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Ias 7 - Statement of Cash Flows

The document discusses IAS 7 and provides definitions and examples related to the statement of cash flows. It defines key terms like cash, cash equivalents, and cash flows and explains how operating, investing and financing cash flows are classified and presented. It describes the direct and indirect methods for presenting operating cash flows and provides examples of cash flows from operating, investing and financing activities. Disclosure requirements are also outlined.

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43 views2 pages

Ias 7 - Statement of Cash Flows

The document discusses IAS 7 and provides definitions and examples related to the statement of cash flows. It defines key terms like cash, cash equivalents, and cash flows and explains how operating, investing and financing cash flows are classified and presented. It describes the direct and indirect methods for presenting operating cash flows and provides examples of cash flows from operating, investing and financing activities. Disclosure requirements are also outlined.

Uploaded by

angelinamaye99
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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IAS 7: STATEMENT OF CASH FLOWS

Notes and Quizzers: Theories of Accounts (IFRS Based) Empleo, 2016

CASH EQUIVALENTS
SIGNIFICANCE OF THE STATEMENT OF
CASH FLOWS An investment normally qualifies as a cash
equivalent only when it has a short maturity of
Provides information that enables users to three months or less from the date of acquisition
evaluate changes in net assets of an entity and
its financial structure (including its liquidity and Equity investments are excluded from cash
solvency) equivalents unless they are, in substance, cash
equivalents like redeemable preference shares
Provides information that enables users to assess
the ability of the enterprise to affect the amounts Bank overdrafts which are repayable on demand
and timing of cash flows in order to adapt to and which form an integral part of an
changing circumstances and opportunities enterprise’s cash management are also included
as a component of cash and cash equivalents
Useful in assessing the ability of the entity to
generate cash and cash equivalents and enables Movements between items that constitute cash or
users to develop models to assess and compare cash equivalents are excluded from cash flows
the present value of the future cash flows of because these components are part of the cash
different entities management of an entity rather than part of its
operating, investing and financing activities
Enhances the comparability of the reporting of
operating performance
PRESENTATION OF STATEMENT OF CASH
Historical cash flow information is often used as FLOWS
an indicator of the amount, timing and certainty
of future cash flows Cash flows are reported during the period
classified by operating, investing and financing
Useful in checking the accuracy of past activities
assessments of future cash flows and in examining
the relationship between profitability and net cash Interest and dividends received and paid may be
flow and the impact of changing prices classified as operating, investing, or financing cash
flows, provided that they are classified consistently
from period to period
KEY TERMS AND DEFINITIONS
● CASH comprises cash on hand and Cash flows arising from taxes on income are
demand deposits normally classified as operating, unless they can
● CASH EQUIVALENTS are short-term, be specifically identified with financing or
highly liquid investment that are readily investing activities
available to known amounts of cash
For operating cash flows, the direct method of
and which are subject to an
presentation is encouraged, but the indirect
insignificant risk of changes in value method is equally accepted
● CASH FLOWS are inflows and
outflows of cash and cash equivalents
● OPERATING ACTIVITIES are the DIRECT METHOD shows each major class of gross
cash receipts and gross cash payments
principal revenue-producing
activities of the entity and other
INDIRECT METHOD reconciles profit to cash flow
activities that are not investing or from operations, whereby profit or loss is adjusted for
financing activities the effects of transactions of a non-cash nature, any
● INVESTING ACTIVITIES are the deferrals or accruals of past or future operating cash
acquisition and disposal of long-term receipts or payments, and items of income or
assets and other investments not expense associated with investing or financing cash
included in cash equivalents flows

● FINANCING ACTIVITIES are activities


Obtaining information about Major
that result in changes in the size and
composition of the contributed equity
Classes of Gross Cash Receipts and Gross
and borrowings of the entity Cash Payment under the Direct Method
● From accounting records of the entity
● By adjusting sales, cost of sales
EXAMPLES OF CASH FLOWS FROM
(interest and similar income and
FINANCING ACTIVITIES
interest expense and similar charges for
a financial institution) and other items
Cash proceeds from issuing shares or other
in the income statement
equity instruments
- Changes during the period in
inventoried and operating
Cash repayments of amounts borrowed
receivables and payables
- Other non-cash items
Cash payments to owners to acquire or
- Other items for which the cash
redeem the entity’s shares
effects are investing or
financing cash flows
Cash payments by a lessee for the reduction
of the outstanding liability relating to a
Determining Net Cash Flow from
finance lease
Operating Activities by Adjusting Profit
of Loss Under the Indirect Method Cash proceeds from issuing debentures,
● Changes during the period in loans, notes, bonds, mortgages and other
inventories and operating receivables short or long-term borrowings
and payables
● Non-cash items such as Depreciation,
Amortization of Intangibles, PRESENTATION OF NONCASH INVESTING
Provisions, Deferred Taxes, Unrealized AND FINANCING ACTIVITIES
Foreign Currency Gains and Losses, ● Acquisition of assets either by
Undistributed Profits of Associates, assuming directly related liabilities or
and Non-controlling Interests by means of a finance lease
● All other items for which the cash ● Acquisition of an entity by means of an
effects are investing or financing cash equity issue
flows ● Conversion of debt to equity

EXAMPLES OF CASH FLOWS FROM FOREIGN CURRENCY CASH FLOW are


OPERATING ACTIVITIES recorded in the entity’s functional currency by
● Cash receipts from the sale of goods applying to the foreign currency amount the
and the rendering of services exchange rate at the date of the cash flow
● Cash payments to and on behalf of the
employees
DISCLOSURE REQUIREMENTS
● Cash payments or refunds of income
taxes unless they can be specifically
The components of cash and cash equivalents
identified with financing activities and and a reconciliation of the amounts in its
investing activities statement of cash flows with the equivalent
● Cash receipts and payments from items reported in the statement of financial
contracts held for dealing or trading position
purposes (similar to inventory acquired
specifically for resale) The policy which it adopts in determining the
composition of cash and cash equivalents
EXAMPLES OF CASH FLOWS FROM
The effect of any change in the policy for
INVESTING ACTIVITIES determining components of cash and cash
● Cash advances and loans made to equivalents
other party
● Cash receipts from the repayment of The amount significant cash and cash equivalent
advances and loans made to other balances held by the entity that are not available
parties for use by the group
● Cash receipts from sales of equity or
debt instruments of another entities
and interests in joint venture
● Cash payment to acquire property,
plant and equipment, intangibles and
other long-term assets.

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