Chapter 13 - IAS 7 Cash Flow statements Flashcards
Why are cash flow statements important?
- Assess liquidity and solvency
- Assess financial adaptability
- Assess future cash flows
- Analyse cash sources
- Indicate problems
What are cash equivalents?
Short-term, highly liquid investments that are readily convertible to known amounts of cash and have insignificant risk of value changes
What is the direct method?
Inflows - outflows
Which method is encouraged by IAS 7?
Direct method
What are the features of the direct method?
- Discloses info not shown elsewhere in FS
- Shows the cash flows from trading
- Gives the users more info in estimating future cash flows
What are the features of the indirect method?
- Highlights that profit and cash aren’t equal
- Doesn’t show significant elements of trading cash flows
- Low prep cost
How is depreciation adjusted under the indirect method?
Added back
How is a profit/loss on disposal of a non-current asset adjusted under the indirect method?
Profit - take out
Loss - add back
How is interest receivable adjusted under the indirect method?
Take out
How are finance costs adjusted under the indirect method?
Add back
How are changes in receivables adjusted under the indirect method?
Receivables up - cash down
Receivables down - cash up
How are changes in inventory adjusted under the indirect method?
Inventories up - cash down
Inventories down - cash up
How are changes in payables adjusted under the indirect method?
Payables up - cash up
Payables down - cash down
How is each part of the interest payable proforma calculated?
LHS:
Bank - total interest paid
Bal c/d - Current year interest
RHS:
Bal b/d - Previous year interest paid
P/L - Balancing fig
