L3 PAS 7 CASH FLOW

statement of cash flows

is a component of financiq

statements summartztng the operating, investing ang

financing activities of an entity.

statement of cash flows

provides

information about the cash receipts and cash paymenty

of an entity during a period.

primary purpose

of a statement of cash flows is to provide

relevant information about cash receipts and cash payments

of an entity during a period.

statement of cash flows is designed to provide information

about the change in an entity's cash and cash equivalents.

Cash equivalents

Cash comprises cash on hand and demand deposits.

__are short-term highly liquid investments that

are readily convertible to known amount of cash and which are

subject to an insignificant risk of change in value.

PAS 7, paragraph 7

provides that an investment normally

qualifies as a cash equivalent only when it has a short maturity

of three months or less from date of acquisition. In other words,

the investment must be acquired three months or less before the

date of maturity.

Bank overdrafts

which are repayable on demand form an integral

part of cash management. In these circumstances, bank:overdrafts

are included as component of cash and cash equivalents.

A characteristic of such banking arrangement is that the bank

balance often fluctuates from being positive to overdrawn.

a. Three-month BSP treasury bill

b. Three-year BSP treasury bill purchased three months before date of maturity

c. Three-month time deposit

d. Three-month money market instrument or commercial

paper

Examples of cash equivalents

The statement of cash flows

shall report cash flows during

the period classified as operating, investing-and financing

activities.

Cash flows

are inflows and outflows of cash and cash

equivalents.

Operating activities

are the cash flows derived primarily from

the principal revenue producing activities of the entity.

• generally result from

  transactions and otherlevents that enter into the determination

  of net income or loss.

Operating activities

1. Cash receipts from sale of goods

2. Cash receipts from royalties, rental, fees, commissions and other revenue

3. Cash payments to suppliers for goods purchased

4. Cash payments for selling, administrative and other expenses

5. Cash receipts and payments for securities held for trading

6. Cash payment or refund of income taxes unless can be

7. identified specifically with financing and investing activities

Investing activities

are the cash flows derived from the acquisition

and disposal of long-term. assets and other investments not included in cash equivalent.

• As a simple. guide, this activities include cash flows from

transactions involving.nonoperating assets.

Investing activities

a. Cash payments to acquire property, plant and eqmpment

intangible asset and other long-term asset

b. Cash receipts from sale of property; plant and eqmpment,

intangible asset,and other long-term asset

c. Cash payments to acquire equity or debt instruments of

other entities (current and long-term investments)

d. Cash receipts from sale of equity or debt instruments of

other entities

e. Cash advances and loans to other parties other than

advances and loans made by financial institution

f. Cash receipts from repayment of advances and loans made

to other parties

Financing activities

are the cash flows derived from the equily

capital and borrowings of the entity.

Otherwise stated, financing activities are the cash flows that

result from transactions:

a. Between the entity and the owners — equily financing

b. Between the entity and the creditors — debt financing

financing activities

include the cash flows

from transactions involving nontrade liabilities and equity

of an entity.

Financing activities

1. Cash receipts from issuance of ordinary and preference shares

2. Cash payments to acquire treasury shares

3. Cash receipts from issuing bonds, loans, notes, mortgages and other short-or long term borrowings

4. Cash payments for amounts borrowed

5. Cash payments by a lessee for the reduction of the

6. outstanding principal lease hablht;y

Noncash investing and financing

transactions shall be

disclosed only either in the notes to financial statements or in

a separate schedule or in a way that provides all relevant

information about these transactions.transactions shall be

disclosed only either in the notes to financial statements or in

a separate schedule or in a way that provides all relevant

information about these transactions.

The statentent of cash flows

is strictly a cash concept.

• Accordingly, the following noncash transactions are disclosed

separately:

a. Acquisition of asset by issuing share capital

b. Acquisition of asset by issuing bonds payable

c. Conversion of bonds payable into share capital

d. Conversion of preference shares into ordinary shares

PAS 7, paragraph 33,

provides that Interest pald and interest

received shall be classified as operating cash flows because such

items enter into the determination of net income or loss,

Interest pald and Interest recefved

Alternatively, interest paid may be classified as financing cash

flow because it is a cost of obtaining financia) resources,

Alternatively, interest received may be classified 28 investing

cash flow because it is a return on investment,

• For a financial institution, interest paid and ‘interest received

.are usually classified as operating cash flows,

PAS 7, paragraph 33,

provides that dividend received shall be

classified as operating cash flow because it enters into the

determination of net income.

• Alternatively, dividend received may be classified as intesting

  cash flow because it is a return on investment,

PAS 7, paragraph 34

provides that dividend paid shall be

classified as financing cash flow because it is a cost of obtaining

financial resources,

Alternatively, dividend paid may be classified as operating

cash flow in order to assist users to determine the ability of the

entity to pay dividends out of operating cash flow