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IAS 7

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DYLAN LM
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15 views

IAS 7

Uploaded by

DYLAN LM
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Cash flows are classified under 3 headings:-

Cash flow from operating activities


Entity's principal revenue earning activities and other activities that do not fall under the next two headings.

Cash flow from investing activities


Defined as the acquisition and disposal of long term assets and other investments (usually negative in SOCF)

Cash flow from financing activities


Defined as activities that change the size and compisition of entity's Equity and borrowings. (EQUITY OR DEBT)
Comprise mainly of receipts or repaymens of principal from or to external providers of finance.

Checklist for Cash flow from operating activities


- finance costs and investment income
- dep or amortisation or impairment
-profit or loss on disposal of NCA/Sub
-Share of Associate profit
- Changes in WC

Checklist for Cash flow from investing activities


- Cash paid/proceeds on NCA
- Dividend received from associate (Associate Account?)
- Interest Received
- T account to calculation acq for PPE
-Proceeds from sale of PPE/Property/ Sub NET OF CASH LOSS
- Cash paid to Acquire Sub NET OF CASH ACQUIRED

Checklist for Cash flow from financing activities


- Receipt from issue of share/loan (Other than overdraft)
- Lease/loan payment
- Div paid to NCI (T Account)
- Div paid to Group

Profit adjustment arguments


IAS 7 states that indirect method in calculating CG from Opeating activities involves adjusting profit for changes in WC, non

Finance costs are non cash because they are based on accrual basis rather than cash basis so it should be added back.

REMEMBER
Adjust the WC section to reflect any acq or disposal
Adjust non cash items profit on disposal/Share of profit of Associate/divi from parent
DO THE OPPOSIT OF THE ITEM :- ADD DEPRECIATION LESS PROFIT
wo headings.

tive in SOCF)

UITY OR DEBT)

ofit for changes in WC, non cash items.

hould be added back.


Interest and Divididends
IAS 7 allows these to be classified under any of the 3 headings provided it is consistent from period to period.

Dividend/Interest paid are classified under CF from operating Activities


Dividend/Interest received are classified under CF from investing Activities
iod to period.
Inter Transactions
Dividends
Dividends received by Parent are not included in the consolidated statement of cash flows since no cash has been transferred
The non-controlling interest's share of the dividend of is, however, presented as a cash outflow from financing activities.

Associate
Associates are not part of the group and therefore cash flows between the group and associate should be accounted in CSOCF
- Dividend received from an associate
- Loans made to associates
- Cash payments to acquire associates
- Cash receipts from sale of associates
All of the above transaction are presented under CF from investing activities.

Note:- Group share of associate's profi is a non cash income and so must be deducted in cash flow from operations.

Goodwill
Opening and closing goodwill might be given in Ques
On the debit there should be goodwill on Acq (W3)
The balancing figure is impairment.

Accounting Treatment of Group Acq/Disposal


When producing CSOCF, three extra elements that need to be considered:-
- Acq and disposals of Sub (Proceeds and cash paid under investing activities)
- Cash paid to NCI (Div paid to NCI under financing activities)
- Associate (Prepare T Account to seek for any Div received or Cash paid on investment)

When a parent company acquires or sells a subsidiary, cash flows arising from the acquisition or disposal are presented within
In the case of an acquisition, payments to purchase the subsidiary are presented. In the case of a disposal, proceeds of sale are
Any deferred cash is reported as a cash outflow, from investing activities when it is paid.
Cash balance of Acquired Sub is netted off against any of the Sub's Overdraft balance and presented under Cash flows from In
On the disposal of a Sub, proceeds are netted off against any present overdraft balance. It therefore reports a cash inflow from

On gaining control Parent will consolidate its assets and liabilities. For example, on the acquisition of the shares, additional PP
This $180million must not be reported as a cash outflow to acquire PPE, and therefore in preparing the consolidated statemen
The same adjustment is required for other balances, including inventory, receivables the bank loan and trade payables.
no cash has been transferred outside the group, viewed as a single entity.
from financing activities.

should be accounted in CSOCF.

ow from operations.

disposal are presented within the investing activities section of the statement of cash flows.
a disposal, proceeds of sale are presented.

nted under Cash flows from Investing Activities.


efore reports a cash inflow from investing activities

on of the shares, additional PPE of $180 million ($175m + $5m) is brought into the consolidated PPE balance.
ing the consolidated statement of cash flows, the $180million should be deducted from any cash outflow that is calculated by comparing o
oan and trade payables.
at is calculated by comparing opening and closing consolidated PPE balances.
Cash & Cash Equivalents
Cash - Cash on hand and demand deposits.
Cash equivalents - Are short-term, highly liquid investment readily convertible to known amounts of cash with insignificant ris

Equity Instrument
Generally excluded from cash & Cash equivalent as there is a significant risk of a chang ein value.
IAS 7 makes an exception for preference shares witg a short period to maturity and a specified redemption date.
ts of cash with insignificant risk of change in value.

edemption date.
- See in SOPL if any profit from associate (Non cash) to adjust
-Include any proceeds/Cash paid to Acquire Sub
- Correct classification of Interest/Div Paid or received.
- When preparing T account to calculate for e.g ACQ of NCA, do include PPE of Acquired Sub.
- Do not forget to net off cash acquired in NA with Cash consideration before adjusting same in CSOCF
However, the cash held by Subsidiary comes under group control, so the net outflow is presented in the consolidated state
Suppose consideration paid to acquire a Sub, should be netted off against the cash of the Sub presented under ''cash flow

If an extract of CSOFP given like the below:-

Do merge the SC and SP account plus do accou

When preparing T account for NCI includes ma

Seek for acquisitions or Receipts


T account for Intangible assets, PPE, Share cap + Share premium, NCI
Acq, Proceeds from issue of share and Dividend paid to NCI
Contributions to defined benefit schemes are typically included within the operating activities of the group statement of c
In the case of an acquisition, payments to purchase the subsidiary are presented net of any cash balance acquired (or in

Suppose a disposal
assets and liabilities are consolidated at the start of the year, but not at the end of the year,
however these items have not been disposed of directly and there is no direct cash flow associated with individual items.
Therefore on preparation of the consolidated statement of cash flows, adjustment should be made for the carrying amoun
d in the consolidated statement of cash flows.
esented under ''cash flow from investing activities''.

d SP account plus do account on the credit side for any share for share consideration to acquire sub -> the bal fig is included under CF f

ccount for NCI includes mainly op and CL bal and NCI on Acq and profit attribut to NCI on Credit the bal fig on debit is dividend to NCI (-

f the group statement of cash flows.


sh balance acquired (or in the case of an overdraft, increased by the carrying amount).

ted with individual items.


ade for the carrying amount at disposal of each asset and liability
al fig is included under CF from financing activities as +ve

n debit is dividend to NCI (-ve under financing activities)

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