LECTURE 10

CONSOLIDATED STATEMENT OF CASH FLOWS

(MFRS 107)

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 Learning Objectives
This lecture will consider:

 The nature of consolidated Statement of Cash Flows

(SCF)
 The consolidated related issue of Statement of Cash
Flows
 The requirements under MFRS 107 relating to
consolidated Statement of Cash Flows
 The preparation of the consolidated Statement of Cash
Flows related to acquisition and disposal of a subsidiary
 The reconciliation of the net income with the cash flow
from operation

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 Learning Outcomes
At the end of this lecture, you would be
able to:
 Prepare a Consolidated Statement of Cash
Flow when there is an acquisition or
disposal of a subsidiary or associate

 State the disclosures required

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READING
Jane Lazar (2018), Company and Group
Financial Reporting (9th Edition), Chap
19

MFRS 107 Statement of Cash Flows

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 Introduction

Preparation of consolidated SCF based on

consolidated statement of financial position
and consolidated statement of profit or loss
and other comprehensive income.
NOT by consolidating Statement of Cash
Flows

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 Consolidated Statement of Cash Flows
(Conso CF)
• The cash flows between the group and parties
outside the group are disclosed in the consolidated
statement cash flows.

• The cash flows among members of the group are

not disclosed.

• The techniques and methods for preparing the

consolidated statement of cash flows are similar to
that of a single entity and are disclosed for the 3
activities of operating, investing and financing.
 Consolidated Statement of Cash Flows
(Conso CF) cont’d…
In addition to the various cash inflows &
outflows, there will be cash implications on:
◦ acquisition/disposal of subsidiary and when
subsidiary pays dividends.

◦ acquisition/disposal of an associate and when the

associate pays dividends.

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 Consolidated Statement of Cash Flows
(Conso CF) cont’d…
Basically,
additional items dealt with in
Conso CF are:
◦ Dividends paid by subsidiaries & associates

◦ Acquisition of a subsidiary

◦ Disposal of a subsidiary

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 Dividends paid by subsidiary and
associate
Dividends received from the subsidiaries by the
parent are not disclosed in the CSOCF as the cash
dividend received by the holding company is
retained in the group i.e. intra-group cash receipt
Dividends paid to NCI will be disclosed as an
outflow of financing activities
The dividends received from the associate will be
shown as an inflow of cash from investment
activity.

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Example 1: Given below are the CSOFP and (page 698)
CSOPL for H Bhd.
CSOFP 20x5 20x4 CSOPL for ye 31/12/20x5 RM’000
RM’000 RM’000 Operating profit 133
Property, plant & 350 300 Share of profits of associate
equipment company 15
Investment in 80 75 Profit before tax 148
associate co Tax of H and subsidiaries (40)
Inventory 140 120 PAT 108
Bank 30 15
600 510 PAT attributable to:
Equity holders of H 98
Ordinary shares 250 250 NCI 10
Retained profits 213 140 108
NCI 97 90
Trade payables 40 30 Dividends paid by H 25
600 510

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Example : Additional information
The tax charge for the year and the dividends declared
have all been paid.
Group depreciation is RM30,000 and there was no
disposal of non-current assets during the year.
The holding’s interest in the subsidiary and associate
remains unchanged.
REQUIRED:

Prepare the group statement of cash flows

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 Solution – (W1) Dividends received from
associate can be derived as follows:
RM
(000) Investment in Associate
Investment in 75
associate RM RM
(1 Jan 20x5) (000) (000)
After tax share of
profits in associate 15 b/f 75 Dividends 10
90 received

Investment in CSOCI 15 c/f 80

associate (31 Dec (80)
20x5) 90 90
Dividends received
from associate 10
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 Solution – (W2) Dividends paid to NCI can be
derived as follows:

RM
(000)
NCI interest 90 NCI
(1 Jan 20x5)
RM RM
(000) (000)
NCI as per CSOCI 10

100 Dividends 3 b/d 90

paid
NCI interest
(31 Dec 20x5) 97 c/d 97 CSOCI 10

Dividends paid to 100 100

NCI 3

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 Solution – Group Stmt of CF
Group Statement of cash flow for the year ended 31 Dec 20x5
Cash flow from operating activities: RM’000 RM’000
Net profit before taxation 148
adjustments for:
Depreciation 30
Share of profits of associate (15)
Operating profit before working capital changes 163
increase in inventories (140-120) (20)
increase in trade payables (40-30) 10
Cash generated from operations 153
Taxes paid (40)
Net cash from operating activities 113

Cash flow from investing activities:

Purchase of property, plant & equipment (350-300+30) (80)
Dividends received from Associate (W1) 10
Net cash used in investing activities (70)
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 Solution – Group Stmt of CF
Group Statement of cash flow for the year ended 31 Dec 20x5

Cash flow from financing activities: RM’000 RM’000

Dividends paid by holding company (25)

Dividends paid to NCI (W2) (3)

Net cash used in financing activities (28)

Net increase in CACE 15

CACE at beginning of the year 15

CACE at the end of the year 30

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Acquisition or disposal of associate

The acquisition or disposal of the associate

will be disclosed as part of the investing
activity only if there is an inflow/outflow
of cash arising from the acquisition or
disposal of the associate

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 Example
H issued shares of market value RM100,000
and paid RM20,000 to acquire its interest in
an associate.

Solution:

The cash outflow in investing activity for this

acquisition is RM20,000.

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Acquisition of subsidiary during the year
When a subsidiary is acquired during the year,
the purchase consideration may include cash
which means cash outflow.

At the same time, the assets of the subsidiary

will have cash, which means there is cash
inflow to the group (indirectly through the
subsidiary becoming a member of the group).

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Acquisition of subsidiary during the year
When a subsidiary is acquired during the year,
the cash effect of the acquisition may be
disclosed as part of the investing activity.

The cash consideration paid will be set off

against the cash balance in the subsidiary on the
date of acquisition and the net effect will be
disclosed as either an inflow or outflow.

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Acquisition of subsidiary during the year
– Illustration
Assume that H Bhd acquired a subsidiary XY on 1
July 20x5 and issued 300,000 ordinary shares
(market value RM5 each) and paid cash of
RM150,000 to acquire all the shares of XY. On 1
July 20x5 the net assets of XY included bank
balance of RM240,000.
The effect of the acquisition is that there was an
inflow of RM90,000 being cash outflow of
RM150,000 offset by an inflow of cash into the
group of RM240,000.
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 Example 2 (page 702)
CSOFP of H Bhd as at 31 Dec 20x5 20x4
RM’000 RM’000
Property, plant & equipment 6,720 3,900
Investment in associate company 520 400
Goodwill on consolidation 580 200
Inventory 1,200 900
Trade receivables 900 600
Bank 650 450
10,570 6,450

Ordinary shares 4,900 2,500

Retained profits 2,280 1,400
NCI 1,150 550
10% debentures 1,000 800
Trade payables 1,240 1,200
10,570 6,450
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 Example 2
CSOPL for the year ended 31 Dec 20x5 RM’000
Turnover 10,000
Cost of sales (6,000)
4,000
Expenses (2,220)
Operating profit 1,780
Share of profits of associate company 70
Profit before tax 1,850
Tax H and subsidiaries (280)
Profit after tax 1,570

Profit after tax attributable to:

Equity holders of H 1,200
NCI 370
1,570

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 Example 2 : Additional
information
 Dividends paid by H during the year were RM320,000.

 Expenses include impairment of goodwill, gain/losses on

disposal of non-current assets and depreciation of
property, plant and equipment of RM410,000.

 On 1 October 20x5, H Bhd acquired an 80% interest in

another subsidiary SS by issuing 800,000 ordinary shares
in H Bhd. (market value RM2) and payment of cash
RM400,000. The FV of the net assets of SS on 1 October
20x5 was as follows:

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 Example 2 : Additional information cont’d…
RM’000
Property, plant and equipment 1,000
Inventory 300
Trade receivables 250
Bank 350
Trade payables 150

H acquired a 20% interest in another associate by

payment of cash of RM100,000.

 During the year, property, plant and equipment of net

book value of RM750,000 were sold for RM850,000

 REQUIRED: Prepare the consolidated statement of

cash flows for the year ended 31 Dec 20x5
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 Example 2 : SOLUTION
The opening CSOFP does not include the assets and
liabilities of the new subsidiary, SS but the closing
CSOFP does.
H had acquired an interest in another associate. The
associate is equity accounted and not consolidated.
Only 2 items will have to be determined for the
associate:

◦ Dividends received
◦ Cash paid to acquiree the associate

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 Example 2 : SOLUTION
(W1) Calculation of goodwill on consolidation of SS RM’000
Cost of business combination 2,000
H’s share of FV of net assets of SS on acquisition (1750k x 80%) (1,400)
Goodwill 600

(W2) Cash flow from acquiring SS RM’000

Cash consideration paid 400

Cash in SS on date of acquisition 350

Cash outflow 50

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 Example 2 : SOLUTION
(a) Cash receipts from customers:

Sales + op. receivables + receivables in subsidiary on acquisition –

cl. receivables

10,000 + 600 + 250 – 900 = 9,950

Trade Receivables
RM’000 RM’000
b/d 600 Cash received 9,950
Acquisition of subsidiary 250
Sales 10,000 c/d 900
10,850 10,850

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 Example 2 : SOLUTION
(b) Cash paid to trade payables: First, determine the total
purchases.
Total purchases = COS + cl. inventory – op. inventory – inventory of
new subsidiary on acquisition date

6,000 + 1,200 – 900 – 300 = 6,000

Inventories
RM’000 RM’000
b/d 900 COS 6,000
Acquisition of subsidiary 300
Purchases 6,000 c/d 1,200
7,200 7,200

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 Example 2 : SOLUTION
(b) Cash paid to trade payables: Next, calculate cash paid to
creditors
Purchases + op. payables + payables of new subsidiary on date of
acquisition – cl. payables

6,000 + 1,200 +150 – 1,240 = 6,110

Trade Payables
RM’000 RM’000
Cash paid 6,110 b/d 1,200
Acquisition of subsidiary 150
c/d 1,240 Purchases 6,000
7,350 7,350

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 Example 2 : SOLUTION
(c) Goodwill impairment:

Op. balance + addition during the year – closing balance

200 + 600 – 580 = 220

Goodwill
RM’000 RM’000
b/d 200 Impairment 220
Acquisition of subsidiary 600 c/d 580
800 800

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 Example 2 : SOLUTION
(d) Cash expenses:

Expenses as charged – depreciation – impairment of goodwill + gain

on disposal of noncurrent assets

2,220 – 410 – 220 + 100 = 1,690

Expenses
RM’000 RM’000
Depreciation 410 Gain on disposal of assets 100
Impairment of goodwill 220 CSOPL 2,220
Cash expenses 1,690
2,320 2,320

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 Example 2 : SOLUTION
(e) Purchase of non-current assets:

Cl. balance – op. balance + depreciation charge for the year +

disposal – PPE in subsidiary on date of acquisition

6,720 – 3,900 + 410 + 750 – 1,000 = 2,980

Property, plant & equipment

RM’000 RM’000
b/d 3,900 Depreciation 410
Acquisition of subsidiary 1,000 Disposal 750
Cash 2,980 c/d 6,720
7,880 7,880

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 Example 2 : SOLUTION
(f) Dividends paid to NCI:

NCI in the new subsidiary on date of acquisition will be:

RM1,750,000 x 20% = ^ RM350,000

NCI
RM’000 RM’000
Cash 120 b/f 550
c/f 1,150 Acquisition ^ 350
CSOPL 370
1,270 1,270

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 Example 2 : SOLUTION
(g) Dividends received from associates:
RM’000
Investment in associate (1 Jan 20x5) 400
Acquisition of another associate 100
After tax share of profits of associates 70
570
Investment in associates (31 Dec 20x5) 520
Dividends received from associates 50
Investment in associate
RM’000 RM’000
b/d 400 Dividends received 50
Acquisition 100
CSOCI 70 c/d 520
570 570
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 Example 2 : SOLUTION
Group Statement of cash flow for the year ended 31 Dec 20x5
Cash flow from operating activities: RM’000 RM’000
Cash receipts from customers (a) 9,950
Cash paid to suppliers and employees (6110+1690) (a+b) (7,800)
Cash generated from operations 2,150
Taxes paid (280)
Net cash flows from operating activities 1,870

Cash flow from investing activities:

Acquisition of subsidiary (W2) (50)
Proceeds from sale of non-current assets 850
Purchase of PPE (e) (2,980)
Investment in associate (100)
Dividends received from associate companies (g) 50
Net cash used in investing activities (2,230)
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 Example 2 : SOLUTION
Group Statement of cash flow for the year ended 31 Dec 20x5
Cash flow from financing activities: RM’000 RM’000
Proceeds from issue of share capital 800
[(3200-2000-800) + (1700-500-800)]
Proceed from issue of debentures (1000 – 800) 200
Dividends paid by holding company (320)
Dividends paid to NCI (f) (120)
Net cash inflow from financing activities 560
Net increase in CACE 200
CACE at beginning of the year 450
CACE at the end of the year 650

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Example 2 : SOLUTION – Indirect Method
Group Statement of cash flow for the year ended 31 Dec 20x5
Cash flow from operating activities: RM’000 RM’000
Net profit before taxation 1,850
Less: share of profits of associate (70)
Depreciation 410
Impairment of goodwill [580 – ( 200 + c 600)] 220
Gain on sale of non-current assets (100)
Operating cash flow before working capital changes 2,310
Changes in working capital:
Increase in trade receivables (900-250-600) (50)
Decrease in trade payables (1240-150-1200) (110)
Cash generated from operations 2,150
Taxes paid (280)
Net cash flows from operating activities 1,870

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 ADJUSTMENTS IN T A/C FOR EFFECTS
OF ACQUISITION / DISPOSAL

ASSET
Bal b/d xx Bal c/d xx
Acquisition of sub xx Disposal of sub xx

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 ADJUSTMENTS IN T A/C FOR EFFECTS
OF ACQUISITION / DISPOSAL

LIABILITY
Bal c/d xx Bal b/d xx
Disposal of sub xx Acquisition of sub xx

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Disposal of subsidiary during the year
The accounting techniques are quite similar to
those when a subsidiary is acquired.
The consideration received on disposal of the
subsidiary will be disclosed in the investing
activity to the extent of the net cash flow from the
disposal.
Disclosed as part of the investing activity.
Increase and decrease in NCI due to acquisition or
disposal of subsidiary has no effect on cash flow

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Disposal of subsidiary during the year
The holding company were to received RM2
million cash and on the date of disposal the cash
balance in the subsidiary was RM300,000.

Then, there is a net cash inflow of RM1.7

million.

Refer Example 3 (pg 710)

- Self Learning

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