Consolidated statement of cash flows
There are not many new issues in consolidating the cash flows statement.
As you studied in earlier courses, the cash flows statement is mainly
prepared from two consecutive statements of financial position, and the
related income statement, with the need for some more information.
Example:
Assume that Pop owns 80% of Son Co. We have the following information
regarding 2017:
-
Son sold land that cost $ 20,000 to outside entities for $ 10,000 cash.
Pop purchased new equipment using a $ 300,000 note payable
Patent amortization for both Pop and Son is $ 10,000 annually
Pop received $ 10,000 in dividends from investments in
nonconsolidated equity investees.
- Changes in plant assets not explained earlier are due to depreciation.
The following are consolidated statements of financial position as on
31/12/2016 and 31/12/2017, and a consolidated income statement for
2017
Cash
Accounts receivable (net)
Inventories
Equity investments
Land
Buildings (net)
Equipment (net)
Patents
TOTAL
31/12/2016
180
270
205
95
100
220
600
100
1,770
31/12/2017
255
375
250
100
80
200
800
90
2,150
Difference
75
105
45
5
(20)
(20)
200
(10)
380
Accounts payable
Dividends payable
Notes payable
Common stock
Additional paid-in capital
Retained earnings
Noncontrolling interest
TOTAL
270
20
500
300
600
80
1,770
250
20
300
500
300
670
110
2,150
(20)
300
70
30
380
Sales
Income from equity investees
Total revenue
Less expenses
Cost of goods sold
Depreciation
Patents amortization
Salaries
Other operating expenses
Interest
Loss on sale of land
Total expenses
Total consolidated net income
Less noncontrolling interest share
Controlling share of consolidated net income
Retained earnings 1/1/2017
+ Controlling share of consolidated net income
- Dividends
Retained earnings 31/12/2017
750
15
765
300
120
10
54
47
24
10
(565)
200
(50)
150
600
150
(80)
670
So the consolidated statement of cash flows for 2017, using the indirect
method, is as follows:
Total consolidated net income
Adjustments
Difference between dividends and income
from equity investees
Loss on sale of land
Depreciation expense for buildings
Depreciation expense for equipment
Amortization expense for patents
Increase in accounts receivable
Increase in inventories
Decrease in accounts payable
Total adjustments to net income
Net cash flows from operating activities
200
(5)
10
20
100
10
(105)
(45)
(20)
(35)
165
Proceeds from sale of land
Net cash flows from investing activities
10
Payments of cash dividends
Net cash flows from financing activities
(100)
10
(100)
Total net cash flows for 2017
75
Cash balance 1/1/2017
Total net cash flows for 2017
Cash balance 31/12/2017
180
75
255
While most of the material discussed above is already known to
the students from previous courses, it is worth noting the figure
related to the difference between “Income from equity investees”
and “Dividends from equity investees”
In this case the income from equity investees, calculated using the
equity method, is included in the total income figures as 15, while
we are told that the equity investees gave Pop cash dividends of
only 10. Note that this is income from nonconsolidated investees,
so it is not eliminated in the consolidation worksheet.
In this case we want to move from the income to the cash
received. We have 15 income but only 10 cash received, so we
deduct the difference of 5 in the operating section of the
statement of cash flows.
If the situation was otherwise and the cash received was higher
than the income recognized, then we will add the difference in
the operating section of the statement of cash flows.
Investment in X
15
Income from X
15
---
Cash
10
Investment in X
10