T8: Consolidated Statement of Cash flows

Statement of cash flows

Financial statement showing the historical changes in cash and cash equivalents of an entity

Usefulness of SCF

• Reports how managers have got cash and how they used cash to run their business

• Helps determine the ability of an entity to pay dividends and interest

• Relationship of profitability to cash generating ability - thus quality of profit earned

• helps users predict future CFs of an entity

• provides useful information e.g. liquidity, viability, adaptability

• CF isn’t easily manipulated and not affected by estimations/ assumptions and by accounting policies

Cash and Cash Equivalents

Cash in hand

Cash at bank

CE = highly liquid investments readily convertible to known amounts of cahs and which are subjected to an insignificant risk of changes in value

Direct method

Operating cash flow analysis shows from where cash is directly generated and to where it’s disbursed

Indirect method

Operating CF is indirectly derived from the profit figure in the income statement

Direct vs indirect

DM is more intuitive than IM since it shows the nature, origin and destination of cash movements

IM however, highlights the relationship between profit and CFs and allows users to examine reconciling differences. users can assess quality of earnings

DM is preferred by IAS 7

IM is also acceptable and preferred as it’s cheaper and less confidential information is distributed

Step 1

Use CSFP to determine net changes in cash and cash equivalents = target answer

Increase in C+CE (bal. fig)

C+CE opening

C+CE closing

GW impairment workings (Disposal )

Opening balance GW

less: Disposal

Less: Impairment (bal. fig)

Closing balance Gw

GW Impairment Acquisition

Opening balance

GW arising on acquisition

Less: Impairment

Closing balance

W2 Interest paid

Opening balance of interest paid

Finance cost (P&L)

Interest paid (bal. fig)

Closing balance of interest paid

Tax paid

Opening balance of tax payable and deferred tax

Income tax on profit

Tax paid (balancing figure)

Closing balance of tax payable

W4: Acquisition of PPE

Opening PPE

Less: Disposal of PPE

Less: Disposal of subsidiary

Less: Depreciation

Revaluation reserve

Additions (balancing fig)

Closing PPE

Divi received from associate

Opening IiA

SoPoA

less: Dividend received from an associate (bal. fig)

Acquisition of an associate

Closing balance IiA

Net cash inflow on disposal

Gross sale proceeds (bal fig)

Less: NA disposed of (NA x P%)

Less: GW

Profit on disposal

Gross sales proceeds

Less: C+CE disposed of

Net cash inflow on disposal of subsidiary (bal. fig)

Proceeds from share issue

Opening balance (SC + SP)

Issue for cash (bal. fig

Closing balance

Divis paid to owners of parent

Opening RE

Profit attributable to equity holders

Dividend paid (bal. fig)

closing RE

Divi paid to NCI

Opening NCI

Disposal (NA x NCI%)

Divi paid to NCI (bal. fig)

Closing balance of NCI