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Statement of Cash Flow - IFRS
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Statement ofCash flow
Evolution of the Statement of Cash GAAP
1971:Fund Statement: Reported resource provided
and use of resource.Concept of Fund:
Cash: Cash Reciept & Cash DisbursementWorking Capital: All material transaction that results
in a change in working capital (current asset – current liabilities) are reported
All-financial Resource: Conjunction with another concept of fund (cash and working capital) an includes all items that affect the financing and investing activities
Evolution of the Statement of Cash (Cont.)IAS
1976Exposure draft E7 Statement of Source
and application of fund1992
IAS 7 (1992) Statement of Cash Flow
Statement of Cash Flow is Necessary to Evaluate:1. Liquidity
Firm abillity to convert asset to cash or to pay current liability.2. Solvency
Firms abillity to obtain for bussines operation (pay debt)
3. Financial FlexibilityFirms abillity to take advantage of new
investment opportunities or to react quickly on crisis situation
Cash and cash equivalentsCash on hand and on deposit and “short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value”
Steps in PreparationDetermine the change in cash
The difference between beginning and ending cash balance from examining its comparative statement of financial position
Analyzing income statement and comparative statement of financial position- Direct and Indirect Method
• Determine net cash flow of investing and financing activitiesAnalyze all other change in the statement of financial position accounts to determine there effect on cash
Statement formatCash Flow from Operating Activities
Operating activities is the primary revenue producing activities and other activities of the entity that are not financing or investing activities
Cash Flow from Operating Activities(Cont.)
Inflow OutflowReceipt from sales
of goods or services, royalti, and other income
Receipt from rent and tax restitution
Receipt from bank and selling stock
Cash payment to suppliers
Cash payment for employee
Cash payment for insurance, purchase of stock and payment to creditor
Cash payment for operational cost
Cash Flow from Operating Activities(Cont.)A company may convert net income to net
cash flow from operting activities through two method, they are:Direct Indirect
Cash Flow from Operating Activities(Cont.)Direct Method:Under the direct method, information about major
classes of gross cash receipts and gross cash payments may be obtained either:(a) from the accounting records of the entity; or(b) by adjusting sales, cost of sales (interest and similar income and interest expense and similar charges for a financial institution) and other items in the statement of comprehensive income for:
(i) changes during the period in inventories and operating receivables and payables;(ii) other non-cash items; and(iii) other items for which the cash effects are investing or financing cash flows.
Cash Flow from Operating Activities(Cont.)Indirect MethodUnder the indirect method, the net cash flow from
operating activities is determined by adjusting profit or loss for the effects of:(a) changes during the period in inventories and operating receivables and payables;(b) non-cash items such as depreciation, provisions, deferred taxes, unrealised foreign currency gains and losses, undistributed profits of associates, and non-controlling interests; and(c) all other items for which the cash effects are investing or financing cash flows.
Statement Format (Cont.)Cash Flow from Investing Activities
Investing activities is the acquisition and disposal of long term asset and other assets that are not cash equivalent
Cash Flow from Investing Activities(Cont.)
Inflows OutflowsCash receipt from sales of
fix assets, intangible assets, and other long term assets
Cash receipts from sales of property, plant and equipment, intangibles and other long-term assets
Cash receipts from sales of equity or debt instruments of other entities and interests in joint ventures
Cash payments to acquire property, plant and equipment, intangibles and other long-term assets
Cash payments to acquire equity or debt instruments of other entities and interests in joint ventures
Cash receipts from the repayment of advances and loans made to other parties
Statement Format (Cont.)Cash Flow from Financing Activities
Acquisition and disposal of long term asset and other investments that are not cash equivalent
Cash Flow from Financing Activities(Cont.)
Inflows OutflowsCash receipt from
isusuing stockCash receipt from
debt instruments
Cash payment to owners to buy back stock issued
Repayment of amount borrowed
Cash payment from lessee to deduct the balance of liabilities related tofinance lease
The examples of Cash Flows statement by applying the direct or indirect method
Direct Method (IAS 7.18(a)) Indirect Method (IAS 7.18(b))
Cash flows from operating activities Cash flows from operating activities
Cash receipts from customers xx Profit before taxation XX
Cash paid to suppliers and employees xx Adjustments for: Cash generated from operations xx Depreciation xx Interest received xx Foreign exchange loss xx Dividends received xx Investment income xx Interest expense xx
Increase in trade and other receivables xx Decrease in inventories xx Decrease in trade payables xx
Cash generated from operations xx Interest paid xx Income taxes paid xx
Net cash from operating activities XX Net cash from operating activities XX
Cash flows from investing activities Cash flows from investing activities
Purchase of property, plant and equipment xx Purchase of property, plant and equipment xx
Proceeds from sale of equipment xx Proceeds from sale of equipment xx Interest received xx Interest received xx Dividends received xx Dividends received xx
Net cash used in investing activities XX Net cash used in investing activities XX
Cash flows from financing activities Cash flows from financing activities
Proceeds from issue of share capital xx Proceeds from issue of share capital xx
Proceeds from long-term borrowings xx Proceeds from long-term borrowings xx
Payment of finance lease liabilities xx Payment of finance lease liabilities xx Dividends paid xx Dividends paid xx
Net cash used in financing activities XX Net cash used in financing activities XX
Net increase in cash and cash equivalents XXNet increase in cash and cash equivalents XX
Cash and cash equivalents at beginning of period XXCash and cash equivalents at beginning of period XX
Cash and cash equivalents at end of period XXCash and cash equivalents at end of period XX
Cash flows are presented in three classifications: operating, investing and financing activities. The totals from the three activities (operating, investing, financing) are summed and this balance is reconciled with the beginning and ending cash (and cash equivalents) balances.
Similar
Operating, investing and financing activities are specifically defined.
Similar, except for some differences explained on a later slide.
IFRSUS GAAP
Both the direct and indirect method of presenting cash flows from operations are allowed.
Similar
SimilarEntities must disclose their policy for determining which items are cash equivalents.
Similar
Content, format and classificationDifferences in US GAAP and IFRS
IFRS► Permits an entity: (a) to
classify interest and dividends paid or received as operating cash flows; or (b) to classify interest and dividends paid as financing cash flows and interest and dividends received as investing cash flows. However, interest and dividends must be classified in a consistent manner from period to period.
US GAAP► Requires that interest paid
and interest and dividends received be classified as operating cash flows. Dividends paid are a financing cash flow because they are considered a cost of obtaining resources.
Content, format and classificationInterest and dividends
Content, format and classificationInterest and dividends (Cont.)
In practice, there may be little practical significance to this difference because IAS 7 requires separate disclosure of interest paid and received and of dividends paid and received.
Summary of treatment of interest and dividends:
Cash flow classificationTransaction IFRS US GAAP
Interest paid Operating or financing Operating
Interest received Operating or investing Operating
Dividends paid Operating or financing Financing
Dividends received Operating or investing Operating
Content, format and classificationIncome taxes
IFRS► Requires that cash payments or
refunds of income taxes be classified as operating activities unless they can be specifically identified with financing or investing activities. In that case, the tax cash flows may be classified as financing or investing activities, as appropriate.
► Statements would not necessarily result in a loss of comparability with US GAAP since IFRS requires disclosure of the total amount of income taxes paid.
US GAAP► Requires that
income taxes paid be classified as an operating cash flow.
Content, format and classificationIndirect method
IFRS► The particular income line
item that must begin the reconciliation is not specified. Thus, an entity could begin the reconciliation under IFRS with operating income.
US GAAP► When using the indirect
method of presenting operating cash flows, the reconciliation from income to cash flows must begin with net income.
Content, format and classificationDirect method
IFRS► This
reconciliation is not required.
US GAAP► ASC 230-10-45-30 requires that an entity
using the direct method of reporting net cash flows from operating activities must provide (in a separate schedule) a reconciliation of net income to net cash flows from operating activities.
► This has little practical significance, however, because few enterprises in the United States use the direct method. The AICPA Accounting Trends and Techniques – 2010 reports that 495 companies of the 500 surveyed in 2009 used the indirect method of presenting operating cash flows.
Content, format and classificationComponents of cash and cash equivalents
IFRS► Required disclosure of the components of cash
and cash equivalents.► The total cash and cash equivalents presented
in the statement of cash flows does not need to agree to a single line item in the statement of financial position.
► Entities must disclose a reconciliation of the components of cash and cash equivalents to the amounts presented on the statement of financial position.
► Thus, while users of a statement of cash flows prepared might not be able to trace changes in cash and cash equivalents directly between the statement of financial position and the statement of cash flows, this difference from US GAAP has little practical significance.
US GAAP► No required disclosure
of the components of cash and cash equivalents.
► Requires that the cash and cash equivalents line item in the statement of cash flows equals the cash and cash equivalents in the statement of financial position.
Disclosures
IFRS► Does not have
restrictions on the disclosure of cash flows per share.
US GAAP► Prohibits disclosure of
cash flows per share.
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