Chapter 6 - IAS 7 - Statement of Cash Flows

Question 1

Definition

• The Statement of Cash Flows

Answer 1

The statement of cash flows links profit with changes in assets and liabilities, and the effect on cash of the company

Question 2

• Operating Activities

Entries to be Adjusted

Answer 2

The operating activities starts with profit before tax, and after finance costs have been deducted

• Add Depreciation FOR THE YEAR (Non cash expense)
• Add loss on disposal (Investing activities)
• Deduct profit on disposal (Investing activities)
• Deduct dividends received (Investing activities)
• Add finance costs (Already deducted before tax)
• INVENTORY ADJUSTMENTS (Other slide)
• TRADE RECEIVABLE ADJUSTMENTS (Other slide)
• TRADE PAYABLE ADJUSTMENTS (Other slide)

= CASH GENERATED BY OPERATIONS

> LESS FINANCE COSTS
LESS TAX FOR THE LAST FINANCIAL YEAR

= NET CASH FROM OPERATIONS

Question 3

• Inventories Adjustment

Answer 3

DEDUCT: An increase in Inventory. Money has been spent on acquiring Inventory and has a negative effect on cash

ADD: A decrease in inventory. Less inventory has been purchased/more sold which has a positive effect on cash

Question 4

• Trade Receivables Adjustment

Answer 4

DEDUCT: An increase in receivables. Less money has been collected = Negative effect on cash.

ADD: A decrease in receivables. More money has been collected = Positive effect on cash.

Question 5

• Trade Payables Adjustment

Answer 5

DEDUCT: A decrease in liabilities. More money has been paid to settle debts = Negative effect on cash.

ADD: An in increase in liabilities. Less money has been spent to settle debts = Positive effect on cash.

Question 6

• Investing Activities Categories

Answer 6

• Dividends Received
• Proceeds from Property Sales
• Purchases of PPE
• Disposals of PPE

Question 7

• Financing Activities Categories

Answer 7

• Bank Loans
• New Bank Loans
• Dividends Paid
• Proceeds of Share Issue

Question 8

• Proceeds on Disposal of PPE

Answer 8

• Carrying amount of PPE Sold
• • Profit
• (-) Loss
  = Total Disposal Proceeds

Question 9

• Purchases of PPE

Answer 9

• PPE at start of year
• (-) Depreciation Charge
• (-) Carrying amount of PPE sold
• (-) PPE at end of year
  = Total PPE Additions

*Should be negative if PPE has increased in current year

Question 10

Statement of Cash Flows - The Direct Method

Answer 10

The Direct Method shows the following cash flows:

• Cash received from the sale of goods
• (Cash paid o suppliers and employees)
  = Cash Generated by Operations
• (Interest Paid)
• (Tax Paid)

= Net Cash from Operating Activities

Question 11

Further Notes:

Answer 11

Ensure that the tax used on the Operating Adjustments is the tax from the PREVIOUS financial year - Found as a Current Liability on the Financial Information

Depreciation Charge to be added back on the Operating activities section is the amount provided in the NOTES of the task.