Group Cashflow

Question 1

Advantages, limitations, stakeholder angle, cash and cash equivalents

Answer 1

It helps us assess the quality of earnings, can be predictive and relevant
this makes them useful to users of financial statements
No measurement and policy issues, No accruals

Limitations
1. Historic and past information
2. can be manipulated or gamed - aggressive cash management, sale and lease back.

stakeholder angle
1. Investors are concerned with dividends which are based in cash
2. Going concern, cash liquidity is key, profitable business can go burst.
3. Value of shares
4. Adaptability - Having cash allows you to take opportunities as they arise.

Cash and cash equivalents comprise of cash on demand and demand deposits together with short term(less than 3 months), highly liquid investments that re readily convertible to a known amount of cash.

Question 2

Indirect method - Operating activities

Answer 2

1. Operating Activities
   - An indirect reconciliation from PBT to cash generated from
   operating activities.

• Add back non cash expenses like depreciation and finance costs,
  increase in provisions, impairment losses, pension expenses
• Deduct non cash income
• Adjust for changes in working capital

Outflows - interest paid
- tax paid
- pension contribution paid

Question 3

Indirect method - Investing activities

Answer 3

Cashflows that are about NCA - Should be a negative
Outflows - cash buying NCA
Inflows - scarp value on sale of NCA
inflows - investment property income or yield property

Question 4

Indirect method - Financing activities

Answer 4

cashflows that are about debt or equity
Inflow - proceeds of share issue
- proceeds pf share issue
- new borrowings
Outflow - dividends paid
- borrowings repayment (lessor payments)

change in cash and cash equivalents

Question 5

Cashflows - Group Issues

Answer 5

1. Dividends paid to NCI - Dividends paid to parent is not a group cashflow. The dividend that SUB pays to NCI is an outflow in financing activity.
2. Dividends received from equity accounted investments (associates and investments)
   Share of profit will recognised in P&L. Cash that group receives is included as inflow on investing activities.
3. Acquisition of a subsidiary - cash element of consideration is a cash outflow and reported in investing activities.

This should be net of the cash and cash equivalents taken over.

4. Disposal of a subsidiary - The cash element of the consideration received is a cash inflow and reported in investing activities

This should be the net of the cash and cash equivalents taken passed away.

5. Foreign exchange differences - Forex differences are not cashflow but are necessary to be included in reconciliations when calculating cashflows. gain increases asset/decreases liability and loss increases liability/decrease asset and vice versa.

Question 6

Tax charge v Tax paid

Answer 6

Tax is paid in arrears but charged on current profits
Tax charge will include deferred tax
Finance cost is not the same as interest paid as it includes unwinding of discount which are not cashflows.
Finance costs may be paid but capitalised.