FAR 460

TOPIC 7: MFRS 107

STATEMENT OF CASH FLOWS
 LEARNING OUTCOME
 Ability to:
➢ Prepare Statement of Cash Flows using direct method
➢ Reconciliation of cash flows from operation with the net
profit for the period
➢ Prepare Statement of Cash Flows using indirect method
SCOPE OF CASH FLOW STATEMENT

 Cash flow statement provide info about changes in

cash and cash equivalent during a financial year
 The difference between cash & cash equivalent at the
beginning & at the end = cash flow from company’s
activities
 Cash = all cash in hand, at bank
 Cash equivalent = short term, highly liquid investment,
readily convertible into cash (its maturity date ≤ 3
months from its acquisition)
 COMPONENTS OF CASH FLOW
STATEMENT
OPERATING • principal revenue-generating activities
• Day-to-day operational activities & other
ACTIVITIES activities such as interest and tax paid

INVESTING • involve acquisition and disposal of non-current

assets, investment, proceed received from
ACTIVITIES disposal of asset & investment
• Also include interest received from investment

• involve obtaining and repaying of financial

resources from owner & other providers of non-
FINANCING current capital
• receipts from issuance of debt and equity
ACTIVITIES instrument, repayment on amount borrowed or
redemption of shares & debentures
• Also include dividend paid to shareholders
 PRESENTATION OF CASH FLOW
STATEMENT
Direct method
Disclosure of gross cash receipts
and cash payments from
operations
Cash flow from operations – cash receipts
from customer, cash paid to suppliers, cash
paid to employee and other operations
Need to disclose notes – cash &
cash equivalents, and
reconciliation statement
Indirect method
Cash flow from operation are
determined by adjusting the net profit
before tax (determined using accrual
basis)
Adjustment are made for investment
income, finance cost, non-cash items
(depreciation, impairment loss,
amortisation) and changes in working
capital (receivables, inventories,
payables, accruals and prepayments)
Same with reconciliation
statement under direct method
STATEMENT OF CASH FLOWS
(DIRECT METHOD)
 Statement of Cash Flows for the year ended ….
Cash flow from operating activities:
*Cash receipts from customers xx
*Cash paid to suppliers (xx)
*Cash paid to employees and other expenses (xx)
Cash generated from operations xx
Interest paid (xx)
Tax paid (xx)
Net cash flow from operating activities Xx

Cash flow from investing activities:

*Purchase (payment)/proceed from sale of PPE (Xx)/xx
*Purchase (payment)/proceed from sale of investment (Xx)/xx
Interest received Xx
Dividend received xx
Net cash flow from investing activities xx

Cash flow from financing activities:

Proceed from Issuance of shares/debenture Xx
Dividend paid (xx)
Payment of loan (xx)
Redemption of debenture Xx
Net cash flow from financing activities xx
Net increase/(decrease) in cash and cash equivalent Xx
 Statement of Cash Flows for the year ended ….

Net increase/(decrease) in cash and cash equivalent xxx

Cash and cash equivalents at the beginning of the period xxx
Cash and cash equivalents at the end of the period Xxx

Notes:
a) Cash and cash equivalent
Beginning End Changes
Cash in hand and at bank xx xx
Short term investment (≤6months) xx xx
Bank overdraft (xx) (xx)
Cash and cash equivalent xx xx xx

b) Reconciliation statement
Cash flow from operating activities:
Net profit before tax xxx
Adjustment:
Investment income (xx)
Finance cost Xx
Depreciation Xx
Gain/loss on disposal of PPE (xx)/xx
Bad debts/doubtful debt xx
Operating profit before working capital changes xx
 Statement of Cash Flows for the year ended ….
b) Reconciliation statement

Operating profit before working capital changes xxx

Decrease in receivables Xx
Increase in inventory (xx)
Increase in payables Xx
Increase in accrued expenses Xx
Increase in prepaid expenses (xx)
Cash generated from operations Xxx
STATEMENT OF CASH FLOWS
(INDIRECT METHOD)
 Statement of Cash Flows for the year ended ….
Cash flow from operating activities:
Net profit before tax xxx
Adjustment:
Investment income (xx)
Finance cost Xx
Depreciation / amortisation Xx
Impairment loss Xx
Gain/loss on disposal of PPE (xx)/xx
Bad debts/doubtful debt xx
Operating profit before working capital changes xx
Decrease in receivables xx
Increase in inventory (Xx)
Increase in payables xx
Increase in accrued expenses Xx
Decrease in prepaid expenses (xx)
Cash generated from operations Xxx

Cash flow from investing activities:

*Purchase (payment)/proceed from sale of PPE (Xx)/xx
*Purchase (payment)/proceed from sale of investment (Xx)/xx
Interest received Xx
Dividend received xx
Net cash flow from investing activities Xx
 Statement of Cash Flows for the year ended ….
Cash flow from financing activities:
Proceed from Issuance of shares/debenture Xx
Dividend paid (xx)
Payment of loan (xx)
Redemption of debenture Xx
Net cash flow from financing activities xx
Net increase/(decrease) in cash and cash equivalent xx
Cash and cash equivalents at the beginning of the period xxx
Cash and cash equivalents at the end of the period Xxx

Notes:
a) Cash and cash equivalent
Beginning End Changes
Cash in hand and at bank xx xx
Short term investment (≤6months) xx xx
Bank overdraft (xx) (xx)
Cash and cash equivalent xx xx xx
CHANGES IN WORKING CAPITAL

 Working capital = Current Assets – Current

Liabilities
 Concern on other than cash item, such as trade
receivables, inventories, prepaid expenses, accrued
revenue (C.A) and trade payables, accrued
expenses, and prepaid revenue (C.L)
 Increase in C.A – outflow of cash
 Increase in C.L – inflow of cash
 DERIVATION OF CASH
(INFLOW/OUTFLOW)
 2 methods:
✓ Formula

✓ Reconstruct ledger account

Example: (CASH FLOW FROM OPERATING ACTIVITIES

1. To find cash receipt or collected from customers =
receivable b/d + sales – receivables c/d
2. To find cash paid to suppliers = payables b/d +
purchases – payables c/d
▪ Purchases = cost of sales + closing inventory –
opening inventory
 DERIVATION OF CASH
(INFLOW/OUTFLOW)
3. To find cash payment for other expenses (involve
prepayment and accruals) = expenses
(SOCI/SOPOL & OCI) + *accruals b/d +
*prepayment c/d - *accruals c/d – *prepayment
b/d
4. To find tax paid during the year = tax payable
b/d (as per SOFP) + tax expense (SOCI/SOPOL
& OCI) – tax payable c/d (as per SOFP)
 DERIVATION OF CASH
(INFLOW/OUTFLOW)

Example: (CASH FLOW FROM INVESTING ACTIVITIES

▪ To find disposal of PPE = PPE c/d – PPE b/d

▪ To find accumulated depreciation of asset disposed

= acc dep b/d + depreciation (SOCI/SOPOL &
OCI) – acc dep c/d
1. To find cash received / sales proceed upon disposal
= PPE (disposed) + *gain (SOCI/SOPOL & OCI) –
acc dep (asset disposed) – *loss (SOCI/ SOPOL &
OCI)
 DERIVATION OF CASH
(INFLOW/OUTFLOW)
Example: (CASH FLOW FROM FINANCING ACTIVITIES
1. To find repayment of bank loan = bank loan b/d
– bank loan c/d
2. To find issuance of shares for cash
Dr Bank Dr Application
Cr Application - OS Cr OS Capital
Cr Share premium
3. To find redemption of debenture
Dr Redemption
Cr Bank
4. To find dividend paid = retained profits b/d +
profit after tax – retained profits c/d
 DERIVATION OF CASH
(INFLOW/OUTFLOW)
 Reconstruct ledger acc
Trade receivables account
Bal b/d xxx*Cash xxx
Sales xxxBal c/d xxx
xxx xxx
Trade payables account
*Cash xxxBal b/d xxx
Bal c/d xxx**Purchases xxx
xxx xxx
Cost of Sales account
Opening stock xxxCost of sales xxx
**Purchases xxxClosing stock xxx
xxx xxx
Other expenses account
*Prepaid b/d xxx*Accrued b/d xxx
**Cash xxxSOPOL&OCI xxx
*Accrued c/d xxx*Prepaid c/d xxx
xxx xxx
 DERIVATION OF CASH
(INFLOW/OUTFLOW)
Tax payable account
*Cash xxxBal b/d xxx
Bal c/d xxxSOPOL&OCI xxx
xxx xxx
Plant & machinery account
Bal b/d xxx* Disposal xxx
* Cash (acquisition) xxxBal c/d xxx
xxx xxx
Acc dep – P&M account
*Disposal xxxBal b/d xxx
Bal c/d xxxDepreciation xxx
xxx xxx
Disposal account
P&M xxxAcc depreciation xxx
*SOPOL&OCI (gain) xxx**Cash xxx
*SOPOL&OCI(loss) xxx
xxx xxx
 DERIVATION OF CASH
(INFLOW/OUTFLOW)
 Find profit before tax – for indirect method
 Profit before tax = retained profit c/d – retained
profit b/d + dividend(final) + tax expense (as per
SOPOL & OCI)

Retained profit
Dividend xxxBal b/d xxx
*Tax expense *Profit for the year xxx
Bal c/d xxx
xxx xxx
 DIRECT @ INDIRECT METHOD OF
STATEMENT OF CASH FLOWS??

➢ Normally will be informed in the question

➢ If not:
▪ If only SOFP provided in the question, then indirect
method of statement of cash flows should be
presented
▪ If SOPOL & OCI / SOCI as well as SOFP is
provided, then direct method of statement of cash
flows should be presented