IAS 7

Statement of Cash Flows

INTRODUCTION
Profit v Cash
ST v LT
SCI v SFP
SCF

INTRODUCTION

Did the companys profits generate sufficient funds for

its continued operations?
Is the company capable of generating funds, as opposed
to profit from its trading activities?
Why has the bank overdraft increased, despite the
company having had a profitable year?
How has the company financed its increased noncurrent assets? Did it finance them from non-current
sources or from operating activities?
What was done with the loan that was taken out during
the year?
How did the company meet its dividend and interest
payments? Was it from operating activities, from
increased borrowing or from the sale of non-current
assets?

IAS 7 STATEMENT OF CASH

FLOWS
OBJECTIVE
To provide users with a mechanism for
assessing the ability of the entity to
generate cash and cash equivalents and the
needs of the enterprise to utilise those cash
flows

IAS 7 STATEMENT OF CASH

FLOWS
SCOPE
An enterprise should prepare a statement
of cash flows as an integral part of their
financial statements
Single Company
2. Group
1.

IAS 7 STATEMENT OF CASH

FLOWS
DEFINITIONS

Cash
Cash on hand and demand deposits
Cash equivalents
Short-term, highly liquid investments, readily
convertible to known amounts of cash and subject to
insignificant risk of changes in value
Cash flows
Cash + cash equivalents

IAS 7 STATEMENT OF CASH

FLOWS
PRESENTATION OF A STATEMENT OF
CASH FLOWS
Should report cash flows classified by:
Operating
Investing
Financing Activities

IAS 7 STATEMENT OF CASH

FLOWS
000
X
X
X

Cash flows from operating activities

Cash flows from investing activities
Cash flow from financing activities
Net increase/ (decrease) in cash and
cash equivalents during period
X
Cash and cash equivalents at the beginning of
period
X
Cash and cash equivalents at end of period X

IAS 7 STATEMENT OF CASH

FLOWS
DEFINITIONS

Operating Activities
The principal revenue-producing activities and other activities
that are not investing or financing activities

Investing Activities
Acquisition and disposal of long-term assets and other
investments not included in cash equivalents

Financing Activities
Those that result in changes in the size and composition of the
equity capital and borrowings

IAS 7 STATEMENT OF CASH

FLOWS
OPERATING ACTIVITIES
By direct method = encouraged, or
By indirect method = required

IAS 7 STATEMENT OF CASH FLOWS

DIRECT METHOD
Cash received from customers
- Cash payments to suppliers
- Cash paid to employees
- Other cash payments
+ Interest received*
- Interest paid*
- Tax paid
- Dividends paid*
= Net cash inflow from operating
activities

INDIRECT METHOD
Depreciation charges
- Profit on disposal of equipment
- Increase in inventories
- Increase in receivables
+ Increase in payables
= cash generated from operations
+ Interest received*
- Interest paid*
- Tax paid
- Dividends paid*
= Net cash inflow from operating
activities

IAS 7 STATEMENT OF CASH

FLOWS
INTEREST AND DIVIDENDS
Received and paid are to be disclosed

separately
Classified as operating, investing or financing

IAS 7 STATEMENT OF CASH

FLOWS
TAXES ON INCOME

Disclosed separately

Operating unless can be specifically identified

as arising from financing and investing
activities

IAS 7 STATEMENT OF CASH FLOWS

INVESTING ACTIVITIES
Cash

paid to acquire PPE

Cash receipts from the sales of PPE
Cash paid/received for shares and
debentures in other entities
Loans received/repaid
Dividends paid/received*
Interest paid/received*

IAS 7 STATEMENT OF CASH FLOWS

FINANCING ACTIVITIES
Proceeds from share issue
Cash paid to acquire/redeem own shares
Cash proceeds from issuing debentures
and loans
Capital repayments of finance leases
Dividends paid/received*
Interest paid/received*

IAS 7 STATEMENT OF CASH FLOWS

Notes to the Statement of Cash Flows
1.
2.
3.

Property, Plant and Equipment

Cash and Cash Equivalents
Segment Information

Other Issues
Exceptional

Items in the Statement of

Comprehensive Income
Exceptional Cash Flows
Discontinued Activities
Major Non-Cash Transactions

STEPS
Step 1:
Set up SCF headings. Leave plenty of space to insert detail.
Step 2:
Study additional information and mark with a cross those items
affecting SFP amounts.
Step 3:
Begin SCF by using SCI to work down to operating profit before
working capital changes.
Step 4:
Proceed line by line through SFP. If an item is not marked with a cross,
the difference may be entered direct to SCF; if it is marked, a working
is required. Use working ledger accounts to calculate missing figures.
Insert the opening and closing balances from SFP into the working
accounts, and then add information from the notes to complete the
ledger account. Balancing figures on the working accounts are then
transferred to SCF.

IAS 7 STATEMENT OF CASH

FLOWS
SELF TEST QUESTIONS
1. What are the standard headings under which IAS
7 requires cash flows to be classified?
2. How does IAS 7 define cash and cash equivalents?
3. What does the direct method of reporting net cash
flows from operating activities show?
4. What are the advantages of a statement of cash
flows?

CCE LIMITED

(W1) Trade Receivables

Opening balances 1,200 Closing balance

Movement (bal)
600 (1,900 100)
1,800

1,800
____
1,800

(W2) Interest and Dividends Receivable

500 Int. receivable c/f

SCI
Div. Recd (bal fig)
___ Interest received
500

100
200
200
500

(W3) Interest Paid

270 Opening balance

Cash (bal fig)
Closing balance 230 SCI
500

100
400
500

(W4) Income Taxes

Cash (bal fig)

720 Opening balance
Closing balance 400 SCI (20+100)
1,120

1,000
120
1,120

(W5) Property, Plant and Equipment - Cost

Opening balance
1,910 Transfer disposal
80
Leases
900 Closing balance
3,730
Cash additions (bal)
1,000
_____
3,810
3,810
(W6) Property, Plant and Equipment Depreciation

Transfer disposal
60 Opening balance
1,060
Closings balance
1,450 SCI
450
1,510
1,510
(W7) Property, Plant and Equipment Disposal

Cost
80 Depreciation
60
__ Cash
20
80
80

(W8) Long-term Debt (to reconcile balances)

Payments under FL
90 Opening balance
1,040
Closing balances
2,300 Finance leases
900
____ LT borrowing
450
2,390
2,390
(W9) Retained Earnings (to reconcile balances)

Dividend paid
1,200 Opening balance
1,380
Closing balance
3,410 SCI
3,230
4,610
4,610

CCE LIMITED
Statement of Cash Flows Year Ended 31st December 20X2
W

Cash flows from operating activities

Net profit before tax
3,350
Adjustments for:
Depreciation
450
Investment income
(500)
Interest expense
400
Op. profit from working capital changes
3,700
Increase in trade receivables
1
(600)
Decrease in inventories
950
Decrease in trade payables
(1,640)
Cash generated from operations
2,410
Interest paid
3
(270)
Income taxes paid
4
(720)
Net cash from operating activities
1,420

W
Net cash from operating activities
Cash flows from investing activities
Purchases of PPE
Proceeds of sale of equipment
Interest received
Dividends received
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Proceeds from long-term borrowings
Payment of finance lease liabilities
Dividends paid
Net cash used in financing activities
Net increase in C&CEs
C&CEs at beginning of period
C&CEs at end of period

1,420

5 (1,000)
7
20
2
200
2
200
(580)
250
450
(90)
(1,200)
(590)
250
160
410

(W1) Cash receipts from customers

Opening trade receivables
Sales
Less: closing trade receivables (1,900 100)

1,200
30,650
31,850
1,800
30,050

(W2) Cash paid to suppliers and employees

Opening trade payables
1,890
Purchases (26,000 1,950 + 1,000)
25,050
26,940
Less: closing trade payables
250
26,690
Administrative and selling expenses
950
27,640

Cash receipts from customers

Cash paid to suppliers and employees
Cash generated from ops (as in (a))
Interest paid
Income taxes paid
Net cash from op. activities (as in (a))

W
1
2

30,050
(27,640)
2,410
(270)
(720)
1,420

Analysis of Cash and Cash Equivalents at 31st

December
20X2 20X1

Cash on hand and balances with banks

40
25
Short term investments
370 135
Cash and cash equivalents
410 160