Cash Flows for Dividend

When Dividend is proposed (announced) by company:

Retained Earnings … Dr
Dividend Payable … Cr

When Dividend is Paid by company:

Dividend Payable … Dr
Bank … Cr
Example: The following extracts are taken from balance sheet of Imitation Ltd.
as at 31 Dec 2021 as at 31 Dec 2022
PKR ‘000 PKR ‘000
Proposed Dividend 75 120
The Statement of Changes in Equity for the year to 31 Dec 2022 contained the following
“Dividend Proposed PKR 170,000”.
Calculate the dividends paid in cash during the year 2022.
Example 6: From information provided prepare statement of cash flows (Direct & indirect method).
X Ltd. Statement of Financial Position As at June 30, 20X5 Rs. ‘000’
20X4 20X5 20X4 20X5
Share capital 300 400 Fixed asset – cost 800 1,000
General reserve 90 100 Less: Depreciation 260 350
Profit & loss (un-app) 30 65 540 650
420 565 Intangible assets 35 35
8% Debentures 220 Less: Amortization - 5
Creditors for goods 200 265 35 30
Creditor for expense 15 20 Stock in trade 180 150
Debtors 250 200 Cash & bank (370) 40 .
635 1,070 635 1,070
X Ltd. Statement of Comprehensive Income For the year ended June 30, 20X5 Rs. ‘000’
Sales 2,000
Less: Purchase / inventory (consumed) 800
Wages 320
Depreciation 90
Amortization 5
Manufacturing expenses 440 1,655
Gross profit 345
Less: Admin & selling expenses 230
115
Add: Investment income 15
130
Less: Financial expenses 20
Net profit 110
Add: Un-appropriated profit b/f 30
140
Less: Dividend 65
General reserve 10
Un-appropriated profit c/d 65
 XYZ PKR '000 W1 Cash received from customers
STATEMENT OF CASH FLOWS Sales 2000
FOR THE YEAR ENDED JUNE 30 20X5 Decrease in Debtors 50
2050
OPERATING ACTIVITIES
Cash received from customers W1 2050
W2 Cash paid for inventory
Cash paid to suppliers W2 -705
Opening inventory 180
Cash for expenses W3 -985
Finance Expenses -20 340 Purchase 770
Available for consumption 950
Less Consumed 800
INVESTING ACTIVITIES Closing Inventory 150
Investment income 15
Fixed Assets -200 -185 Opening Creditors 200
Closing Creditors 265
Increase in creditors 65
FINANCING ACTIVITIES
705
Dividend -65
Issue of Share Capital 100 W3 Cash for expenses
Debentures 220 255 Wages 320
Manufacturing 440
AGS 230
410 990
NET CASH FLOW FOR THE YEAR Less Increase in creditors for
OPENING CASH & CASH EQUIVALENTS -370 expense -5
CLOSING CASH & CASH EQUIVALENTS 40 985
2. Alabama Company purchased investments for $45,000 and plant assets for $127,000 during
current year, during which it also sold plant assets for $66,000, at a gain of $6,000. Company
also purchased treasury stock for $78,000 and sold a new issue of common stock for
$523,000. Determine amount of cash provided by or used for investing activities for the year.

3. Texas, Inc., sold common stock for $560,000 and preferred stock for $36,000 during the
current year. In addition, the company purchased treasury stock for $35,000 and paid
dividends on common and preferred stock for $24,000. Determine the amount of cash
provided by or used for financing activities during the year.

4. Dane, Inc., reported cost of goods sold of $100,100 during current year. Following are
beginning and ending balances of merchandise inventory and accounts payable for the year:
Beginning Ending
Merchandise inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,000 $43,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,000 30,000
Determine the amount of cash payments for purchases during the year.
SO 2 Distinguish among operating, investing, and financing activities.
Preparing the Statement of Cash Flows

Illustration
Illustration 13-5

Indirect
Method

SO 3 Prepare a statement of cash flows using the indirect method.

Preparing
the
Statement
of Cash
Flows
Indirect
Method

SO 3 Prepare a statement of cash flows using the indirect method.

 Significant Non-Cash Activities
1. Direct issuance of ordinary shares to purchase assets.
2. Conversion of bonds into ordinary shares.
3. Direct issuance of debt to purchase assets.
4. Exchanges of plant assets.

Companies report these activities in either a separate note or supplementary schedule

to the financial statements.

End
SO 2 Distinguish among operating, investing, and financing activities.
Questions:
The statement of cash flows is designed to assist users in assessing each of following, except:
a. The ability of a company to remain liquid.
b. The major sources of cash receipts during the period.
c. The company’s profitability.
d. The reasons why net cash flows from operating activities differ from net income.

Which of following is not included in statement of cash flows, or in supplementary schedule to

statement of cash flows?
a. Disclosure of investing or financing activities that did not involve cash.
b. A reconciliation of net income to net cash flows from operating activities.
c. Disclosure of amount of cash invested in money market funds during the accounting period.
d. Amount of cash and cash equivalents owned by business at end of accounting period.

SO 2 Distinguish among operating, investing, and financing activities.

Questions:
Cash flows are grouped in statement of cash flows into following major categories:
a. Operating activities, investing activities, and financing activities.
b. Cash receipts, cash disbursements, and noncash activities.
c. Direct cash flows and indirect cash flows.
d. Operating activities, investing activities, and collecting activities.

SO 2 Distinguish among operating, investing, and financing activities.

5. Two transactions were recorded in Land account of Duke Industries. One involved a debit of
$320,000 to Land account; second was a $210,000 credit to Land account. Duke’s income
statement for year reported a loss on sale of land of $25,000. All transactions in Land account
were cash transactions.
These transactions would be shown in the statement of cash flows as:

a. $320,000 cash provided by investing activities, and $210,000 cash disbursed for investing activities.
b. $185,000 cash provided by investing activities, and $320,000 cash disbursed for investing activities.
c. $235,000 cash provided by investing activities, and $320,000 cash disbursed for investing activities.
d. $210,000 cash provided by investing activities, and $320,000 cash disbursed for investing activities.

6. What is purpose of a Cash Flow Statement?

7. At beginning of current year, Callifax Corporation had dividends payable of $1,500,000.

During current year, company declared cash dividends of $4,300,000, of which $900,000
appeared as a liability at year-end. Determine amount of cash dividends paid during this year?
SO 2 Distinguish among operating, investing, and financing activities.
Purpose of statement of cash flows is to provide information about cash receipts and cash
payments of a business during an accounting period.
It helps users of financial statements evaluate company’s ability to have sufficient cash.

8. Moss, Inc., acquired land by issuing $665,000 of capital stock. No cash changed hands in
this transaction. Will the transaction be disclosed in company’s statement of cash flows?
Explain.

9. Georgia Products Co. had following positive cash flows during current year:
- received cash from customers of $750,000
- received bank loans of $35,000
- received cash from the sale of common stock of $145,000.
- cash paid out to purchase inventory for $335,000
- Cash paid to employees for $230,000
- purchase of plant assets of $190,000.
- Calculate amount of cash provided by or used for operating activities by direct method.
SO 2 Distinguish among operating, investing, and financing activities.