STATEMENT OF CASH FLOWS (IAS 7) – TAXATION PAID, DIVIDENDS

PAID AND INTEREST PAID

1. Background:
- Taxation paid, dividend paid and interest paid needs to be calculated for BOTH the direct
method and indirect method when preparing the Statement of cash flow

NB!!! These are shown under the heading “Cash Flows from operating activities” in the
Statement of cash flow.

- Lecturer examples for explaining the concept:

Example 1: Let say you owe someone R100 at the beginning of the year. At the end of the
year your outstanding amount that you still owe the other person is say R80. What this
means is that you paid R20 (R100 – R80) to the other person during the year. This R20 that
you really paid, is what we include in the Statement of cash flow.

Example 2: Let say you owe someone R150 at the beginning of the year. You bought good
on credit for R40 during the year. At the end of the year your outstanding amount that you
still owe the other person is say R60. What this means is that you paid R130 (R150 owed at
beginning of the year + R40 bought on credit = R190 total owing – R60 still outsanding at year
end) to the other person during the year. This R130 that you really paid, is what we include in
the Statement of cash flow.

Lecturer note: We have to do the same principle for:

• Taxaion paid
• Dividends paid
• Interest paid

2. Taxation paid:
- VERY IMPORTANT NB!!! We need to disclose the taxation PAID during the current financial
year separately on the Statement of Cash flow (Direct method and indirect method).

- Example 1:

An entity has a 31 December year-end. An extract of the Statement of Financial Position

(SOFP) shows the following balances for 2018 and 2019:

(VERY IMPORTANT NB!!! The previous financial year (2018) is our opening balance and the
2019 is our closing balance).
 2019 2018
R R

Current liabilities XXX XXX

Trade and other payables XXX XXX
Short-term portion of borrowings XXX XXX
SARS: Income tax payable 95 000 58 000

Total equity and liabilities XXXX XXXX

An extract of the Statement of profit or loss and other comprehensive income

(SOPLOCI) shows the following balances for 2019:

2019
R

Profit before interest and tax XXX

Finance costs (XXX)
Profit before tax XXX
Income tax expense (47 500)
Profit for the year XXX

Required: What is the taxation paid for the year ended 31 December 2019?

Answer:

The taxation paid for the year is R10 500. Calculated as follows:

Lecturer note:
Income tax payable at the beginning of the year 58 000 Figure of 2018 in SOFP
Income tax expense for the year 47 500 Income tax of 2019 in SOPLOCI
Total amount owing 105 500
Minus: Closing balance of tax payable at end of the year (95 000) Figure of 2019 in SOFP
Taxation paid 10 500

OR

Taxation
Balance c/f 95 000 Balance b/f 58 000
Bank (balance) 10 500 Income tax expense 47 500

105 500 105 500

Balance b/f 95 000
- Example 2:

An entity has a 28 February year-end. An extract of the Statement of Financial Position

(SOFP) shows the following balances for 2017 and 2018:

(VERY IMPORTANT NB!!! The previous financial year (2017) is our opening balance and the
2018 is our closing balance).

2018 2017
R R

Current liabilities XXX XXX

Trade and other payables XXX XXX
Short-term portion of borrowings XXX XXX
SARS: Income tax payable 14 800 24 200

Total equity and liabilities XXXX XXXX

An extract of the Statement of profit or loss and other comprehensive income

(SOPLOCI) shows the following balances for 2018:

2018
R

Profit before interest and tax XXX

Finance costs (XXX)
Profit before tax XXX
Income tax expense (36 400)
Profit for the year XXX

Required: What is the taxation paid for the year ended 28 February 2018?

Answer:

The taxation paid for the year is R45 800. Calculated as follows:

Lecturer note:
Income tax payable at the beginning of the year 24 200 Figure of 2017 in SOFP
Income tax expense for the year 36 400 Income tax of 2018 in SOPLOCI
Total amount owing 60 600
Minus: Closing balance of tax payable at end of the year (14 800) Figure of 2018 in SOFP
Taxation paid 45 800

OR
 Taxation
Balance c/f 14 800 Balance b/f 24 200
Bank (balance) 45 800 Income tax expense 36 400

60 600 60 600
Balance b/f 14 800

3. Dividends paid:
- VERY IMPORTANT NB!!! We need to disclose the dividends PAID during the current
financial year separately on the Statement of Cash flow (Direct method and indirect
method).

- Example 1:

An entity has a 31 December year-end. An extract of the Statement of Financial Position

(SOFP) shows the following balances for 2018 and 2019:

(VERY IMPORTANT NB!!! The previous financial year (2018) is our opening balance and the
2019 is our closing balance).

2019 2018
R R

Current liabilities XXX XXX

Trade and other payables XXX XXX
Short-term portion of borrowings XXX XXX
Shareholders for dividends 15 000 36 300

Total equity and liabilities XXXX XXXX

An extract of the Statement of changes in equity (SCE) shows the following balances for
2019:

Share Revaluation Retained

Total
capital surplus earnings
Balance at the beginning of the year 600 000 150 000 453 200 1 203 200
Profit for the year 168 300 168 300
Dividends declared (26 800) (26 800)
Balance at the end of the year 600 000 150 000 594 700 1 344 700
Required: What is the dividends paid for the year ended 31 December 2019?

Answer:

The dividends paid for the year is R48 100. Calculated as follows:

Lecturer note:
Dividends payable at the beginning of the year 36 300 Figure of 2018 in SOFP
Dividends declared 26 800 Dividends declared as per SCE
Total amount owing 63 100
Minus: Closing balance of dividends payable at end of the year (15 000) Figure of 2019 in SOFP
Dividends paid 48 100

OR

Dividends
Balance c/f 15 000 Balance b/f 36 300
Bank (balance) 48 100 Dividends declared 26 800

63 100 63 100
Balance b/f 15 000

- Example 2:

An entity has a 28 February year-end. An extract of the Statement of Financial Position

(SOFP) shows the following balances for 2017 and 2018:

(VERY IMPORTANT NB!!! The previous financial year (2017) is our opening balance and the
2018 is our closing balance).

2018 2017
R R

Current liabilities XXX XXX

Trade and other payables XXX XXX
Short-term portion of borrowings XXX XXX
Shareholders for dividends 35 400 27 200
SARS: Income tax payable XXX XXX

Total equity and liabilities XXXX XXXX

Additional information given in question (extract):

The total dividends declared for the current financial year amount to R19 300.

Required: What is the dividends paid for the year ended 28 February 2018?

Answer:

The dividends paid for the year is R11 100. Calculated as follows:

Lecturer note:
Dividends payable at the beginning of the year 27 200 Figure of 2017 in SOFP
Dividends declared 19 300 As per information given
Total amount owing 46 500
Minus: Closing balance of dividends payable at end of the year (35 400) Figure of 2018 in SOFP
Dividends paid 11 100

OR

Dividends
Balance c/f 35 400 Balance b/f 27 200
Bank (balance) 11 100 Dividends declared 19 300

46 500 46 500
Balance b/f 35 400

4. Interest paid:
- VERY IMPORTANT NB!!! We need to disclose the interest PAID during the current financial
year separately on the Statement of Cash flow (Direct method and indirect method).

- Example 1:

An entity has a 31 December year-end. An extract of the Statement of Financial Position

(SOFP) shows the following balances for 2018 and 2019:

2019 2018
R R

Current liabilities XXX XXX

Trade and other payables XXX XXX
Short-term portion of borrowings XXX XXX
Finance cost payable 33 400 32 600

Total equity and liabilities XXXX XXXX

An extract of the Statement of profit or loss and other comprehensive income (SOPLOCI)
shows the following balances for 2019:

2019
R

Profit before interest and tax XXX

Finance costs (28 700)
Profit before tax XXX
Income tax expense (XXX)
Profit for the year XXX

Required: What is the interest paid for the year ended 31 December 2019?

Answer:

The interest paid for the year is R27 900. Calculated as follows:

Lecturer note:
Finance cost (Interest expense) payable at the beginning of the year 32 600 Figure of 2018 in SOFP
Finance cost (Interest expense) for the year 28 700 Finance cost of 2019 in SOPLOCI
Total amount owing 61 300
Minus: Closing balance of Finance cost payable at end of the year (33 400) Figure of 2019 in SOFP
Interest paid 27 900

OR

Interest paid
Balance c/f 33 400 Balance b/f 32 600
Bank (balance) 27 900 Finance cost 28 700

61 300 61 300
Balance b/f 33 400

- Example 2:

An entity has a 28 February year-end. An extract of the Statement of profit or loss and
other comprehensive income (SOPLOCI) shows the following balances for 2018:

2018
R

Profit before interest and tax XXX

Finance costs (14 700)
Profit before tax XXX
Income tax expense (XXX)
Profit for the year XXX
Additional information given in question (extract):

Trade and other receivables consist of:

2018 2017
R R
Creditors 68 000 54 000
Accrued expenses: Finance cost 23 200 16 200
91 200 70 200

Required: What is the interest paid for the year ended 28 February 2018?

Answer:

The interest paid for the year is R7 700. Calculated as follows:

Lecturer note:
Finance cost (Interest expense) payable at the beginning of the year 16 200 As per information given
Finance cost (Interest expense) for the year 14 700 Finance cost of 2018 in SOPLOCI
Total amount owing 30 900
Minus: Closing balance of Finance cost payable at end of the year (23 200) As per information given
Interest paid 7 700

OR

Interest paid
Balance c/f 23 200 Balance b/f 16 200
Bank (balance) 7 700 Finance cost 14 700

30 900 30 900
Balance b/f 23 200