IAS 7 – CASHFLOW STATEMENT [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

Cash flow from investing activities:

Purchase of PPE (W-8) (XXX)
Sale of PPE (W-8) XXX
Purchase of investment property (W-12) (XXX)
Sale of investment property (W-12) XXX
Purchase of intangible asset (W-9) (XXX)
Sale of intangible asset (W-9) XXX
Expenditure on capital WIP (W-11) (XXX)
Long term deposits (XXX)
Govt. grant received (W-13) XXX
Govt. grant repaid (W-13) (XXX)
Purchase of investment (W-14) (XXX)
Sale of investment (W-14) XXX

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 IAS 7 – CASHFLOW STATEMENT [REVISION] – Class notes

Interest received (W-5) XXX

Dividend received (W-6) XXX
Cash inflow / (outflow) from investing activities (B) XXX

Cash flow from financing activities:

Issue of shares (W-15) (including share premium) XXX
Proceeds from loan (W-16) (short term / long term) XXX
Dividend paid (W-10) (XXX)
Repayment / redemption of loan (W-16) (short term / long term) (XXX)
Repayment of lease liabilities (W-17) (XXX)
Cash inflow / (outflow) from financing activities (C) XXX
Net cash inflow / (outflow) during the year (A + B + C) XXX
Cash and cash equivalents at start of year XXX
Cash and cash equivalents at end of year XXX

CASH AND CASH EQUIVALENTS:

Opening Closing
Cash in hand XXX XXX
Bank balance XXX XXX
Bank overdraft / running finance (XXX) (XXX)
Short term investments (e.g. treasury bills) XXX XXX
XXX 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.

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 IAS 7 – CASHFLOW STATEMENT [REVISION] – Class notes

3. IAS 7 allows to show: Under Under

Dividend received Operating activities Investing activities
OR
Interest received Operating activities Investing activities

Dividend paid Operating activities Financing activities

OR
Interest paid Operating activities Financing activities

WORKINGS
W–1 Profit before tax
Retained earnings

Cash dividend declared (W – 10) XXX Opening balance XXX

Bonus dividend declared XXX PAT XXX
Transfer to general reserve XXX Transfer from surplus XXX
Closing balance XXX

PBT = PAT + Tax expense (W – 7)

W–2 Finance cost or Interest expense / paid
Interest payable

Finance cost paid XXX Opening balance XXX

Closing balance XXX Finance cost for the year XXX
(Excluding unwinding of discount in IAS 37)

W–3 Provision for doubtful debts

Provision for doubtful debts

Bad debts written off XXX Opening balance XXX

Closing balance XXX Bad debt expense for the year XXX

W–4 Retirement benefits

Retirement benefit obligation

Retirement benefits paid [contributions] XXX Opening balance XXX

Closing balance XXX Retirement benefits expense for the year XXX

W–5 Interest income / Investment income

Interest receivable

Opening balance XXX Interest received XXX

Interest income for the year XXX Closing balance XXX

W–6 Dividend income / Dividend received

Dividend receivable

Opening balance XXX Dividend received XXX

Dividend income for the year XXX Closing balance XXX

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 IAS 7 – CASHFLOW STATEMENT [REVISION] – Class notes

W–7 Tax
Tax

Opening balance (DTA) XXX Opening balance (DTL) XXX

Opening balance (Advance tax) XXX Opening balance (tax payable) XXX
Tax income (total) ------------------- OR --------- XXX ------ Tax expense (total) XXX
Tax paid -------------------- OR ---------------------- XXX ------ Tax refund XXX
Closing balance (DTL) XXX Closing balance (DTA) XXX
Closing balance (tax payable) XXX Closing balance (Advance tax) XXX

W–8 Property, plant and equipment [PPE]

PPE at NBV

Opening balance (NBV) XXX Disposal (NBV) XXX

Addition: Revaluation loss XXX
Cash XXX Depreciation XXX
Non cash XXX Impairment loss XXX
Transfer from capital WIP (W – 11) XXX Closing balance (NBV) XXX
Revaluation gain XXX
Leased during the year (W – 17) XXX

Examples of non-cash additions – Trade in allowance, provision for dismantling, and credit purchase.

PPE Disposal

NBV XXX Sale price (net of disposal expenses) OR XXX

Profit on disposal XXX Trade in allowance XXX
Loss on disposal XXX

Note – While working for PPE, do not forget to prepare accounts for “Lease liability”, “Capital WIP” and “Revaluation
surplus”

W–9 Intangible assets

Intangible asset at NBV

Opening balance (NBV) XXX Disposal (NBV) XXX

Addition: Revaluation loss XXX
Cash XXX Amortization XXX
Non cash XXX Impairment loss XXX
Revaluation gain XXX Closing balance (NBV) XXX

Disposal

NBV XXX Sale price (net of disposal expenses) OR XXX

Profit on disposal XXX Trade in allowance XXX
Loss on disposal XXX

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 IAS 7 – CASHFLOW STATEMENT [REVISION] – Class notes

W – 10 Dividend payable
Dividend payable

Dividend paid XXX Opening balance XXX

Closing balance XXX Cash dividend declared (W – 1) XXX

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

Opening balance XXX Transfer to PPE (W – 8) XXX

Expenditure during the year XXX Closing balance XXX

W – 12 Investment property (carried at fair value model)

Investment property

Open. Balance (Fair value) XXX Disposal (Carrying amount) XXX

Fair value gain XXX Fair value loss XXX
Addition XXX Clos. Balance (Fair value) XXX
Disposal

Carrying amount XXX Sale price XXX

Profit on disposal XXX Loss on disposal XXX

W – 13 Government grant (deferred income method)

Govt. grant

Taken to income XXX Open. Balance (non current) XXX

Grant repaid during the year XXX Open. Balance (current) XXX
Clos. Balance (current) XXX Grant received during the year XXX
Clos. Balance (non current) XXX

W –14 Investments

Investment

Opening balance XXX Disposal XXX

Addition XXX Fair value loss XXX
Fair value gain XXX Closing balance XXX

W –15 Issue of shares

Share capital

Closing balance XXX Opening balance XXX

Share issue (cash) XXX
Bonus issue XXX

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 IAS 7 – CASHFLOW STATEMENT [REVISION] – Class notes

Share premium

Closing balance XXX Opening balance XXX

Bonus issue (only if issued out of premium) XXX Share issue (cash) XXX

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

W –17 Lease liability

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

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 IAS 7 – CASHFLOW STATEMENT [REVISION] – Class notes

[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
``
``
Remaining format after “cash generated from operations” is exactly
same as Indirect method
``
``

W–1 Receipts from customers

Debtors

Opening balance (Gross) XXX Bad debts written off XXX

Sales (Total) XXX Receipts (balancing) XXX
Closing balance (Gross) XXX

W–2 Payments to suppliers

Creditors

Payments (balancing) XXX Opening creditors (Note) XXX

Closing creditors (Note) XXX Purchases (from COS a/c) XXX

Note – If accrued interest is included, then exclude it first before using here.

Cost of sales / Inventory

Opening stock XXX Cost of sales (Note) XXX

Purchases (balancing) XXX Closing balance XXX

Note – If depreciation is included, then exclude it first before using here.

W–3 Payment for other operating expenses

Operating expenses

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

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