Statement of cash Flows

Question 1

Statement of Cash Flows

Answer 1

Essentially reconciliation of opening cash balance to ending cash balance stating the changes and sources of changes in cash during the year.
Beginning Cash Balance
+ Cash inflows
-Cash outflows
Ending Cash Balance

Question 2

Sources of Cashflow

Answer 2

Operating Activities
- Cashflows associated with transactions that are essentially the core reason business exist
- Current Asset, Current liability & Net Income

Investing Activities
- Cashflows associated with purchase and sale of non-current assets
- Non current asset

Financing Activities
-Cashflows associated with payment and issue of non-current liabilities and equity.
- Non-current liability & equity

Question 3

Cashflow statement format

Answer 3

Add/less: Cash inflows/outflows from operating activities
Add/less: Cash inflows/outflows from investing activities
Add/less: Cash inflows/outflows from financing activities
Add: Beginning Cash Balance
=ENDING CASH BALANCE

Question 4

Cashflow from Operating Activities

Answer 4

• Can be prepared under direct method or indirect method
• If we are using Direct method, must prepare a reconciliation of Net Income to cashflow from Operating Activities (indirect method)

Question 5

Classification of interest and dividend in cashflow statement

Answer 5

Interest paid= Cash flow from Operating activity
Dividend Paid= Cashflow from Financing activity
Interest received= Cashflow from Operating Activity
Dividend received= Cashflow from Operating activity

Question 6

Interest paid in direct method of cash flow from operating activity

Answer 6

Coupon rate< market rate= discount= Interest payable = interest
Expense- Discount Amoritzation

Question 7

Taxes paid in Direct method cashflow from Operating Activities

Answer 7

Income tax Expense
less: Deferred Tax liability
Add: Deferred tax assets
= Current income tax payable
Cash payment=opening balance of taxes payable + Current income tax payable- closing balance of taxes payable

Question 8

Cash Inflows & outflows from investing activities

Answer 8

Add: Proceeds from sale of non-current assets
Less: Cash paid purchase of non-current assets
= Cash inflow (outflow) from investing activities

Question 9

Cash inflows & outflows from Financing Activities

Answer 9

Add: Issue of common stock/preference stock
Add: Issue of debt
Less: Repayment of Debt
less: Redemption/Repurchase of stock
less: dividend paid
= Cash inflow (outflow) from financing activities

Question 10

Indirect Method: (Cashflow from Operating Activities)

Answer 10

Net Income
Add: (non-cash expenses)
- Depreciation
-Amortization
- Discount Amortization
- Impairment
Less: (Non-cash Income)
- Premium amortization
- Equity in earnings of investee
Add/less: (non-operating Expense)
Less: Gain on sale of non-current assets
Add: Loss on sale of non-current assets
Working Capital Adjustments
- Add: increase in current liabilities
- Add: Decrease in current assets
Less: Decrease in current liabilities
Less: Increase in current assets
= Cash inflow (outflow from Operating activities

Question 11

Disclosure- non-cash investing & financing activities in cash flow statement

Answer 11

Purchase non-current asset by issuing common stock
debit asset
credit common stock

convert preference stock/debt into common stock
debit Preference stock
credit Common stock