IAS 7 Statement of Cash Flows

IAS 7 Statement of Cash Flows

Components of Cash Flows Statement

Operating Activities

Main revenue producing activities of the entity and other activities that are not investing or financing activities (including taxes paid/received, unless clearly attributable to investing or financing activities).

Investing Activities

Activities that relate to the acquisition and disposal of long-term assets and other investments that are not included in cash equivalents.

Financing Activities

Activities that cause changes to contributed equity and borrowings of an entity.Received or paid interest and dividends are disclosed separately and can be classified as operating, investing or financing, based on their nature and as long as they are consistently treated from period to period.

Reporting Cash Flows from Operating Activities

Cash flows from operating activities can be reported using the direct or indirect method.

Direct Method

·         Cash received from customers
·         Cash paid to suppliers
·         Cash paid to employees
·         Cash paid for operating expenses
·         Interest paid
·         Taxes paid
·         Dividends paid
·         Net cash from operating activities.

Indirect Method

The net cash flow from operating activities is determined by adjusting profit or loss for the effects of:

·         Changes during the period in inventories and operating receivables and payables
·         Non-cash items such as depreciation, provisions, deferred taxes, unrealized foreign                   currency gains and losses, and undistributed profits of associates
·         All other items for which the cash effects are investing or financing cash flows.

Definition: Cash and Cash Equivalents

·         Short term (where the original maturity is 3 months or less, irrespective of maturity timing           post balance date)
·         Highly liquid investments
·         Readily convertible to known amounts of cash
·         Subject to insignificant risk of changes in value.
 

Considerations to Note

·         Non cash investing and financing activities must be disclosed separately
·         Cash flows must be reported gross. Set-off is only permitted in very limited cases and             additional disclosures are required (refer to IAS 7.24 for examples relating to term                   deposits and loans)
·         Foreign exchange transactions should be recorded at the rate at the date of the cash             flow
·         Acquisition and disposal of subsidiaries are investment activities and specific additional           disclosures are required
·         Where the equity method is used for joint ventures and associates, the statement of cash       flows should only show cash flows between the investor and investee
·         Where a joint venture is proportionately consolidated, the venture should only include its       proportionate share of the cash flows of the joint venture
·         Disclose cash not available for use by the group
·         Assets and liabilities denominated in a foreign currency generally include an element of         unrealized exchange difference at the reporting date
·         Disclose the components of cash and cash equivalents and provide a reconciliation back       to the statement of financial position amount if required
·         Non-cash investing and financing transactions are not to be disclosed in the statement of       cash flows.

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