Cashflow (Revision) - Class Notes
Cashflow (Revision) - Class Notes
[Indirect method]
Company name
Statement of cash flows
For the year ended -----------------
Rs.’000 Rs.’000
Cash flow from operating activities:
Profit before tax (W-1) XXX
Add: Depreciation (W-8) / Amortization (W-9) XXX
Loss on disposal of asset (W-8, W-9) XXX
Impairment loss (W-8, W-9) XXX
Total interest expense / Finance cost (W-2) XXX
Bad debt expense (W-3) XXX
Retirement benefits cost (e.g. gratuity) (W-4) XXX
Fair value loss [P&L] (W-12, W-14) XXX
Less: Interest income / Investment income (W-5) (XXX)
Dividend income (W-6) (XXX)
Fair value gain [P&L] (W-12, W-14) (XXX)
Grant income (W-13) (XXX)
Profit on sale of asset (W-8, W-9) (XXX)
Operating profit before working capital changes: XXX
(Increase) / Decrease in debtors (Note-1) (XXX) / XXX
(Increase) / Decrease in stocks (XXX) / XXX
(Increase) / Decrease in advances (XXX) / XXX
(Note-2)
(Increase) / Decrease in prepayments (XXX) / XXX
Increase / (Decrease) in creditors XXX / (XXX)
Increase / (Decrease) in accruals XXX / (XXX)
Increase / (Decrease) in short term provisions XXX / (XXX)
Cash generated from operations XXX
Tax paid / Tax refund (W-7) (XXX) / XXX
Retirement benefits paid (W-4) (XXX)
Interest / Finance cost paid (W-2) (XXX)
Cash inflow / (Outflow) from operating activities (A) XXX
EXAM NOTES:
1. Increase / decrease in debtors can be determined in following two ways:
(a) Movement in gross debtors (as done in above format)
= closing gross debtors + bad debt written off during the year – opening gross debtors
(b) Movement in net debtors
= closing debtors (net of provision) – opening debtors (net of provision)
Tips:
If (b) is used then bad debt expense line will not appear in adjustments to profit before tax
(a) is more practically used treatment however (b) is also acceptable in exams
2. Changes in all current assets and current liabilities are shown in this section except for followings:
(i) cash and cash equivalents
(ii) tax assets and liabilities
(iii) Dividend payable and receivable
(iv) Interest payable and receivable
(v) Any other asset or liability which is shown under investing or financing activities e.g. short-term finance,
investment, payable for purchase of a PPE and current portion of loan etc.
These items may be hidden in other current assets or liabilities (e.g. interest payable may be hidden in
“accrued expenses”). In this case exclude above items first while calculating working capital changes.
WORKINGS
W–1 Profit before tax
Retained earnings
W–7 Tax
Tax
Examples of non-cash additions – Trade in allowance, provision for dismantling, and credit purchase.
PPE Disposal
Note – While working for PPE, do not forget to prepare accounts for “Lease liability”, “Capital WIP” and “Revaluation
surplus”
Disposal
W – 10 Dividend payable
Dividend payable
Note – Even if there is no information regarding dividend paid / declared in other information do not forget to prepare
“Retained earnings” account as it may give cash dividend declared as a balancing figure on debit side.
W – 11 Capital WIP
Capital WIP
Govt. grant
W –14 Investments
Investment
Share capital
Share premium
Note – Bonus issue is by default made out of retained earnings (i.e. bonus dividend)
W –16 Loans
Loans
Loan repaid (principal only) XXX Opening balance (Non current) XXX
Closing balance (non current) XXX Opening balance (current) XXX
Closing balance (current) XXX New loan XXX
Lease liability
Lease payments (principal only) XXX Opening balance (Non current) XXX
Closing balance (non current) XXX Opening balance (current portion) XXX
Closing balance (current portion) XXX Asset leased during the year (W – 8) XXX
[Direct method]
Company name
Statement of cash flows
For the year ended -----------------
Rs.’000 Rs.’000
Cash flow from operating activities:
Receipts from customers (W-1) XXX
Payments to suppliers (W-2) (XXX)
Payment for other operating expenses (W-3) (XXX)
Cash generated from operations XXX
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Remaining format after “cash generated from operations” is exactly
same as Indirect method
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Note – If accrued interest is included, then exclude it first before using here.
Opening advances & prepayments (Note-1) XXX Opening accrued expenses (Note-2) XXX
Payments (balancing) XXX Operating expenses (Note-3) XXX
Closing accrued expenses (Note-2) XXX Closing advances & prepayments (Note-1) XXX
Notes:
1. If advance income tax is included, then exclude it first before using here.
2. If accrued interest is included, then exclude it first before using here.
3. Operating expenses = Admin expenses + Distribution cost + Other expenses – Depreciation – Amortization
– Bad debt expense – Impairment loss – retirement benefit expense – loss on disposal of
asset – fair value loss – exchange loss