquisitions and disposals of subsidiaries

If a subsidiary is acquired or disposed of during the accounting period the net cash effect of the
purchase or sale transaction should be shown separately under ‘Cash flows from investing
activities’. The net cash effect will be the cash purchase price/cash disposal proceeds net of any cash or
cash equivalents acquired or disposed of.
Worked example: Acquisition of a subsidiary

Warwick Ltd acquired 75% of Leamington Ltd by issuing 250,000 CU1 shares at an agreed value of CU2.50
and CU200,000 in cash. At the date of acquisition the cash and cash equivalents in Leamington Ltd’s balance
sheet amounted to CU30,000.
In the cash flow statement this would be shown as follows:
CU'000
Cash flows from investing activities
Acquisition of subsidiary Leamington Ltd, net of cash acquired (200 – 30) (170)
Disclosure is required in the notes to the cash flow statement of the following in aggregate in respect
of both acquisitions and disposals of subsidiaries during the period:
 Total purchase price/disposal consideration
 Portion of purchase price/disposal consideration discharged by means of cash and cash
equivalents
 Amount of cash and cash equivalents in the subsidiary acquired or disposed of
 Amount of assets and liabilities other than cash and cash equivalents in the subsidiary acquired
or disposed of, summarised by major category.
Examples of these disclosures can be found in BAS 7 Appendix A.
Point to note
As the cash effect of the acquisition/disposal of the subsidiary is dealt with in a single line item as we saw
above, care must be taken not to double count the effects of the acquisition/disposal when
looking at the movements in individual asset balances.
Each of the individual assets and liabilities of a subsidiary acquired/disposed of during the period must be
excluded when comparing group balance sheets for cash flow calculations as follows:
Subsidiary acquired in the period Subtract PPE, inventories, payables, receivables

etc at the date of acquisition from the movement
on these items.
Subsidiary disposed of in the period Add PPE, inventories, payables, receivables etc at
the date of disposal to the movements on these
items.
This would also affect the calculation of the dividend paid to the minority interest. The T account
working introduced in section 2.2 above would be modified as follows:
MINORITY INTEREST
CU CU
MI in S at disposal X b/f MI (CBS) X
MI dividend paid (balancing figure) X MI in S at acquisition X
c/f MI (CBS) X MI (CIS) X
X X
Worked example: Calculating cash flows

Continuing from the worked example above (Acquisition of a subsidiary) you have the following additional
information.
Consolidated balance sheet (extract) of Warwick Ltd at 31 December
20X7 20X6
CU000 CU000
Property, plant and equipment 500 400
At the date of acquisition Leamington Ltd’s balance sheet included property, plant and equipment at a cost
of CU75,000.
There were no disposals of property, plant and equipment in the period.
Calculate the amount to be disclosed as ‘Purchase of property, plant and equipment’ under ‘Cash flows
from investing activities’.
Solution
Normally, when preparing the cash flow statement, a comparison of the opening and closing assets would
be made to determine the cost of additions. In this case if we make the comparison there are CU100,000 of
additional assets (500 – 400). However, CU75,000 of these additional assets are as a result of the
acquisition of the subsidiary. The cash outflow due to the purchase of the subsidiary as a whole is dealt
with separately as we described above, therefore we are only concerned with any other assets purchased.
Therefore the information would be presented as follows:
CU
Acquisition of subsidiary Leamington Ltd, net of cash acquired (170)
Purchase of property, plant and equipment (500 – 400 – 75) (25)
Alternatively the adjustment could be made in a T account working as follows:
PROPERTY, PLANT AND EQUIPMENT – COST ACCOUNT
CU'000 CU'000
b/f 400
On acquisition 75
Additions (balancing figure) 25 c/f 500
500 500
Interactive question 4: Acquisition of a subsidiary [Difficulty level: Exam standard]

On 1 October 20X8 P Ltd acquired 90% of S Ltd by issuing 100,000 shares at an agreed value of CU2 per
share and paying CU100,000 in cash.
At that time the net assets of S Ltd were as follows:
CU'000
Property, plant and equipment 190
Inventories 70
Trade receivables 30
Cash and cash equivalents 10
Trade payables (40)
260
The consolidated balance sheets of P Ltd as at 31 December were as follows:

20X8 20X7
CU'000 CU'000
Non-current assets
Property, plant and equipment 2,500 2,300
Goodwill 66 –
2,566 2,300
Current assets
Inventories 1,450 1,200
Trade receivables 1,370 1,100
Cash and cash equivalents 76 50
2,896 2,350
5,462 4,650
Capital and reserves
Ordinary share capital (CU1 shares) 1,150 1,000
Share premium account 650 500
Retained earnings 1,791 1,530
Attributable to equity holders of P Ltd 3,591 3,030
Minority interest 31 –
Equity 3,622 3,030
Current liabilities
Trade payables 1,690 1,520
Income tax payable 150 100
1,840 1,620
5,462 4,650
The consolidated income statement for the year ended 31 December 20X8 was as follows:
CU'000
Revenue 10,000
Cost of sales (7,500)
Gross profit 2,500
Administrative expenses (2,080)
Attributable to:
Equity holders of P Ltd 261
Minority interest 9
270
The statement of changes in equity for the year ended 31 December 20X8 (extract) was as follows:
Retained
earnings
CU'000
Balance at 31 December 20X7 1,530
Balance at 31 December 20X8 1,791
You are also given the following information:
1 All other subsidiaries are wholly owned.
2 Depreciation charged to the consolidated income statement amounted to CU210,000.
3 There were no disposals of property, plant and equipment during the year
Requirement
Prepare a consolidated cash flow statement for P Ltd for the year ended 31 December 20X8 under the
indirect method in accordance with BAS 7 Cash Flow Statements. The only notes required are those
reconciling profit before tax to cash generated from operations and a note showing the effect of the
subsidiary acquired in the period.
Solution
Consolidated cash flow statement for the year ended 31 December 20X8
CU'000 CU'000
Cash generated from operations (Note 2)
Income taxes paid
Net cash from operating activities

Acquisition of subsidiary S Ltd, net of cash acquired (Note 2)
Purchase of property, plant & equipment
Net cash used in investing activities

Proceeds from issue of share capital
Dividend paid to minority interest
Net cash from financing activities
Net increase in cash and cash equivalents

Cash and cash equivalents at the beginning of period
Cash and cash equivalents at the end of period
Notes to the cash flow statement
(1) Reconciliation of profit before tax to cash generated from operations
CU'000
Profit before taxation
Adjustments for:
Depreciation
Increase in trade and other receivables

Increase in inventories
Increase in trade payables
Cash generated from operations
(2) Acquisition of subsidiary
During the period the group acquired subsidiary S Ltd. The fair value of assets acquired and liabilities
assumed were as follows:
CU'000
Cash and cash equivalents
Inventories
Receivables
Property, plant and equipment
Trade payables
Minority interest
Goodwill
Total purchase price
Less: Cash of S Ltd
Less: Non-cash consideration
Cash flow on acquisition net of cash acquired
WORKINGS
(1)
PROPERTY, PLANT AND EQUIPMENT
CU'000 CU'000
(2)
GOODWILL
CU'000 CU'000
(3)
MINORITY INTEREST
CU'000 CU'000
(4)
INCOME TAX PAYABLE
CU'000 CU'000
Interactive question 5: Disposal [Difficulty level: Exam standard]

Below is the consolidated balance sheet of the Othello Group as at 30 June 20X8 and the consolidated
income statement for the year ended on that date:
Consolidated balance sheet as at 30 June
20X8 20X7
CU’000 CU’000
Non-current assets
Property, plant and equipment 4,067 3,950
Current assets
Inventories 736 535
Receivables 605 417
Cash and cash equivalents 294 238
1,635 1,190
5,702 5,140
Share capital 1,000 1,000
Attributable to equity holders of Othello Ltd 4,637 4,118

Minority interest 482 512
Equity 5,119 4,630
Current liabilities
Trade payables 380 408
Income tax payable 203 102
583 510
5,702 5,140
Consolidated income statement for the year ended 30 June 20X8 (summarised)
CU’000
Continuing operations
Income tax expense (((290)
Profit for the period from continuing operations 572
Discontinued operations
Profit for the period from discontinued operations 50
Attributable to:
Equity holders of Othello Ltd 519
622
You are given the following information:
1 Othello Ltd sold its entire interest in Desdemona Ltd on 31 March 20X8 for cash of CU400,000.
Othello Ltd had acquired an 80% interest in Desdemona Ltd on incorporation several years ago. The
net assets at the date of disposal were:
CU’000
Inventories 50
Receivables 39
Trade payables (42)
457
2 The profit for the period from discontinued operations figure is made up as follows:
CU’000
Profit on disposal 34
50
3 The depreciation charge for the year was CU800,000.
There were no disposals of non-current assets other than on the disposal of the subsidiary.
Requirements
With regard to the consolidated cash flow statement for the year ended 30 June 20X8:
(a) Show how the disposal will be reflected in the cash flow statement
(b) Calculate additions to property, plant and equipment as they will be reflected in the cash flow
statement.
(c) Calculate dividends paid to the minority interest.
(d) Prepare the note to the cash flow statement required for the disposal of the subsidiary.
(e) Prepare the reconciliation of profit before tax to cash generated from operations.
Work to the nearest CU000
Solution
(a) Cash flows from investing activities
CU'000
(b) Cash flows from investing activities (W1)

CU'000
(c) Cash flows from financing activities (W2)

CU'000
(d) Notes to the cash flow statement

During the period the group disposed of its subsidiary Desdemona Ltd. The book value of assets and
liabilities disposed of were as follows:
CU'000
Cash and cash equivalents
Inventories
Receivables
Payables
Minority interest (W2)
Profit on disposal
Total sale proceeds
Less: Cash of Desdemona Ltd disposed of
Cash flow on disposal net of cash disposed of
(e) Reconciliation of profit before tax to cash generated from operations

CU'000
Profit before tax

Adjustments for:
Depreciation
Increase in receivables
Increase in inventories
Increase in payables
Cash generated from operations
WORKINGS
(1) PROPERTY, PLANT AND EQUIPMENT – NBV
CU'000 CU'000
(2) MINORITY INTEREST
CU'000 CU'000
2.5 Acquisitions and disposals of associates

Receipts and payments of cash to acquire/dispose of associates should be classified as ‘Cash flows
from investing activities.’
Summary and Self-test
Summary
Self-test
Answer the following questions.
1 In accordance with BAS 7 Cash Flow Statements what is the net cash flow from financing activities given
the information below?
Receipts CU Payments CU
Share issue 5,000 Loan repayments (including CU300 2,200
interest)
Loan 9,000 Expense of share issue 500
A CU7,100
B CU11,300
C CU11,600
D CU12,100
2 Sun Ltd provides the following information:
Consolidated balance sheet as at 31 December
20X8 20X7
CU CU
Trade receivables 943,000 800,000
Trade payables 620,000 530,000
Consolidated income statement for the year ended 31 December 20X8
CU
Profit before tax 775,000
During the year Sun Ltd acquired an 80% interest in the equity share capital of Shine Ltd. Extracts
from Shine Ltd’s balance sheet at acquisition were as follows:
CU
Inventories 80,000
Trade receivables 110,000
Trade payables 70,000
In accordance with BAS 7 Cash Flow Statements what is the cash generated from operations in the
consolidated cash flow statement of Sun Ltd for the year ended 31 December 20X8?
A CU647,000
B CU743,000
C CU757,000
D CU767,000
3 Spades Ltd acquired an 80% interest in the share capital of Clubs Ltd on 1 May 20X4, when the net
assets of Clubs Ltd were CU600,000. Extracts from the consolidated balance sheet of Spades Ltd as at
30 September 20X6 are as follows:
20X6 20X5
CU CU
Minority interest 750,000 720,000
Minority interest in the profit for the year was CU100,000.
What is the amount to be included in the consolidated cash flow statement for the dividends paid to
the minority according to BAS 7 Cash Flow Statements?
A CU90,000
B CU70,000
C CU190,000
D CU250,000
4 The following are extracts from the balance sheet of Scratch Ltd as at 31 December:
20X4 20X3
CUm CUm
Property, plant and equipment (Note 1) 192 175
Obligations under finance leases (Note 2)
Within one year 20 10
After more than one year 51 45
Notes
1 During 20X4, Scratch Ltd disposed of property, plant and equipment with a net book value of
CU10 million and charged depreciation of CU42 million.
2 Rentals paid under finance leases during 20X4 amounted to CU18 million. Interest charged to the
income statement amounted to CU6 million.
What amount should be included in purchase of property, plant and equipment in the cash flow
statement for the year ended 31 December 20X4 in accordance with BAS 7 Cash Flow Statements?
A CU35 million
B CU41 million
C CU51 million
D CU69 million
5 How should an acquisition or disposal of a subsidiary be disclosed in a consolidated cash flow
statement prepared in accordance with BAS 7 Cash Flow Statements?
A On the face of the cash flow statement, giving an analysis of all the cash flows relating to the
subsidiary
B As a note to the cash flow statement, showing a summary of the effects of acquisitions and
disposals of subsidiaries, including how much of the consideration comprised cash
C It need not be disclosed at all
D As a note to the cash flow statement, showing a breakdown of all cash flows relating to the
subsidiary
6 The following extracts relate to Rain Ltd:
CU
Group profit before tax 500,000
Income tax expense (150,000)
Profit for the period 350,000
Attributable to:
Equity holders of Rain Ltd 295,000
Minority interest 55,000
350,000
Consolidated balance sheet as at 31 December
20X5 20X4
CU CU
Minority interest 550,000 525,000
During the year ended 31 December 20X5 Rain Ltd acquired a 75% interest in the equity shares of
Puddle Ltd when the net assets of Puddle Ltd were CU400,000.
In accordance with BAS 7 Cash Flow Statements what was the amount of dividend paid to the minority
interest in the year ended 31 December 20X5?
A CU20,000
B CU130,000
C CU180,000
D CU330,000
7 Brink Ltd acquired a 75% interest in the share capital of Edge Ltd on 1 January 20X6. The balance on
Edge Ltd's property, plant and equipment at that date was CU500,000.
Extracts from the consolidated balance sheet of Brink Ltd as at 31 December 20X6 are as follows:
20X6 20X5
CU CU
Property, plant and equipment 4,100,000 3,700,000
Depreciation charged for the year ended 31 December 20X6 was CU970,000.
What is the amount to be included in the consolidated cash flow statement for purchase of property,
plant and equipment in accordance with BAS 7 Cash Flow Statements?
A CU70,000
B CU870,000
C CU995,000
D CU1,370,000
8 The consolidated financial statements of Brad Ltd show the following information:
CU'000
264
Profit for period 154
Consolidated balance sheet (extract) as at 31 December 20X7
20X7 20X6
CU'000 CU'000
Investments in associates 405 387
In accordance with BAS 7 Cash Flow Statements what is the dividend receivable from associates?
CU'000
A 18
B 26
C 44
D 62
9 Romeo Ltd had acquired 75% of Juliet Ltd for CU750,000 a number of years ago. During the year
ended 31 December 20X7 Romeo Ltd disposed of its entire interest in Juliet Ltd for CU1,020,000 in
cash. The net assets of Juliet Ltd at the date of disposal were:
CU'000
Inventories and receivables 150
Trade payables (47)
878
In accordance with BAS 7 Cash Flow Statements what amount would be disclosed as ‘Disposal of
subsidiary’ under cash flows from investing activities?
CU'000
A 361
B 750
C 945
D 1,020
10 TASTYDESSERTS LTD
The following are extracts from the consolidated financial statements of Tastydesserts Ltd and one of
its wholly owned subsidiaries, Custardpowders Ltd, the shares in which were acquired on 31 October
20X8.
Balance sheets as at
Tastydesserts Ltd Custardpowders
Group Ltd
31 December 31 December 31 October
20X8 20X7 20X8
ASSETS CU'000 CU'000 CU'000
Non-current assets
Property, plant and equipment 4,764 3,685 694
Goodwill 42 – –
Investments in associates 2,195 2,175 –
Current assets
Inventories 1,735 1,388 306
Receivables 2,658 2,436 185
Bank balances and cash 43 77 7
Total assets 11,437 9,761 1,192
EQUITY AND LIABILITIES

Ordinary share capital 4,896 4,776 400
Share premium account 216 – –
Retained earnings 2,458 2,000 644
Non-current liabilities
Loans 1,348 653 –
Current liabilities
Payables 1,915 1,546 148
Bank overdrafts 176 343 –
Taxation 346 380 –
Dividends payable 82 63 –
Total equity and liabilities 11,437 9,761 1,192
CU'000
Profit before interest and tax 546
Income tax expense 126
Attributable to:
Equity holders of Tastydesserts Ltd 540
Minority interest –
540
The following information is also given:
(1) The consolidated figures at 31 December 20X8 include Custardpowders Ltd.
(2) Depreciation charged on property, plant and equipment during the year was CU78,000.
Additions to property, plant and equipment, excluding property, plant and equipment acquired
on the acquisition of Custardpowders Ltd, were CU463,000. There were no disposals.
(3) The cost on 31 October 20X8 of the shares in Custardpowders Ltd was CU1,086,000
comprising the issue of CU695,000 unsecured loan stock at par, 120,000 ordinary shares of CU1
each at a value of 280p each and CU55,000 in cash.
(4) No write down of goodwill was required during the period.
(5) Total dividends charged to retained earnings by Tastydesserts Ltd during the period amounted to
CU82,000.
Requirement
Prepare a consolidated cash flow statement for Tastydesserts Ltd for the year ended 31 December
20X8 using the indirect method, a note reconciling profit before tax to cash generated from
operations and a note showing the effect of the subsidiary acquired in the period. (15 marks)
11 GREENFINGERS LTD
Greenfingers Ltd is a 40 year old company producing wooden furniture. 22 years ago it acquired a
100% interest in a timber import company, Arbre Ltd. In 20W9 it acquired a 40% interest in a
competitor, Water Features Ltd and on 1 January 20X7 it acquired a 75% interest in Garden Furniture
Designs Ltd. The draft consolidated accounts for the Greenfingers Group are as follows.
Draft consolidated income statement for the year ended 31 December 20X7
CU'000
Profit from operations 4,455
Share of profit of associates 1,050
Dividends from long-term investments 465
Interest payable (450)
Profit before taxation 5,520
Income tax expense (1,485)
Profit after taxation 4,035
Attributable to:
Equity holders of Greenfingers Ltd 3,735
4,035
Draft consolidated balance sheet as at 31 December

20X7 20X6
CU'000 CU'000 CU'000 CU'000
ASSETS
Non-current assets
Buildings at net book value 6,225 6,600
Machinery: Cost 9,000 4,200
Accumulated depreciation (3,600) (3,300)
Net book value 5,400 900
11,625 7,500
Goodwill 300 –
Investments in associates 3,300 3,000
Long-term investments 1,230 1,230
16,455 11,730
Current assets
Receivables 5,550 3,825
Cash and cash equivalents 13,545 5,460
25,020 12,285
Total assets 41,475 24,015
EQUITY AND LIABILITIES
Ordinary share capital (25p shares) 11,820 6,000
Share premium account 8,649 6,285
Attributable to equity holders of Greenfingers Ltd 30,804 19,785
Minority interest 345 –
Equity 31,149 19,785
Non-current liabilities
Finance lease liabilities 2,130 510
Loans 4,380 1,500
6,510 2,010
Current liabilities
Trade payables 1,500 840
Finance lease liabilities 720 600
Income tax payable 1,476 690
Accrued interest and finance charges 120 90
3,816 2,220
Total equity and liabilities 41,475 24,015
Additional information
1 There have been no acquisitions or disposals of buildings during the year.
Machinery costing CU1.5 million was sold for CU1.5 million resulting in a profit of CU300,000.
New machinery was acquired in 20X7, including additions of CU2.55 million acquired under
finance leases.
2 Information relating to the acquisition of Garden Furniture Designs Ltd is as follows:

CU'000
Inventories 96
Trade receivables 84
Cash 336
Trade payables (204)
Income tax (51)
756
Minority interest (189)
567
Goodwill 300
867
2,640,000 ordinary shares issued as part consideration 825

Balance of consideration paid in cash 42
867
Requirement
Prepare a consolidated cash flow statement for the Greenfingers Group for the year ended
31 December 20X7 using the indirect method. The only note required is that reconciling profit before
tax to cash generated from operations.
(20 marks)
Technical reference
Point to note
All of BAS 7 is examinable with the exception of paragraphs 24-28, 38 and Appendix B. The paragraphs
listed below are the key references you should be familiar with.
1 Cash flow statement and finance leases

 Disclose the assets acquired via finance leases as a non-cash transaction BAS 7 (43 – 44)

 Example of a consolidated cash flow statement BAS 7 Appendix A
 Cash flows arising from acquisitions/disposals of subsidiaries and associates BAS 7 (39)
should be
– Presented separately
– Classified as investing activities
 Additional information should be disclosed in respect of acquisitions and BAS 7 (40)
disposals
Also see Chapter 3 Technical reference section.
Answers to Self-test
1 C
CU
Inflows Share issue 5,000
Loan 9,000
14,000
Outflows Share expenses (500)
Loan repayments, less interest (2,200 – 300) (1,900)
11,600
2 D
CU
Decrease in inventory (550 – 475 – 80) 5,000
Increase in receivables (943 – 800 –110) (33,000)
Increase in payables (620 – 530 – 70) 20,000
767,000
3 C
MINORITY INTEREST
CU'000 CU'000
c/f 750 b/f 720
Minority interest in income statement 100
Dividend paid to minority () 190 Acquisition of subsidiary (600  20%) 120
940 940
4 B The additions in the cash flow statement should only be additions for cash. The inception of a
finance lease is not a cash transaction and must therefore be excluded. The amount of assets
acquired under finance leases is calculated by looking at the movement in the liability for finance
leases. As this balance represents capital only, the payment which goes into the working must
exclude the interest element.
NON-CURRENT ASSETS AT NBV
CUm CUm
b/f 175 Depreciation 42
Total additions () 69 Disposals 10
___ c/f 192
244 244
OBLIGATIONS UNDER FINANCE LEASES
CUm CUm
Payment 12 b/f 55
Additions () 28
c/f 71 __
83 83
Therefore additions for cash (69 – 28) = CU41m
5 B BAS 7 (40)
6 B
MINORITY INTEREST
CU CU
b/f (CBS) 525,000
MI dividend paid () 130,000 MI (CIS) 55,000
MI in S acquired (400,000  25%) 100,000
c/f (CBS) 550,000
680,000 680,000
7 B
PPE
CU'000 CU'000
b/f 3,700
Acquired with Edge 500 Depreciation charge 970
Additions () 870 c/f 4,100
5,070 5,070
8 B
CU'000 CU'000
b/f (CBS) 387
Share of profit (CIS) 44 Dividend received () 26
(tax already deducted)
___ c/f (CBS) 405
431 431
9 C (1,020 - 75) = CU945,000
10 TASTYDESSERTS LTD
Cash Flow Statement for the year ended 31 December 20X8
CU'000 CU'000
Cash generated from operations (Note 1) 767
Income taxes paid (W1) (160)
Net cash from operating activities 607

Acquisition of subsidiary Custardpowders Ltd, net of cash acquired (Note 2) (48)
Purchase of property, plant and equipment (463)
Dividends received from associates (W2) 100
Net cash used in investing activities (411)

Dividends paid (63)
Net cash used in financing activities (63)
Net increase in cash and cash equivalents 133
Cash and cash equivalents at beginning of period (266)
Cash and cash equivalents at end of period (133)

CU'000
Profit before taxation 666
Adjustments for:
Depreciation 78
Share of profit of associates (120)
624
Increase in receivables (2,658 – 2,436 – 185) (37)
Increase in inventories (1,735 – 1,388 – 306) (41)
Increase in payables (1,915 – 1,546 – 148) 221
Cash generated from operations 767
During the period the group acquired subsidiary Custardpowders Ltd. The fair value of the assets
acquired and liabilities assumed were as follows:
CU'000
Bank balances and cash 7
Inventories 306
Receivables 185
Payables (148)
1,044
Goodwill 42
Total purchase price 1,086
Less: Cash of Custardpowders Ltd (7)
Less: Non-cash consideration – Loan stock issued (695)
– Shares issued (336)
Cash flow on acquisition net of cash acquired 48
WORKINGS
(1)
INCOME TAX PAYABLE
CU'000 CU'000
Cash paid (β) 160 b/f 380
c/f 346 CIS 126
506 506
(2)
CU'000 CU'000
b/f Inv in A 2,175
Share of profit 120 Dividends received (β) 100
c/f Inv in A 2,195
2,295 2,295
(3)
SHARE CAPITAL AND PREMIUM
CU'000 CU'000
b/f 4,776
c/f (4,896 + 216) 5,112 Issued to acquire S (120,000  336
CU2.80)
5,112 5,112
 No shares have been issued for cash during the year.

11 GREENFINGERS LTD
CU'000 CU'000
Cash generated from operations (note 1) 1,116
Interest paid (W2) (420)
Net cash used in operating activities (54)

Acquisition of subsidiary Garden Furniture Designs Ltd, net of cash 294
acquired (W4)
Purchase of property, plant and equipment (W5) (3,255)
Proceeds from sale of property, plant and equipment 1,500
Dividends received 465
Dividends received from associate (W6) 750

Proceeds from issue of ordinary share capital (W7) 7,359
Proceeds from issue of loan notes (W8) 2,880
Payments under finance leases (W10) (810)
Dividends paid (3,735 + 7,500 – 10,335) (900)
Dividends paid to minority interests (W9) (144)
Net cash from financing activities 8,385
Net increase in cash and cash equivalents 8,085
Cash and cash equivalents at beginning of year 5,460
Cash and cash equivalents at end of year 13,545
Notes
CU'000
Adjustments for:
Depreciation (W1) 975
Profit on sale of property, plant and equipment (300)
Share of profits of associates (1,050)
Investment income (465)
Interest expense 450
5,130
Increase in trade and other receivables (5,550 – 3,825 – 84) (1,641)
Increase in inventories (5,925 – 3,000 – 96) (2,829)
Increase in trade payables (1,500 – 840 – 204) 456
Cash generated from operations 1,116
WORKINGS
(1)
ACCUMULATED DEPRECIATION – PLANT
CU'000 CU'000
b/f (Plant) 3,300
Disposal 300
Depreciation charge (β) 600
c/f (Plant) 3,600 ____
3,900 3,900
Total depreciation: CU'000

Freehold buildings (6,600 – 6,225) 375
Plant 600
975
(2)
INTEREST PAYABLE
CU'000 CU'000
c/f 120 CIS 450
540 540
(3)
TAXATION
CU'000 CU'000
c/f 1,476 CIS 1,485
On acquisition 51
2,226 2,226
(4) Purchase of subsidiary
CU'000
Cash received on acquisition 336
Less: Cash consideration (42)
Net cash inflow 294
(5)
MACHINERY
CU'000 CU'000
b/f 4,200 Disposal 1,500
On acquisition 495
Leased 2,550
Additions (β) 3,255 c/f 9,000
10,500 10,500
(6)
CU'000 CU'000
b/f 3,000
Share of profit (CIS) 1,050 Dividends received (β) 750
c/f 3,300
4,050 4,050
(7)
SHARE CAPITAL AND PREMIUM
CU'000 CU'000
b/f (6,000 + 6,285) 12,285
Non-cash consideration (660 + 165) 825
c/f (11,820 + 8,649) 20,469 Proceeds from issue (β) 7,359
20,469 20,469
(8)
LOAN NOTES
CU'000 CU'000
b/f 1,500
Proceeds from issue (β) 2,880
c/f 4,380
4,380 4,380
(9)
MINORITY INTERESTS
CU'000 CU'000
b/f –
Dividends to MI (β) 144 Share of profits (CIS) 300
c/f 345 On acquisition 189
489 489
(10)
OBLIGATIONS UNDER FINANCE LEASES
CU'000 CU'000
b/f Current 600
Long-term 510
Capital repayment (β) 810 New lease commitment 2,550
c/f Current 720

Long-term 2,130
3,660 3,660
Answers to Interactive questions
Answer to Interactive question 1

Cash flow statement (extract) for the year ended 31 December 20X7
CU
Interest paid (2,487)

Payment of finance lease liabilities (7,513)
WORKING
Interest Payment 31
Bal b/f accrued at December
Year ended 31 December 20X7 1.1.X7 10% 20X7 Bal c/f 31.12.X7
CU CU CU CU
24,869 2,487 (10,000) 17,356
The payment of CU10,000 therefore represents:
CU
Interest 2,487
Capital (10,000 – 2,487) 7,513
10,000

MINORITY INTEREST
CU'000 CU'000
b/f MI (CBS) 200
MI (CIS) 10
MI dividend paid (balancing figure) 6
c/f MI (CBS) 204
210 210
Answer to interactive question 3

CU'000 CU'00
0
b/f Inv in A 176
Share of profit of A 20 Dividend received (balancing figure) 12
c/f Inv in A 184
196 196

CU'000 CU'000
Cash generated from operations (Note 1) 340
Net cash from operating activities 240

Acquisition of subsidiary S Ltd, net of cash acquired (Note 2) (90)
Purchase of property, plant and equipment (W1) (220)

Proceeds from issue of share capital (1,150 + 650 – 1,000 – 500 – (100  CU2)) 100
Dividend paid to minority interest (W3) (4)
Net cash from financing activities 96
Net increase in cash and cash equivalents 26

Cash and cash equivalents at the beginning of period 50
Cash and cash equivalents at the end of period 76
CU'000
Profit before taxation 420
Adjustments for:
Depreciation 210
630
Increase in trade receivables (1,370 – 1,100 – 30) (240)
Increase in inventories (1,450 – 1,200 – 70) (180)
Increase in trade payables (1,690 – 1,520 – 40) 130
Cash generated from operations 340
During the period the group acquired subsidiary S Ltd. The fair value of assets acquired
and liabilities assumed were as follows:
CU'000
Inventories 70
Receivables 30
Trade payables (40)
Minority interest (26)
234
Goodwill 66
Total purchase price 300
Less: Cash of S Ltd (10)
Less: Non-cash consideration (200)
Cash flow on acquisition net of cash acquired 90
WORKINGS
(1)
PROPERTY, PLANT AND EQUIPMENT
CU'000 CU'000
b/f 2,300 Depreciation 210
On acquisition 190 c/f 2,500
Additions (balancing figure) 220
2,710 2,710
(2)
GOODWILL
CU'000 CU'000
b/f –
Additions (300 – (90%  260)) 66 Impairment losses (balancing figure) 0
c/f 66
66 66
(3)
MINORITY INTEREST
CU'000 CU'000
Dividend (balancing figure) 4 b/f –
c/f 31 On acquisition 26
CIS 9
35 35
(4)
INCOME TAX PAYABLE
CU'000 CU'000
b/f 100
Cash paid (balancing figure) 100 CIS 150
c/f 150
250 250

Disposal of subsidiary
(a) Cash flows from investing activities
CU'000
Disposal of subsidiary Desdemona Ltd, net of cash disposed of (400 – 20) 380
(b) Cash flows from investing activities
CU'000
Purchase of property, plant and equipment (W1) (1,307)
(c) Cash flows from financing activities
CU'000
Dividend paid to minority interest (W2) (42)
(d) Notes to the cash flow statement

During the period the group disposed of subsidiary Desdemona Ltd. The book value of assets and
liabilities disposed were as follows:
CU’000
Inventories 50
Receivables 39
Payables (42)
Minority interest (W2) (91)
366
Profit on disposal 34
Total sale proceeds 400
Less: Cash of Desdemona Ltd disposed of (20)
Cash flow on disposal net of cash disposed of 380
(e) Reconciliation of profit before tax to cash generated from operations
CU’000
Profit before tax (862 + (20 – 4)) 878
Adjustments for:
Depreciation 800
1,678
Increase in receivables (605 – 417 + 39) (227)
Increase in inventories (736 – 535 + 50) (251)
Increase in payables (380 – 408 + 42) 14
Cash generated from operations 1,214
WORKINGS
(1)
PROPERTY, PLANT AND EQUIPMENT – NBV
CU'000 CU'000
b/f 3,950 c/f 4,067
Additions (balancing figure) 1,307 Disposal of sub 390
Depreciation charge 800
5,257 5,257
(2)
MINORITY INTEREST
CU'000 CU'000
c/f 482 b/f 512
Disposal of sub (457 x 20%) 91 CIS 103
Dividends to MI (balancing figure) 42
615 615

Chapter 16 Group Cash Flow

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Chapter 16 Group Cash Flow

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chapter 16

Group cash flow statements

Learning objectives Tick off

Specific syllabus references for this chapter are: 2c, 3e.

Stop and think

1 Individual company cash flow statements

1.2 Finance leases

Interactive question 1: Finance lease [Difficulty level: Easy]

Cash flows from operating activities

See Answer at the end of this chapter.

2 Group cash flow statements

2.1 Basic principle

2.2 Cash flows to the minority interest

Interactive question 2: Minority interest [Difficulty level: Exam standard]

See Answer at the end of this chapter.

Worked example: Cash flows from operating activities

Interactive question 3: Dividends received from associates

See Answer at the end of this chapter.

2.4 Acquisitions and disposals of subsidiaries

Worked example: Acquisition of a subsidiary

Subsidiary acquired in the period Subtract PPE, inventories, payables, receivables

Worked example: Calculating cash flows

Interactive question 4: Acquisition of a subsidiary [Difficulty level: Exam standard]

The consolidated balance sheets of P Ltd as at 31 December were as follows:

Cash flows from investing activities

Cash flows from financing activities

Net increase in cash and cash equivalents

Increase in trade and other receivables

See Answer at the end of this chapter.

Interactive question 5: Disposal [Difficulty level: Exam standard]

Attributable to equity holders of Othello Ltd 4,637 4,118

(b) Cash flows from investing activities (W1)

(c) Cash flows from financing activities (W2)

(d) Notes to the cash flow statement

(e) Reconciliation of profit before tax to cash generated from operations

Profit before tax

(2) MINORITY INTEREST

See Answer at the end of this chapter.

2.5 Acquisitions and disposals of associates

Summary and Self-test

EQUITY AND LIABILITIES

Draft consolidated balance sheet as at 31 December

2 Information relating to the acquisition of Garden Furniture Designs Ltd is as follows:

2,640,000 ordinary shares issued as part consideration 825

1 Cash flow statement and finance leases

2 Group cash flow statements

Also see Chapter 3 Technical reference section.

Cash flows from investing activities

Cash flows from financing activities

Notes to the cash flow statement

 No shares have been issued for cash during the year.

Cash flows from investing activities

Cash flows from financing activities

Total depreciation: CU'000

Capital repayment (β) 810 New lease commitment 2,550

c/f Current 720

Answers to Interactive questions

Answer to Interactive question 1

Cash flows from financing activities

Answer to Interactive question 2

Answer to interactive question 3

Answer to Interactive question 4

Cash flows from investing activities