CASH FLOW STATEMENTS

Presentation of a Cash Flow Statement

The cash flow statement should report cash flows during the period classified by
operating, investing and financing activities.
An entity presents its cash flows from operating, investing and financing activities in
a manner which is most appropriate to its activities. Classification by activity provides
information that allows users to assess the impact of those activities on the financial
position of the entity and the amount of its cash and cash equivalents. This information
may also be used to evaluate the relationships among those activities.

Operating Activities
The amount of net cash flows arising from operating activities is a key indicator of
the extent to which the operations of the entity are funded:
(a) By way of taxes (directly and indirectly); or
(b) From the recipients of goods and services provided by the entity.
Cash flows from operating activities are primarily derived from the principal cash-
generating activities of the entity.

Examples of cash flows from operating activities are:

o Cash receipts from taxes, levies and fines;
o Cash receipts from charges for goods and services provided by the
▪ entity;
o Cash receipts from grants or transfers and other appropriations or
other budget authority made by central government or other public
sector entities;
o Cash receipts from royalties, fees, commissions and other revenue;
o Cash payments to other public sector entities to finance their
operations (not including loans);
o Cash payments to suppliers for goods and services;
o Cash payments to and on behalf of employees;
o Cash receipts and cash payments of an insurance entity for
premiums and claims, annuities and other policy benefits;
o Cash payments of local property taxes or income taxes (where
▪ appropriate) in relation to operating activities;
o Cash receipts and payments from contracts held for dealing or
trading purposes;

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 CASH FLOW STATEMENTS

o Cash receipts or payments from discontinuing operations; and (l)

Cash receipts or payments in relation to litigation settlements.

Some transactions, such as the sale of an item of plant, may give rise to a
gain or loss which is included in the determination of net surplus or deficit.
However, the cash flows relating to such transactions are cash flows from
investing activities.
Investing Activities
The separate disclosure of cash flows arising from investing activities is important
because the cash flows represent the extent to which cash outflows have been made
for resources which are intended to contribute to the entity’s future service delivery.
Examples of cash flows arising from investing activities are:
o Cash payments to acquire property, plant and equipment,
intangibles and other long-term assets. These payments include
those relating to capitalized development costs and self-constructed
property, plant and equipment;
o Cash receipts from sales of property, plant and equipment,
▪ intangibles and other long-term assets;
o Cash payments to acquire equity or debt instruments of other
entities and interests in joint ventures (other than payments for
those instruments considered to be cash equivalents or those held
for dealing or trading purposes);
o Cash receipts from sales of equity or debt instruments of other
entities and interests in joint ventures (other than receipts for those
instruments considered to be cash equivalents and those held for
dealing or trading purposes);
o Cash advances and loans made to other parties (other than advances
and loans made by a public financial institution);
o Cash receipts from the repayment of advances and loans made to
other parties (other than advances and loans of a public financial
institution);
o Cash payments for futures contracts, forward contracts, option
contracts and swap contracts except when the contracts are held for
dealing or trading purposes, or the payments are classified as
financing activities; and
o Cash receipts from futures contracts, forward contracts, option
contracts and swap contracts except when the contracts are held for

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 CASH FLOW STATEMENTS

dealing or trading purposes, or the receipts are classified as

financing activities.
When a contract is accounted for as a hedge of an identifiable position, the
cash flows of the contract are classified in the same manner as the cash flows
of the position being hedged.

Financing Activities
The separate disclosure of cash flows arising from financing activities is important
because it is useful in predicting claims on future cash flows by providers of capital
to the entity.
Examples of cash flows arising from financing activities are:
(c) Cash proceeds from issuing debentures, loans, notes, bonds,
mortgages and other short or long-term borrowings;
(d) Cash repayments of amounts borrowed; and
(e) Cash payments by a lessee for the reduction of the outstanding
liability relating to a finance lease.

Reporting Cash Flows from Operating Activities

An entity should report cash flows from operating activities using either:
(a) The direct method, whereby major classes of gross cash receipts
and gross cash payments are disclosed; or
(b) The indirect method, whereby net surplus or deficit is adjusted
for the effects of transactions of a noncash nature, any deferrals
or accruals of past or future operating cash receipts or payments,
and items of revenue or expense associated with investing or
financing cash flows.

Entities are encouraged to report cash flows from operating

activities using the direct method. The direct method provides information
which may be useful in estimating future cash flows and which is not available under
the indirect method. Under the direct method, information about major classes of
gross cash receipts and gross cash payments may be obtained either:
(c) From the accounting records of the entity; or
(d) By adjusting operating revenues, operating expenses (interest and
similar revenue, and interest expense and similar charges for a public
financial institution) and other items in the statement of financial
performance for:

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 CASH FLOW STATEMENTS

(i) Changes during the period in inventories and operating

receivables and payables; (ii) Other noncash items; and
(iii) Other items for which the cash effects are investing or financing
cash flows.
Entities reporting cash flows from operating activities using the direct method are also
encouraged to provide a reconciliation of the surplus/deficit from ordinary activities
with the net cash flow from operating activities. This reconciliation may be provided
as part of the cash flow statement or in the notes to the financial statements.
Under the indirect method, the net cash flow from operating activities is determined
by adjusting net surplus or deficit from ordinary activities for the effects of:
➢ Changes during the period in inventories and operating
receivables and payables;
➢ Noncash items such as depreciation, provisions, deferred
taxes, unrealized foreign currency gains and losses,
undistributed surpluses of associates, and minority interests;
➢ All other items for which the cash effects are investing or
financing cash flows; and
➢ The impact of any extraordinary items which are classified as
operating cash flows.

Foreign Currency Cash Flows

Cash flows arising from transactions in a foreign currency shall be recorded in
an entity’s functional currency by applying to the foreign currency amount the
exchange rate between the functional currency and the foreign currency at the
date of the cash flow.
The cash flows of a foreign controlled entity shall be translated at the exchange
rates between the functional currency and the foreign currency at the dates of
the cash flows.

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 CASH FLOW STATEMENTS

Appendix

Cash Flow Statement (For an Entity Other Than a Financial

Institution)
This appendix is illustrative only and does not form part of the standards. The purpose
of this appendix is to illustrate the application of the standards to assist in clarifying
their meaning.

Direct Method Cash Flow Statement (paragraph 27(a))

Public Sector Entity—Consolidated Cash Flow Statement for Year Ended

December 31 20X2 (In Thousands of Currency Units)
20X2 20X1
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts
Taxation X X
Sales of goods and services X X
Grants X X
Interest received X X
Other receipts X X
Payments
Employee costs (X) (X)
Superannuation (X) (X)
Suppliers (X) (X)
Interest paid (X) (X)
Other payments (X) (X)

Net cash flows from operating activities X X

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of plant and equipment (X) (X)
Proceeds from sale of plant and equipment X X
Proceeds from sale of investments X X
Purchase of foreign currency securities (X) (X)

Net cash flows from investing activities (X) (X)

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 CASH FLOW STATEMENTS

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from borrowings xx xx
Repayment of borrowings xx xx
Distribution/dividend to government xx xx
Net cash flows from financing activities xx xx
Net increase/(decrease) in cash and cash equivalents xx xx
Cash and cash equivalents at beginning of period xx xx
Cash and cash equivalents at end of period xx xx

Notes to the Cash Flow Statement

(a) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and balances with banks and
investments in money market instruments. Cash and cash equivalents included in
the cash flow statement comprise the following statement of financial position
amounts:
20X2 20X1
Cash on hand and balances with banks
X X
Short-term investments
X X

The entity has undrawn borrowing facilities of X, of X X

which X must be used on infrastructure projects.
(b) Property, Plant and Equipment
During the period, the economic entity acquired property, plant and equipment
with an aggregate cost of X of which X was acquired by means of capital grants
by the national government. Cash payments of X were made to purchase
property, plant and equipment.

(c) Reconciliation of Net Cash Flows from Operating Activities to Net

Surplus/(Deficit) from Ordinary Activities (in thousands of currency units)

IPSAS 2 APPENDIX
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 CASH FLOW STATEMENTS

Direct Method Cash Flow Statement (paragraph 27(a))

Notes to the Cash Flow Statement
(c) Reconciliation of Net Cash Flows from Operating Activities to Surplus/
(Deficit)
(in thousands of currency units) 20X2 20X1

Surplus/(deficit) from ordinary activities X X

Noncash movements

Depreciation X X

Amortization X X

Increase in provision for doubtful debts X X

Increase in payables X X

Increase in borrowings X X

Increase in provisions relating to employee costs X X

(X) (X)
(Gains)/losses on sale of property, plant and equipment

(Gains)/losses on sale of investments (X) (X)

Increase in other current assets (X) (X)

Increase in investments due to revaluation (X) (X)

Increase in receivables (X) (X)

Net cash flows from operating activities X X

Indirect Method Cash Flow Statement (paragraph 27(b))

Public Sector Entity—Consolidated Cash Flow Statement for Year Ended
December 31, 20X2 (In Thousands of Currency Units)

(in thousands of currency units) 20X2 20X1

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 CASH FLOW STATEMENTS

CASH FLOWS FROM OPERATING

ACTIVITIES
Surplus/(deficit) X X
Noncash movements
Depreciation X X
Amortization X X
Increase in provision for doubtful debts X X
Increase in payables X X
Increase in borrowings X X
Increase in provisions relating to employee costs X X
(Gains)/losses on sale of property, plant and (X) (X)
equipment
(Gains)/losses on sale of investments (X) (X)
Increase in other current assets (X) (X)
Increase in investments due to revaluation (X) (X)
Increase in receivables (X) (X)

Net cash flows from operating activities X X

IPSAS 2 APPENDIX
Notes to the Cash Flow Statement
(a) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and balances with banks and
investments in money market instruments. Cash and cash equivalents included
in the cash flow statement comprise the following statement of financial position
amounts:

20X2 20X1
Cash on hand and balances with banks X X
Short-term investments
X X

X X

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CASH FLOW STATEMENTS

IPSAS 2 COMPARISON WITH IAS 7