Chapter 20 Group accounts: consolidated statement of cash flows

Question 1

1.1 Update to statements of cash flows for individual companies

Answer 1

IAS 7 does not prescribe a specific format for the statement of cash flows, although it requires that cash flows are classified under three headings: operating activities, investing activities and financing activities.

Question 2

1.2 Accounting treatment of leases

Answer 2

Leases are accounted for by the lessee by: capitalising the present value of the lease payments and recording a corresponding liability. These entries do not reflect cash flows in the accounting period. For the statement of cash flows treatment lease payments should be separated into the payment of interest under cash flows from operating activities and the repayment of capital under cash flows from financing activities.

Question 3

2.1 Preparation of group statement of cash flows

Answer 3

A group statement of cash flows adds three potential extra elements. An extra inflow (cash dividend paid by the subsidiary to non-controlling interest), an extra inflow (dividends received from associates) and the impact of the acquisition and disposal of subsidiaries.

Question 4

2.2 non-controlling interests

Answer 4

Any dividends paid by the subsidiary to non-controlling interests should be disclosed separately in the statement of cash flows – usually under financing activities. The method is to reconcile non-controlling interest in the statement of financial position from the opening to the closing balance using T account

Question 5

2.3 Associates

Answer 5

Cash flows from operating activities: 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. The reconciliation is:
- Profit before tax X
- Share of profit of associate X
Dividends received from associates should be included as a separate item in the group statement of cash flows, usually under investing activities.

Question 6

2.4 Acquisition and disposal of subsidiaries

Answer 6

New cash flow from sale or purchase of subsidiary:
- 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 cash balance in the subsidiary is considered and it is the net cash from the sale or purchase of the subsidiary which is shown on the statement of cash flows
Acquisitions:
- 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.
Disposals:
- 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.