PRACTICE KIT

CFAP 1: ADVANCED ACCOUNTING AND FINANCIAL REPORTING

CHAPTER 20: CONSOLIDATION CASH FLOWS

(2)
Tax
Rs.000 Rs.000
Tax paid 117 B/fwd current tax 167
C/fwd current tax 700 B/fwd deferred tax 400
C/fwd deferred tax 550 Statement of profit or loss 800
1,367 1,367

(3) Non-current assets

Rs.
Opening NBV 7,520
Depreciation (1,200)
Disposals at NBV (720)
New finance leases 700
Exchange rate gains 424
Purchase for cash 4,996
Closing NBV 11,720

(4) Obligations under finance leases

Rs.000 Rs.000
Cash paid 355 Balance b/f < 1 year 50
Balance c/f < 1 year 110 Balance b/f > 1 year 250
Balance c/f > 1 year 740 Finance charge in profit or loss 205
Non current asset additions 700
1,205 1,205

The payment of Rs. 355,000 is split as Rs. 205,000 interest and Rs. 150,000 capital as payments are
made in arrears and hence the year end payment pays off the year’s finance cost.

(b) The statement of profit or loss and statement of financial position are based on the accruals
concept whereas the statement of cash flows is based on the cash concept. Cash is the 'life blood'
of the company and is therefore critical to an entity’s survival. Without cash to pay suppliers, the
work force and other payables, the company will cease to operate, irrespective of how profitable
it is.

Shareholders need to know that a company is viable and has the resources to continue, and
perhaps expand, operations. Suppliers need to know they will be paid and customers need to
know the company is in a position to continue operations.

Profit may be significantly affected by the choice of accounting policies made by a company. This
means it is more subjective than cash and more open to manipulation. However, the statement of
cash flows itself may be subject to window dressing, for example by delaying payment of
suppliers until after year end. The auditor needs to be involved in this respect to ensure the
shareholders and other users receive meaningful information.

From the desk of Hassnain R. Badami, ACA

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