CF- how to understand whether to add a decrease /increase Flashcards
Interest paid on borrowing costs
IAS23
example
Lease payments, being cash outflows
will be included in the statement of cash flows but
must be split between the portion relating to the repayment of capital and the portion being
repayment of interest.
These two portions may be classified as follows:
x the repayment of principal, which is presented as a financing activity; and
x the repayment of interest, which is presented either as an operating or financing activity.
(It is more common in practice to disclose the payment of interest as an operating activity
and thus examples presented in this text have been prepared on this premise).
simplified approach
the payments of the lease instalments would simply be presented, in full (i.e. no
separation between repayment of principal and interest) in the operating activities section;
x within the µcash paid to suppliers and employees¶ line-item
issue of shares and debentures
be presented in the statement of cash flows under
financing activities since they relate to the financial structure of the entity.
share buy-back
is a simple entry involving a debit to share capital and a credit to bank. The
outflow of cash that results from a share buy-back is generally classified as a financing activity.
capitalisation issue
increases our share capital account but does not
involve an inflow of cash and would thus not be included in our statement of cash flows.
change in an accounting policy or correction of a prior period
never affects the statement of cash flows since the bank account is always based on an
economic reality rather than on the application of the requirements in an accounting standard.
Presentation using direct method
Indirect method
summary
