LECTURE 9 & 10

CONSOLIDATED STATEMENT OF CASH FLOWS (MFRS

107)

UKAF3073 Corporate Reporting

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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. 9
Example 1: Given below are the CSOFP and
(page 698) CSOPL for H Bhd.
CSOFP 20x5 20x4 CSOPL for ye RM’000
RM’000 RM’000 31/12/20x5
Property, 350 300 Operating profit 133
plant & Share of profits of
equipment associate company 15
Investment in 80 75 Profit before tax 148
associate co
Tax of H and subsidiaries
Inventory 140 120 (40)
Bank 15 PAT
30 108
510
600 PAT attributable to:
Equity holders of H 98
Ordinary 250 250 NCI 10
shares
Retained 213 140 108
profits
10
NCI 97 90
 Example : Additional
information
 Thetax charge for the year and the dividends
declared have all been paid. (investing)
 Group depreciation is RM30,000 and there was
no disposal of non-current assets during the
year. (non-cash flow - operating)
 Theholding’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 15 b/f 75 Dividen 10
associate ds
90 received
Investment in CSOPL 15 c/f 80
associate (31 (80)
Dec 20x5) 90 90
Dividends
received from 12
 Solution – (W2) Dividends paid to NCI
can be derived as follows:

RM
(000)
NCI
NCI interest 90
(1 Jan 20x5)
RM RM
(000 (000
NCI as per ) )
CSOPL 10
Dividend 3 b/d 90
100 s paid
NCI interest c/d 97 CSOPL 10
(31 Dec 20x5)
97 100 100
Dividends paid
to NCI
3 13
 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) 14
 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 450
650

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 1,200
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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. (financing)

 Expenses include impairment of goodwill,

gain/losses on disposal of non-current assets and
depreciation of property, plant and equipment of
RM410,000. (non-cash flow – operating)

 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. (cash &
non-cash flow) 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. (investing)

 During the year, property, plant and equipment of

net book value of RM750,000 were sold for
RM850,000 (operating)

 REQUIRED: Prepare the consolidated

statement of cash flows for the year ended
31 Dec 20x5 24
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 RM’000
of SS
Cost of business combination 2,000
H’s share of FV of net assets of SS on acquisition (1,400)
(1750k x 80%)
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 250
subsidiary
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 300
subsidiary
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 150
subsidiary
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 600 c/d 580
subsidiary
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 100
assets
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 1,000 Disposal 750
subsidiary
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’00
0
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)
Investment in associate 520
Dividends received fromRM’000
associates RM’000
b/d 400 Dividends received 50 50
Acquisition 100
CSOPL 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’00 RM’00
0 0
Cash receipts from customers (a) 9,950
Cash paid to suppliers and employees (7,800)
(6110+1690) (a+b)
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)
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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’00 RM’00
0 0
Proceeds from issue of share capital 800
[(3200-2000-800) + (1700-500-800)]
Proceed from issue of debentures (1000 – 200
800)
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 (850 – 750) (100)
Operating cash flow before working capital 2,310
changes
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 Bal c/d xx
xx Disposal of sub
Acquisition of sub xx
xx

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

LIABILITY
Bal c/d Bal b/d
xx xx
Disposal of sub Acquisition of sub
xx 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
CSOCF
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 40
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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