CIMA F2 Syllabus C. Group accounts - Cash Flows Introduction - Notes 1 / 11
IAS 7, Statements of Cash Flows
IAS 7, Statements of Cash Flows, splits cash flows into the following headings:
Cash flows from Operating Activities
Cash flows from Investing Activities
Cash flows from Financing Activities
Cash flows from Operating activities
This is cash from operating / trading activities.
There are two methods which can be used to find the net cash from operating activities:
(They both give the same answer just calculated differently)
The Direct Method
Here you put the cash paid / received in directly
The Indirect Method
Here you start with a profit figure and add back non-cash items - to end up (indirectly) with cash
The sort of items you add back include:
Depreciation & amortisation
Loss on sale of NCA
Decreases in Receivables & Inventory
Increases in PayablesThe sort of items you deduct include:
Profit on sale of NCA
Increases in Receivables & Inventory
Decreases in Payables
Cash flows from Investing Activities
These are related to the buying and selling of NCA (including cash dividends / interest received from investments)
Cash flows from Financing Activities
Cash in / out due to Loans and Shares (including divs paid to ordinary shareholders)
Cashflow Statement Example
$000 | $000 | |
cash flows from operating activities | ||
profit before taxation | 3390 | |
adjustment for: | ||
depreciation | 450 | |
investment income | -500 | |
interest expense | 400 | |
------ | ||
3740 | ||
increase in trade and other receivables | -500 | |
decrease in inventories | 1050 | |
decrease in trade payables | -1740 | |
cash generated from operations | 2550 | |
interest paid | -270 | |
income taxes paid | -900 | |
------ | ||
net cash from operating activities | 1380 | |
cash flows from investing activities | ||
purchase of property, plant and equipment | -900 | |
proceeds from sale of equipment | 20 | |
interest received | 200 | |
Dividends received from associates and joint ventures | 200 | |
------ | ||
net cash used in investing activities | -480 | |
cash flows from financing activities | ||
proceeds from issue of share capital | 250 | |
proceeds from long-term borrowings | 250 | |
dividends paid* | -1290 | |
------ | ||
net cash used in financing activities | -790 | |
------ | ||
net increase in cash and cash equivalents | 110 | |
cash and cash equivalents at beginning of period | 120 | |
------ | ||
cash and cash equivalents at end of period | 230 | |
------ |
* This could also be shown as an operating cash flow.
Finally let's have a think where these items should go in the Cashflow...
A Bonus Issue of shares
Nowhere - as there's no cash involved
A Rights Issue of shares
In Financing Activities (The cash Received)
Revaluation of non-current assets
Nowhere - as there's no cash involved
Dividends paid
In Financing Activities (The cash Paid)