IAS 7 - Cash flow statements

Question 1

Format: Cash flows from operating activities

Answer 1

Profit from operations

Adjusted for:

• add* Depreciation
• less* Gain on disposal of PPE

= Operating CF before WC adjustments

• less* increase inventories
• less* increase receivables
• add* increase payables

Cash generated from Operations

• less* interest paid
• less* taxes paid

Net cash from operating activities

Question 2

How to calculate interest paid for Cash flow purposes?

Answer 2

Balance (liability) due on opening SOFP

add: Interest charge for the year from SOPL
less: Balance (liability) still due on closing SOFP

= Interest paid during the year (figure for cash flow)

Question 3

How to calculate taxation paid for the Cash flow statement?

Answer 3

Current tax liability due on opening SOFP

add: deferred tax liability due on opening SOFP
add: tax charges for the year from SOPL
less: current tax liabilities still due on closing SOFP
less: deferred tax liability still due on closing SOFP

Question 4

Format: Cash flows from investing activities

Answer 4

Acquisition of subsidiary net of cash acquired

less: Purchase of PPE
add: proceeds from sale of equipment
add: interest received
add: dividends received

Net cash used in investing activities

Question 5

How to calculate the proceeds from disposal of equipment?

Answer 5

NBV/CV of asset sold (what you expect to get)

add: profit made on disposal (taken to SOPL)

= Proceeds from sale

Question 6

How to calculate the change in PPE?

Answer 6

Non-current assets/ PPE (NBV) bal b/f from opening SOFP

less: depreciation
less: NBV/CV of asset sold
less: bal c/f (from closing SOFP)

= additions in period

Question 7

Format: Cash flows from financing activities

Answer 7

Proceeds from issue of share capital

add: Proceeds from long-term borrowings
less: Payment of finance lease liabilities
less: Dividends paid

Net cash used in financing activities

Question 8

How to calculate Proceeds from issuance of share capital?

Answer 8

• Rememeber that the share capital and share premium account are ‘twin accounts’ - nominal value of shares isssued goes to share capital account and premium on the issue goes to premium account*
• Share capital increase*
• add: Share Premium increase*
• = figure for cash flow statement*

Question 9

What notes are normally reqired for the statement of cash flow?

Answer 9

1. Acquisition (disposal) of subsidiary
2. Major non-cash transactions (e.g. inception of finance lease)
3. Cash and Cash equivalents (analysis of)
4. IAS 7 encourages the presentation of operating,investing and financing cash flows by segment