Objectives

To be able to understand what Statement

What? of Cash Flow is

To be able to prepare a cash flow

How? statement as per IAS 7

To be able to know the uses and

Why? importance of preparing statement of
cash flow
Q1. What is Statement of Cash Flows?

A financial statement that

shows cash inflows and
outflows of a business over
a period of time
 CASH CASH
INFLOWS OUTFLOWS
+++ +++

House rent
From salary

Food
Gift from ….

Shopping!!!
 CASH CASH
INFLOWS OUTFLOWS
+++ +++

Tofu + Spices
Personal
investment
Sticks

Cash sales
Coal and Tools
 CASH CASH
INFLOWS OUTFLOWS
+++ +++

Rent or Property
acquisition
Investment from
Shareholders
Salaries

Cash borrowed
from the bank REnt

Sales
Depreciation

Tax
Q2. What accounting standard is applied in
the preparation of Statement of Cash flows?

IAS 7
Q3. What is the end result of cash flow
statement?

CASH AND CASH

EQUIVALENTS
– at the end of the
year
Q4. What is cash and cash equivalents?

Cash is money in notes and coins (cash in hand)

• deposit is that are repayable on demand (cash at bank)

Cash equivalents What is Cash Equivalents

• short-term investments that are convertible into cash
without notice
• have less than 3 months to run when acquired
• Example: 3 months treasury bill
Q5. IAS 7, Statement of cash flows is
presented as follows: STANDARD FORMAT

• Standard headings :
CASH FROM / (USED IN)
 OPERATING ACTIVITIES
 INVESTING ACTIVITIES
 FINANCING ACTIVITIES
CASH FLOWS FROM OPERATING
ACTIVITIES
- From revenue producing activities

“non cash” expenses / income are excluded

CASH FLOWS FROM INVESTING ACTIVITIES
- Acquisition / trade of NCA or Trade
Investments

ACQUIRE

DISPOSE
CASH FLOWS FROM FINANCING ACTIVITIES
- Relates to the issue of shares / borrowing loans

CAPITAL
ACCOUNTS
NON
CURRENT
LIABILITIES
TITLE
COMPANY
NAME

Company Plc

Statement of Cash Flows for the year ended DD-MM-YYY

date
Financial
Statement “for the year
ended”
 Cash flows from operating activities
Operating Profit Operating profit XX
Depreciation charges for year XX
Noncash expenses Profit on disposal of PPE (XX)
Loss on disposal of PPE XX

TRICKY AREA: MISSING AMOUNTS

• PROFIT FROM OPERATIONS
• DEPRECIATION
• PROFIT OR LOSS ON DISPOSAL
Why should you add back
depreciation?
Sales 600
Less purchases 400
200
Less petrol 35
less depreciation 20
Profit 145
To reconcile the cash and the profit, depreciation should be
added:

Profit 145
Bank 165
Add: depreciation 20
DEPRECIATION / NON CASH EXPENSES

•Add back to the

operating profit
Exercise1:
 Company Name
Income Statement
for the year ended date

Revenue xx
Less: Cost of Sales xx
Gross Profit xx
Add: Other revenues xx
Less: Operating Expenses xx
Selling expenses xx
Administrative expenses xx xx
Operating profit (before interest and taxes) xx
Less: Finance cost xx
Profit before tax xx
Less: Taxation xx
PROFIT FOR THE YEAR xx
Exercise1:

$23,000
Exercise 2

$25,500
 Cash flows from operating activities
Operating Profit Operating profit XX
Depreciation charges for year XX
Noncash expenses Profit on disposal of PPE (XX)
Loss on disposal of PPE XX
Increase in inventories (XX)
Decrease in inventories XX
Current Assets Increase in trade receivables (XX)
Decrease in trade receivables XX
Increase in trade payables XX
Current Liabilities Decrease in trade payables (XX)
Cash (used in) / from operating activities XX
Inventories
• INCREASE IN INVENTORY

CASH OUTFLOW

Inventory XX
Bank XX

• DECREASE IN INVENTORY

CASH INFLOW
Trade Receivables
• DECREASE IN TRADE RECEIVABLES

CASH INFLOW

Bank XX
Trade Receivables XX

• INCREASE IN TRADE RECEIVABLES

CASH OUTFLOW
Trade Payables
• DECREASE IN TRADE PAYABLES

CASH OUTFLOW
Trade Payables XX
Cash XX

• INCREASE IN TRADE PAYABLES

CASH INFLOW

An increase in trade payable signifies an increase in cash

which is used to finance the company’s activities
-

$ 176
$ 208
$62,000
 Cash flows from operating activities
Operating Profit Operating profit XX
Depreciation charges for year XX
Noncash expenses Profit on disposal of PPE (XX)
Loss on disposal of PPE XX
Increase in inventories (XX)
Decrease in inventories XX
Current Assets Increase in trade receivables (XX)
Decrease in trade receivables XX
Increase in trade payables XX
Current Liabilities Decrease in trade payables (XX)
Cash (used in) / from operating activities XX
Interest paid (XX)
Income tax- paid (XX)
Interest and taxes
Net cash (used
- in) / from operating
activities XX
- +
$96000
-
+

 2,990 -

 2,200 -

340 +

$51950
 Cash flows from operating activities
Operating Profit Operating profit XX
Depreciation charges for year XX
Noncash expenses Profit on disposal of PPE (XX)
Loss on disposal of PPE XX
Increase in inventories (XX)
Decrease in inventories XX
Current Assets Increase in trade receivables (XX)
Decrease in trade receivables XX
Increase in trade payables XX
Current Liabilities Decrease in trade payables (XX)
Cash (used in) / from operating activities XX
Interest paid (XX)
Income tax paid (XX)
Interest and taxes
Net cash (used in) / from operating
activities XX
Cash flows from investing activities
Purchases of non-current assets (XX) NON CURRENT
Proceeds from sale of non-current assets XX ASSETS
Purchases of investments (XX)
Cash (used in) / from investing activities XX
INVESTMENTS
- +
 -
-
x
x
+

$108,500
9. During the year ended 31 March 2013, a
company sold plant and machinery for $16,000. This
plant had cost $120,000 and had a book value of
$20,000.

An additional $280,000 was spent on new plant and

machinery, which was depreciated at the end of the
year by 20 %.

In preparing the cash flow statement at the end of the

year, how are the above transactions shown under the
“cash flow from investing activities” heading?
$16,000
Cash inflow? __________________
$280,000
Cash outflow? __________________
Cash flows from financing
activities
Proceeds from share issue XX
Repayment of debenture (XX) NON CURRENT
Dividends paid (XX) LIABILITIES and
Cash (used in) / from financing EQUITY
activities XX
- +
Issued share capital
• INCREASE IN ISSUED SHARE CAPITAL

CASH INFLOW

• IT IS ASSUMED THAT THE COMPANY HAD

MADE FURTHER ISSUE OF SHARES
DURING THE YEAR
Share Premium (APIC)
• INCREASE IN APIC

CASH INFLOW

• IT IS ASSUMED THAT THE COMPANY

ISSUED SHARES AT A PREMIUM OR AN
AMOUNT IN EXCESS OF THE PAR VALUE
10. Place a tick mark on the transactions that should be
shown under the heading “Cash flow from Financing
Activities”

✔
□ Dividends paid on ordinary shares -
✔
□ Dividends paid on preference shares -
✔
□ Cash received from issuance of shares +
□x Interest paid on loans from the bank Operating act
□x Issuance of bonus shares Non cash transaction

□x Revaluation of property plant and equipment

Non cash transaction
ITEMS that are not shown in the CASH
FLOW STATEMENT

• BONUS ISSUE OF SHARES

 Entry
▫ Share premium XX
▫ Share capital XX

 Reasons:
▫ No movement of cash (merely book entry)
▫ Only affects statement of financial position
(no effect on total equity)
ITEMS that are not shown in the CASH
FLOW STATEMENT
• Revaluation of Property Plant and Equipment
 Entry
▫ PPE XX
▫ Revaluation Reserve XX

 Reasons:
▫ No movement of cash (merely book entry)
Net cash (used in) / from operating activities XX
Cash (used in) / from investing activities XX ADD
Cash (used in) / from financing activities XX
Net increase/ (decrease) in cash and cash equivalents XX
Last
Cash and cash equivalents at beginning of year XX year
Cash and cash equivalents at end of year XX
 Company Ltd / Plc
Statement of Cash Flows for the year ended DD-MM-YYY

Cash flows from operating activities

Operating profit
 XX
Depreciation charges for year XX
Profit on disposal of PPE (XX)
Loss on disposal of PPE
Increase in inventories
Decrease in inventories
 XX
(XX)
XX
Increase in trade receivables (XX)
Decrease in trade receivables XX
Increase in trade payables
Decrease in trade payables
✪
 XX
(XX)

✪
Cash (used in) / from operating activities XX
Interest paid
✪ (XX)
The End