Chapter 18: Group Accounts: Consolidated statement of cash flows

Question 1

How are leases accounted for?

Answer 1

Leases are accounted for by the lessee through:

• Capitalising the right-of-use asset
• Recording a lease liability

These entries do not reflect cash flows in the accounting period. The cash flows from a lease are the lease payments during the year

Question 2

How are lease payments treated in the statement of cash flows?

Answer 2

Lease payments should be separated into:

• the payment of interest (under cash flows from operating activities)
• the repayment of capital (under cash flows from financing activities)

Question 3

If right-of-use assets are included within PPE, what do you do?

Answer 3

If right-of-use assets are included within PPE they should be separated when calculating the cash purchases amount of PPE like so:

T-Account:
DR
CA b/f
ROU assets acquired in the year (if within PPE)
Additions (balancing figure)
Revaluation (movement on revaluation surplus)

CR
Disposals at CA
Depreciation charge for the year
CA c/f

These may not result in an immediate cash outflow. Instead future cash outflows will be seen relating to both capital and interest payments

Question 4

What three extra elements are added to a group statement of cash flows?

Answer 4

• Cash dividend paid by the subsidiary to non-controlling interest
• Dividends received from associates
• The impact of the acquisition and disposal of subsidiaries

Question 5

What do you do with dividends paid by the subsidiary to NCIs?

Answer 5

Any dividends paid by the subsidiary to non-controlling interests should be disclosed separately in the statement of cash flows - usually under financing activities

Question 6

How do you calculate dividends paid by the subsidiary to NCIs?

Answer 6

Reconcile the NCI interest in the SOFP from the opening to the closing balance using a T account. The cash flow will be determined as a balancing figure.

DR
NCI eliminated on disposal of sub
Dividend paid to NCI (balancing figure)
C/f

CR
B/f
NCI% of S's profit (from CSPL split)
NCI% of other comprehensive income (from CSPLOCI split)
NCI added on acquisition of sub

Question 7

How do you adjust share of profit of associates within cash flows from operating activities?

Answer 7

The group share of profit of associate must be deducted as an adjustment in the reconciliation of profit before tax to cash generated from operations:

Profit before tax
(less) Share of profit of associate

This applies only to the indirect method of preparation of cash flows

Question 8

How do you calculate dividends received from associates?

Answer 8

Dividends received from associates should be included as a separate item in the group statement of cash flows, usually under investing activities:

Investment in associate: T-account
DR
B/f
Share of profits of associate (CSPL)
Share of other comprehensive income of associate (CSPL)

CR
Dividend received from associate (balancing figure)
C/f

Question 9

How do you account for the net cash flow from sale or purchase of subsidiary?

Answer 9

• Cash payments to acquire subsidiaries and cash receipts from disposals of subsidiaries must be reported separately in the consolidated statement of cash flows under investing activities
• The net cash from the sale or purchase of the subsidiary is shown on the statement of cash flows
• Net cash includes the gross payment or receipt less any cash held by the subsidiary on acquisition or disposal

Question 10

How do you deal with assets and liabilities acquired by a subsidiary?

Answer 10

• When calculating the movement between the opening and closing balance of an item, the assets and liabilities that have been acquired must be taken into account in order to calculate the correct cash figure
• This applies to all assets and liabilities acquired including the non-controlling interest and any goodwill on acquisition

Question 11

How do you deal with assets and liabilities disposed of by a subsidiary?

Answer 11

• When calculating the movement between the opening and closing balance of an item, the assets and liabilities that have been disposed of must be taken into account in order to calculate the correct cash figure
• As with acquisitions, this applies to all assets and liabilities