1. Connolly – International Financial Accounting and Reporting – 4 th Edition CHAPTER 19 STATEMENT OF CASH FLOWS (SINGLE COMPANY)* * See Chapter 33 for consolidated statement of cash flows

2. Connolly – International Financial Accounting and Reporting – 4 th Edition 19.1 INTRODUCTION Profit v Cash ST v LT SPLOCI v SFP SCF

3. Connolly – International Financial Accounting and Reporting – 4 th Edition Key questions Did the company’s profits generate sufficient funds for its continued operations? Is the company capable of generating funds, as opposed to profit from its trading activities? Why has the bank overdraft increased, despite the company having had a profitable year? How has the company financed its increased non-current assets? Did it finance them from non-current sources or from operating activities? What was done with the loan that was taken out during the year? How did the company meet its dividend and interest payments? Was it from operating activities, from increased borrowing or from the sale of non-current assets?

4. Connolly – International Financial Accounting and Reporting – 4 th Edition 19.2 IAS 7 STATEMENT OF CASH FLOWS Objective To provide users with a mechanism for assessing the ability of the entity to generate cash and cash equivalents and the needs of the enterprise to utilise those cash flows Scope An enterprise should prepare a statement of cash flows as an integral part of their financial statements 1.Single company (See Chapter 19) 2.Group (See Chapter 33)

5. Connolly – International Financial Accounting and Reporting – 4 th Edition Key definitions Cash Cash on hand and demand deposits Cash equivalents Short-term, highly liquid investments, readily convertible to known amounts of cash and subject to insignificant risk of changes in value Cash flows Cash + cash equivalents

6. Connolly – International Financial Accounting and Reporting – 4 th Edition Format of statement of cash flows Cash flows should be classified under the following headings: Operating Activities The principal revenue-producing activities and other activities that are not investing or financing activities Investing Activities Acquisition and disposal of long-term assets and other investments not included in cash equivalents Financing Activities Those that result in changes in the size and composition of the equity capital and borrowings

7. Connolly – International Financial Accounting and Reporting – 4 th Edition Figure 19.1: Summarised statement of cash flows €’000 Cash flows from operating activitiesX Cash flows from investing activitiesX Cash flow from financing activitiesX Net increase/ (decrease) in cash and cash equivalents during periodX Cash and cash equivalents at the beginning of periodX Cash and cash equivalents at end of periodX

8. Connolly – International Financial Accounting and Reporting – 4 th Edition Cash flows from operating activities By direct method = encouraged, or By indirect method = required

9. Connolly – International Financial Accounting and Reporting – 4 th Edition Cash flows from operating activities DIRECT METHOD Cash received from customers - Cash payments to suppliers - Cash paid to employees - Other cash payments + Interest received* - Interest paid* - Tax paid - Dividends paid* = Net cash inflow from operating activities INDIRECT METHOD Depreciation charges - Profit on disposal of equipment - Increase in inventories - Increase in receivables + Increase in payables = cash generated from operations + Interest received* - Interest paid* - Tax paid - Dividends paid* = Net cash inflow from operating activities

10. Connolly – International Financial Accounting and Reporting – 4 th Edition Interest and dividends* Cash flows from interest and dividends received and paid should be disclosed separately Each should be disclosed consistently from period to period as operating, investing or financing

11. Connolly – International Financial Accounting and Reporting – 4 th Edition Figure 19.2: Direct method of presenting operating cash flows €’000 Cash received from customers Cash Payments to suppliers Cash paid to and on behalf of employees Other cash expenses Cash generated from operations Interest received Interest Paid Tax Paid Dividend Paid Net cash flow from operating activities X (X) X / (X) X (X) X / (X)

12. Connolly – International Financial Accounting and Reporting – 4 th Edition Figure 19.3: Indirect method of presenting operating cash flows €’000 Profit before Tax Depreciation charges (Profit) / Loss on disposal Interest expense (Increase) / decrease in receivables (Increase) / decrease in inventory Increase / (decrease) in payables Cash generated from operations Interest received Interest Paid Tax Paid Dividend Paid Net cash flow from operating activities X (X) / X X (X) / X X / (X) X (X) X / (X)

13. Connolly – International Financial Accounting and Reporting – 4 th Edition Example 19.1: Net cash flow from operating activities (indirect method) The following financial information relates to ABC Ltd for the year ended 31 December 2012: Statement of Profit or Loss and Other Comprehensive Income for the Year Ended 31 December 2012 €’000 Revenue Operating expenses Profit from operations Finance cost Profit before tax Income tax expense Profit for year 222 (156) 66 ( 9) 57 (21) 36

14. Connolly – International Financial Accounting and Reporting – 4 th Edition Example 19.1: Net cash flow from operating activities (indirect method) The following operating expenses were incurred in the year: The following information is also available: €’000 Wages Auditors remuneration Depreciation Cost of material used Gain on sale of non-current assets Rental Income (36) (6) (42) (111) 30 9 (156) 31-12-12 €’000 31-2-11 €’000 Inventories2112 Trade receivables2421 Trade payables(15)(9)

15. Connolly – International Financial Accounting and Reporting – 4 th Edition Example 19.1: Net cash flow from operating activities (indirect method) Solution€’000 Profit before Tax Adjustments for: Depreciation Finance cost Gain on sale of non-current asset Increase in inventories Increase in receivables Increase in payable 42 9 (30) 57 21 (9) (3) 6 72 Requirement: Calculate the net cash flow from operating activities using indirect method

16. Connolly – International Financial Accounting and Reporting – 4 th Edition Cash flows from investing activities Represent the extent to which expenditures have been made for resources intended to generate future income and cash flows Examples of investing cash flows are:  Proceeds from sale of property, plant and equipment  Cash paid to purchase property, plant and equipment

17. Connolly – International Financial Accounting and Reporting – 4 th Edition Figure 19.4: Cash flows from investing activities Cash paid to acquire PPE + Cash receipts from the sales of PPE -/+ Cash paid/received for shares and debentures in other entities +/- Loans received/repaid -/+ Dividends paid/received* -/+ Interest paid/received*

18. Connolly – International Financial Accounting and Reporting – 4 th Edition Cash flows from financing activities Represent cash flows to and from external providers of capital to the entity Examples of financing cash flows are:  Proceeds from issue of shares  Repayment of loan facilities  Capital repayment of leases  Loan proceeds

19. Connolly – International Financial Accounting and Reporting – 4 th Edition Figure 19.5: Cash flows from financing activities Proceeds from share issue - Cash paid to acquire/redeem own shares + Cash proceeds from issuing debentures and loans - Capital repayments of finance leases -/+ Dividends paid/received* -/+ Interest paid/received*

20. Connolly – International Financial Accounting and Reporting – 4 th Edition Taxes on income Disclosed separately Operating unless can be specifically identified as arising from financing and investing activities

21. Connolly – International Financial Accounting and Reporting – 4 th Edition IAS 7 STATEMENT OF CASH FLOWS Notes to the Statement of Cash Flows 1.Property, Plant and Equipment 2.Cash and Cash Equivalents 3.Segment Information Other Issues Exceptional items in the SPLOCI Exceptional cash flows Discontinued activities Major non-cash transactions

22. Connolly – International Financial Accounting and Reporting – 4 th Edition IAS 7 STATEMENT OF CASH FLOWS SELF TEST QUESTIONS 1.What are the standard headings under which IAS 7 requires cash flows to be classified? 2.How does IAS 7 define cash and cash equivalents? 3.What does the direct method of reporting net cash flows from operating activities show? 4.What are the advantages of a statement of cash flows?

23. Connolly – International Financial Accounting and Reporting – 4 th Edition Suggested approach to statement of cash flow questions Step 1: Set up SCF headings. Leave plenty of space to insert detail. Step 2: Study additional information and mark with a cross those items affecting SFP amounts. Step 3: Begin SCF by using SPLOCI to work down to operating profit before working capital changes. Step 4: Proceed line by line through SFP. If an item is not marked with a cross, the difference may be entered direct to SCF; if it is marked, a working is required. Use working ledger accounts to calculate missing figures. Insert the opening and closing balances from SFP into the working accounts, and then add information from the notes to complete the ledger account. Balancing figures on the working accounts are then transferred to SCF.

24. Connolly – International Financial Accounting and Reporting – 4 th Edition Example 19.2: Statement of cash flows CCE Limited

25. Connolly – International Financial Accounting and Reporting – 4 th Edition (W1) Trade Receivables €€ Opening balances1,200Closing balance*1,800 Movement (bal) 600*(1,900 – 100)____ 1,800 (W2) Interest and Dividends Receivable €€ SPLOCI 500Int. receivable c/f100 Div. Rec’d (bal fig)200 ___Interest received200 500

26. Connolly – International Financial Accounting and Reporting – 4 th Edition (W3) Interest Paid €€ Cash (bal fig) 270Opening balance100 Closing balance 230SPLOCI400 500 (W4) Income Taxes €€ Cash (bal fig)720Opening balance1,000 Closing balance 400SPLOCI (20+100) 120 1,120

27. Connolly – International Financial Accounting and Reporting – 4 th Edition (W5) Property, Plant and Equipment - Cost €€ Opening balance1,910Transfer disposal80 Leases900Closing balance3,730 Cash additions (bal)1,000_____ 3,810 (W6) Property, Plant and Equipment – Depreciation €€ Transfer disposal60Opening balance1,060 Closings balance1,450SPLOCI 450 1,510 (W7) Property, Plant and Equipment – Disposal €€ Cost80Depreciation60 __Cash20 80

28. Connolly – International Financial Accounting and Reporting – 4 th Edition (W8) Long-term Debt (to reconcile balances) €€ Payments under FL90Opening balance1,040 Closing balances2,300Finance leases900 ____LT borrowing 450 2,390 (W9) Retained Earnings (to reconcile balances) €€ Dividend paid1,200Opening balance1,380 Closing balance3,410SPLOCI3,230 4,610

29. Connolly – International Financial Accounting and Reporting – 4 th Edition CCE LIMITED Statement of Cash Flows Year Ended 31 December 2012 W€€ Cash flows from operating activities Net profit before tax3,350 Adjustments for: Depreciation 450 Investment income (500) Interest expense 400 Op. profit from working capital changes 3,700 Increase in trade receivables1 (600) Decrease in inventories 950 Decrease in trade payables(1,640) Cash generated from operations 2,410 Interest paid3 (270) Income taxes paid4 (720) Net cash from operating activities1,420

30. Connolly – International Financial Accounting and Reporting – 4 th Edition W€€ Net cash from operating activities1,420 Cash flows from investing activities Purchases of PPE5(1,000) Proceeds of sale of equipment7 20 Interest received2 200 Dividends received2 200 Net cash used in investing activities(580) Cash flows from financing activities Proceeds from issue of shares 250 Proceeds from long-term borrowings 450 Payment of finance lease liabilities (90) Dividends paid(1,200) Net cash used in financing activities(590) Net increase in C&CEs 250 C&CEs at beginning of period 160 C&CEs at end of period 410

31. Connolly – International Financial Accounting and Reporting – 4 th Edition (W1) Cash receipts from customers Opening trade receivables1,200 Sales30,650 31,850 Less: closing trade receivables (1,900 – 100) 1,800 30,050 (W2) Cash paid to suppliers and employees Opening trade payables1,890 Purchases (26,000 – 1,950 + 1,000)25,050 26,940 Less: closing trade payables 250 26,690 Administrative and selling expenses 950 27,640

32. Connolly – International Financial Accounting and Reporting – 4 th Edition W Cash receipts from customers130,050 Cash paid to suppliers and employees2(27,640) Cash generated from ops (as in (a)) 2,410 Interest paid (270) Income taxes paid (720) Net cash from op. activities (as in (a)) 1,420

33. Connolly – International Financial Accounting and Reporting – 4 th Edition Analysis of Cash and Cash Equivalents at 31 December 20122011 €€ Cash on hand and balances with banks 4025 Short term investments370135 Cash and cash equivalents410160