Objectives

To be able to understand what Statement of Cash Flow is To be able to prepare a cash flow statement as per IAS 7 To be able to know the uses and importance of preparing statement of cash flow

Q1. What is Statement of Cash Flows?

A financial statement that shows cash inflows and outflows of a business over a period of time

CASH INFLOWS +++

CASH OUTFLOWS +++ House rent Food

From salary Gift from .

Shopping!!!

CASH INFLOWS +++

CASH OUTFLOWS +++ Tofu + Spices

Personal investment Cash sales

Sticks

Coal and Tools

CASH INFLOWS +++

CASH OUTFLOWS +++

Investment from Shareholders Cash borrowed from the bank Sales

Rent or Property acquisition

Salaries

REnt

Depreciation

Tax

Q2. What accounting standard is applied in the preparation of Statement of Cash flows?

Q3. What is the end result of cash flow statement?

CASH AND CASH EQUIVALENTS at the end of the year

Q4. What is cash and cash equivalents?

Cash is money in notes and coins (cash in hand)

deposit is that are repayable on demand (cash at bank)

Cash equivalents

What is Cash Equivalents short-term investments that are convertible into cash without notice have less than 3 months to run when acquired Example: 3 months treasury bill

Q5. IAS 7, Statement of cash flows is presented as follows: STANDARD FORMAT

Standard headings :
CASH FROM / (USED IN) OPERATING ACTIVITIES INVESTING ACTIVITIES FINANCING ACTIVITIES

CASH FLOWS FROM OPERATING ACTIVITIES - From revenue producing activities

non cash expenses / income are excluded

CASH FLOWS FROM INVESTING ACTIVITIES - Acquisition / trade of NCA or Trade Investments

ACQUIRE DISPOSE

CASH FLOWS FROM FINANCING ACTIVITIES - Relates to the issue of shares / borrowing loans

CAPITAL ACCOUNTS NON CURRENT LIABILITIES

COMPANY NAME

Company Plc

Statement of Cash Flows for the year ended DD-MM-YYY

date Financial Statement for the year ended

Operating Profit

Noncash expenses

Cash flows from operating activities Operating profit Depreciation charges for year Profit on disposal of PPE Loss on disposal of PPE

XX XX (XX) XX

TRICKY AREA: MISSING AMOUNTS

PROFIT FROM OPERATIONS DEPRECIATION PROFIT OR LOSS ON DISPOSAL

Why should you add back depreciation?

Sales Less purchases 600 400 200 35 20 145

Less petrol less depreciation Profit

To reconcile the cash and the profit, depreciation should be added:

Profit Bank Add: depreciation 145 165 20

DEPRECIATION / NON CASH EXPENSES

Add back to the operating profit

Exercise1:

Company Name Income Statement for the year ended date Revenue Less: Cost of Sales Gross Profit Add: Other revenues Less: Operating Expenses Selling expenses Administrative expenses Operating profit (before interest and taxes) Less: Finance cost Profit before tax Less: Taxation PROFIT FOR THE YEAR xx xx xx xx xx

xx xx

xx xx xx xx xx xx

Exercise1:

$23,000

Exercise 2

$25,500

Operating Profit

Noncash expenses

Current Assets

Current Liabilities

Cash flows from operating activities Operating profit Depreciation charges for year Profit on disposal of PPE Loss on disposal of PPE Increase in inventories Decrease in inventories Increase in trade receivables Decrease in trade receivables Increase in trade payables Decrease in trade payables Cash (used in) / from operating activities

XX XX (XX) XX (XX) XX (XX) XX XX (XX) XX

Inventories
INCREASE IN INVENTORY
CASH OUTFLOW
Inventory Bank
XX XX

DECREASE IN INVENTORY CASH INFLOW

Trade Receivables
DECREASE IN TRADE RECEIVABLES
CASH INFLOW
Bank Trade Receivables
XX XX

INCREASE IN TRADE RECEIVABLES CASH OUTFLOW

Trade Payables
DECREASE IN TRADE PAYABLES CASH OUTFLOW
Trade Payables Cash
XX XX

INCREASE IN TRADE PAYABLES

CASH INFLOW
An increase in trade payable signifies an increase in cash which is used to finance the companys activities

$ 176

$ 208

$62,000

Operating Profit

Noncash expenses

Current Assets

Current Liabilities

Interest and taxes

Cash flows from operating activities Operating profit Depreciation charges for year Profit on disposal of PPE Loss on disposal of PPE Increase in inventories Decrease in inventories Increase in trade receivables Decrease in trade receivables Increase in trade payables Decrease in trade payables Cash (used in) / from operating activities Interest paid Income tax paid Net cash (used in) / from operating activities +

XX XX (XX) XX (XX) XX (XX) XX XX (XX) XX (XX) (XX)

XX

$96000

2,990 2,200 340

$51950

Operating Profit

Noncash expenses

Current Assets

Current Liabilities

Interest and taxes

Cash flows from operating activities Operating profit Depreciation charges for year Profit on disposal of PPE Loss on disposal of PPE Increase in inventories Decrease in inventories Increase in trade receivables Decrease in trade receivables Increase in trade payables Decrease in trade payables Cash (used in) / from operating activities Interest paid Income tax paid Net cash (used in) / from operating activities

XX XX (XX) XX (XX) XX (XX) XX XX (XX) XX (XX) (XX)

XX

Cash flows from investing activities Purchases of non-current assets Proceeds from sale of non-current assets Purchases of investments Cash (used in) / from investing activities
+

(XX) XX (XX) XX

NON CURRENT ASSETS

INVESTMENTS

x x +
$108,500

9. During the year ended 31 March 2013, a company sold plant and machinery for $16,000. This plant had cost $120,000 and had a book value of $20,000.
An additional $280,000 was spent on new plant and machinery, which was depreciated at the end of the year by 20 %. In preparing the cash flow statement at the end of the year, how are the above transactions shown under the cash flow from investing activities heading? $16,000 Cash inflow? __________________ $280,000 Cash outflow? __________________

Cash flows from financing activities Proceeds from share issue Repayment of debenture Dividends paid Cash (used in) / from financing activities
+

XX (XX) (XX) XX

NON CURRENT LIABILITIES and EQUITY

Issued share capital

INCREASE IN ISSUED SHARE CAPITAL
CASH INFLOW

IT IS ASSUMED THAT THE COMPANY HAD MADE FURTHER ISSUE OF SHARES DURING THE YEAR

Share Premium (APIC)

INCREASE IN APIC
CASH INFLOW

IT IS ASSUMED THAT THE COMPANY ISSUED SHARES AT A PREMIUM OR AN AMOUNT IN EXCESS OF THE PAR VALUE

10. Place a tick mark on the transactions that should be shown under the heading Cash flow from Financing Activities
x x x

Dividends paid on ordinary shares Dividends paid on preference shares Cash received from issuance of shares + Interest paid on loans from the bank Operating act Non cash transaction Issuance of bonus shares Revaluation of property plant and equipment
Non cash transaction

ITEMS that are not shown in the CASH FLOW STATEMENT

BONUS ISSUE OF SHARES
Entry
Share premium Share capital XX XX

Reasons:
No movement of cash (merely book entry) Only affects statement of financial position (no effect on total equity)

ITEMS that are not shown in the CASH FLOW STATEMENT

Revaluation of Property Plant and Equipment
Entry
PPE Revaluation Reserve XX XX

Reasons:
No movement of cash (merely book entry)

Net cash (used in) / from operating activities

XX

Cash (used in) / from investing activities

Cash (used in) / from financing activities Net increase/ (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

XX
XX XX XX XX

ADD

Last year

Company Ltd / Plc Statement of Cash Flows for the year ended DD-MM-YYY

Cash flows from operating activities Operating profit Depreciation charges for year Profit on disposal of PPE Loss on disposal of PPE Increase in inventories Decrease in inventories Increase in trade receivables Decrease in trade receivables Increase in trade payables Decrease in trade payables Cash (used in) / from operating activities Interest paid Income tax paid Net cash (used in) / from operating activities Cash flows from investing activities Purchases of non-current assets Proceeds from sale of non-current assets Purchases of investments Cash (used in) / from investing activities Cash flows from financing activities Proceeds from share issue Repayment of debenture Dividends paid Cash (used in) / from financing activities Net increase/ (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of year Cash and cash equivalents at the end of year

XX XX (XX) XX (XX) XX (XX) XX XX (XX) XX (XX) (XX) XX (XX) XX (XX) XX XX (XX) (XX)

XX XX XX XX

End