IAS(7)

Statement of cash flows

 The primary purpose of the statement
is to provide information about an
entity cash receipt and cash payment,
and net change in cash resulting from
the operating (either using the 'direct'
or 'indirect' method), investing and
financing activities during the period.
Cash Flow Statement
Note the following general guidelines:
1. Operating activities involve income statement items
(revenue-producing activities of the entity that are not
investing or financing activities)
2. Investing activities involve cash flows resulting from
changes in investments and non-current asset items(
acquisition and disposal of long-term assets and other
investments that are not considered to be cash
equivalents)
3. Financing activities involve cash flows resulting from
changes in non-current liability and shareholders
equity items.(activities that alter the equity capital
and borrowing structure of the entity)
• Operating activities-Income statement item:

Cash inflows:
1. From sale of goods or services.
2. From interest and dividends received.

Cash outflows:
1. To supplies for inventory.
2. To employee for services.
3. To government for taxes.
4. To lenders for interest.
5. To others for expenses.
operating activities (Indirect)
operating activities (direct)
operating activities (direct)
operating activities (direct)
operating activities (direct)
• Investing Activities-change in
investments and non-current assets:
Cash inflows:
1. From sale of property, plant and equipment.
2. From sale of investments.
3. From collection of loans to other entities.

Cash outflows:
1. To purchase property, plant and equipment.
2. To purchase investments.
3. To make loans to other entities.
Investing Activities
• Financing Activities –change in non current
liabilities and shareholders equity:
Cash inflows:
1. From sale of ordinary shares.
2. From issuance of long-term debt (bonds &
notes).
Cash outflows:
1. To shareholders as dividends.
2. To redeem long-term debt (bonds & notes).
3. To purchase treasury shares.
Financing Activities
• The following table indicates the differences between IFRS and
GAAP relates to the classification of interest, dividends and
taxes.

Items IFRS GAAP

Interest paid Operating or financing operating

Interest received Operating or investing operating

Dividends paid Operating or financing Financing

Dividends received Operating or investing operating

Taxes paid Operating – unless specific operating

identification with financing
or investing activity
• Several differences exist between IFRS and
U.S.GAAP in the presentation of statement of cash
flows. Under U.S.GAAP:
1. when using the indirect method of presenting
operating cash flows , the reconciliation from
income to cash flows must begin with net income.
2. when using the direct method of presenting
operating cash flows , a reconciliation from net
income to operating cash flows also must be
presented.
3. the cash and cash equivalents line item in the
statement of cash flows must reconcile with the
cash and cash equivalents line in the statement of
financial position.
• IFRS required that noncash investing and
financing activities be excluded from the
statement of cash flows .Instead ,these non-cash
activities should be disclosed in the notes to the
financial statements.
• components of cash and cash equivalents must
be disclosed and reconciled with amounts
reported on the statement of financial position
(balance sheet) .
• How ever the total for cash and cash equivalents
in the statement of cash flows need not agree
with a single line item in the balance sheet.
• Example :
• classification of Interest and dividends in the
statement of cash flows
• Star kissed corporation (SKC) currently reports
under U.S.GAAP but is invest-gating the effect that
the adoption of IFRS might have on its statement
of cash flows.
• For the current year , SKC has interest received of
$500 , interest paid of $1,250 dividends received
of $200 , and dividends paid of $2,700 .
• Under U.S.GAAP the company classifies interest
paid , interest received , and dividends received as
operating activities , and dividends paid are
classified as a financing activity .
• These items are presented in the company U.S.GAAP
statement of cash flows as follows :
• Operating activities:
interest paid………………………………… $(1,250)
interest received………………………….. 500
Dividends received………………………… $ 200
cash flow from operating activities…… (550)
• Investing activities:
Nothing reported…………………………….. $ 0
• Financing activities:
Dividends paid…………………………………… (2,700)
Cash flow from financing activities…….. $ (2,700)
Net change in cash……………………………. $ (3,250)
• This classification would be acceptable under IFRS how
ever the following presentation among others , also
would be acceptable under IAS 7 :
• Operating activities:
• Nothing reported $ 0
• Investing activities:
• Interest received $ 500
• Dividends received $ 200
• Cash flow from investing activities $ 700
• Financing activities:
• Interest paid $ (1,250)
• Dividends paid $ (2,700)
• Cash flow from financing activities $ (3,950)
• Net change in cash $ (3,250)
 Example of cash flow (direct and indirect)
 The following is the income statement for the
year 2018 and the comparative budget for
2017 and 2018 for the public shareholding
company :
 Income statement for the year ended 31/12/2018

Net sales 125000

Cost of goods sold )75000(

Gross profit 50000

Administrative and operating expenses (including 7000 depreciation of motor vehicles) )28000(

Income from operating operations 22000

Add gain of selling 2500

expense of interest )3500(

Net income before interest tax 21000

Income tax )5250(

Net income after interest tax 15750

 ASSETS 2017 2018 The change
Current assets

Cash 12000 22000 +10000

Accounts receivable 18000 22000 +4000

Goods 35000 30000 -5000

Interest paid in advance 500 1500 +1000

Total current assets 65500 75500 +10000

Investments in the
25000 13000 -12000
company

Fixed assets (cars) 25000 40000 +15000

Vehicle depreciation )7000( )10000( +3000

Net book value cars 18000 30000 +12000

 Liabilities &equity 2017 2018 The change

Current Liabilities
Account payable 37500 38500 +1000

Income tax payable 8000 6000 -2000

Total current liabilities 45500 44500 -1000

Non current liabilities

Loan bank 13000 6000 -7000

Equity
Share capital 40000 50000 +10000

Retained earnings 10000 18000 +8000

Total equity 50000 68000 +18000

Total liabilities and equity 108500 118500 +10000

 The following is additional information about the
company :
1. there are cars whose historical cost 7500 ,netbook
value 3500 , sold during the year 2018 amount
6000.
2. during the year 2018 cars were purchased with a
value of 22500 paid off 10500 cash and paid off
12000 by the company of part of its investment.
3. cash dividends distributed by the company to
share holders 2018 amount 7750.
• Required : preparing the list of cash flows by
indirect and direct way ??
Cash flow statement for the year ended 31/12/2018 (indirect method)
cash flow from operating activities
net income before interest and
24500
taxes(5250+3500+15750)
Add depreciation expense 7000

Sells car gains (2500)

The increase in the accounts receivable (4000)

Add the shortage of goods 5000

Add increases in accounts payable 1000

Cash paid on income tax
(7250)
expense(5250+2000)
Cash payable on interest
expense(3500+1000) (4500)
Net cash flows from operating
19250
activities
Cash flow from investing activities

Cash proceeds from sale of fixed assets (cars) 6000

-Cash paid to buy cars )10500(

Net cash used in investing activities )4500(

Cash flows from financing activities

Cash dividends on owners )7750(

Payment of bank loan )7000(

Capital increase 10000

Net cash flows from financing activities )4750(

Net increase in cash and cash equivalents during the

10000
year
Cash and equivalents at the beginning of the year 12000

Cash and equivalents at the ending of the year 22000

 Direct method
Cash flow statement for the year
ended 31/12/2018
cash flow from operating activities
Cash receipts from customers (1)121000
Cash paid to suppliers (2)(69000)
Cash paid for operating expenses (3)(21000)
Cash paid on income tax expense (5250+2000) (7250)
Cash payable on interest expense(3500+1000) (4500)
Net cash flows from operating activities 19250
*(1)=125000+18000-22000

*(2)=75000+37500-38500+30000-35000

*(3)=28000-7000
Cash flow from investing activities
6000
Cash proceeds from sale of fixed assets (cars)
(10500)
-Cash paid to buy cars

Net cash used in investing activities (4500)

Cash flows from financing activities

(7500)
Cash dividends on owners
(7000)
Payment of bank loan

Capital increase 10000

Net cash flows from financing activities (4750)

Net increase in cash and cash equivalents during the year 10000

Cash and equivalents at the beginning of the year 12000

Cash and equivalents at the ending of the year 22000