Contents
Objectives
Scope
Presentation
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Statement of cash flows
Objectives
The objective of IAS 7 is to provide the information
about the historical changes in cash and cash
equivalents of an enterprises by means of a
statement of cash flows, which classifies cash flows
during the period according to Operating,
Investing and Financing activities.
Scope
Applies to all entities-regardless of the nature of
entitys activity.
Importance
To show that profits are being realized.
To pay dividends.
To finance further investment.
Presentation
A statement of cash flows is a list of cash in and
cash out reconciling opening and closing cash
balances.
Classification
Cash flow from Operating activities
Operating activities are the main revenue producing
activities of the enterprises that are not investing or
financial activities.
Cash flows can be presented by either:
Direct method
or
Indirect method
Key indicator of sufficiency of cash flows without recourse to
external sources of finance.
Useful in forecasting future operating cash flows.
Primarily derived from principal revenue-producing activities.
Generally results from transaction and events so included in
profit and loss.
Cash flows from Investing activities
Investing activities are the acquisition and disposal
of long term assets and other investments that are
not considered to be cash & cash equivalents.
Separate disclosure-cash flows represent extent to
which expenditures have been made for resources
intended to generate future income and cash flows
Cash flows from financing activities
Financing activities are the activities that alter the
equity capital and borrowing structure of the
enterprise.
Separate disclosures-Useful in predicting claims on
future cash flows by providers of capital.
Cash and cash equivalents
Cash on hand
Bank overdrafts- if repayable on demand and form an integral
part of cash management.
Demand deposits: from banks & other financial institutions
Short term highly liquidated investment that are readily
convertible to a known amount of cash and that are subject to
an insignificant risk of changes in value.
Equity investment are normally excluded, unless they are, in
substance , cash equivalents.
An investment normally meets the definition of a cash equivalents
when it has a maturity of 3 months or less from the date of
acquisition)
Cash flows from operating activities-Direct method
Cash flow from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from operations
x
(x)
Interest paid
(x)
Income taxes paid
(x)
Net Cash generated from operating activities
Cash flow from operating activities-Indirect method
Cash flow from operating activities
Profit before taxation
Adjustments for:
Depreciation
Investment income
Interest expense
x
(x)
x
Operating profit before working capital changes
Increase in trade and other receivables
Decrease in inventories
Decrease in trade payables
Cash generated from operations
x
(x)
x
(x)
X
Statement of cashflows
Cash flows from operating activities(direct or indirect
method)
Cash flows from investing activities
Purchase of property ,plant and equipment
Proceeds from sale of equipment
Interest received
Dividends received
(x)
x
x
x
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of share capital
Proceeds from long term borrowings
Dividends paid
x
x
(x)
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the
period
Cash and cash equivalents at the end of the period
X
