LKAS 7- Statement of cash flows
The aim of LKAS 7 is to provide information to the
users of financial statements about ability of an
entity to generate cash & cash equivalents.
The objective of LKAS 7 is to require the provision
of information about the historical changes in cash
& cash equivalents of entity by means of a
statement of cash flows which classified cash flows
during the period from Operating, investing &
financing activities
Definitions
• Cash :
Comprises of cash on hand & demand
deposits
• Cash equivalents: Short-term,
highly
liquid
investments that are readily convertible to known
amount of cash.
• Cash flows:
are inflows & outflows of cash & cash
equivalents
• Operating activities: principal
revenueproducing activities; and those that are not
investing or financing activities.
• Investing activities: are the acquisition &
disposal of non current assets and other
investments not included in cash equivalents
• Financing activities: activities that result in
changes in the size & composition of the equity
capital & borrowing s of the entity
Operating activities
• Cash receipts from sale of goods & rendering
services
• Cash receipts from royalties, fees, commissions
& other revenues
• Cash payments to suppliers for goods &
services
• Cash payments to & on behalf of employees
Investing activities
• Cash payments to acquire property plant &
equipments, intangible & other non current
assets
• Cash receipts from sales of PPE, intangibles &
other non current assets
• Cash payments to acquire shares or debentures
of other enterprises
• Cash receipts from sales of shares or
debentures of other enterprises
Financing activities
• Cash proceeds from issuing shares
• Cash payments to owners to acquire or redeem
shares of the enterprise
• Cash proceeds from issuing debentures, loans,
notes, bonds, mortgages & other short or long
term borrowings
• Cash repayments of amounts borrowed
Preparation cash flow statement
Reporting cash flows from operating activities
• Direct method : disclose major classes of gross
cash receipts & gross cash payments
• Indirect method: Net profit or loss is adjusted for
the effects of transactions of a non cash nature,
any deferrals or accruals of past or future
operating cash receipts or payments & items of
income or expense associated with investing &
or financing cash flows
• Using direct method
• Example:
Rs ‘000
Cash flows from operating activities
– Cash receipts from customers
– Cash paid to suppliers & employees
– Cash generated from operations
– Interest paid
– Income tax paid
– Net cash flow from operating activities
xxx
(xxx)
xxx
(xx)
(xx)
xxx
• Indirect method
Rs ‘000
Profit before interest & tax*
Add: Depreciation
Loss/(Profit) on sales of non current asset
(Increase)/Decrease in inventories
(Increase)/Decrease in receivables
Increase/(Decrease) in receivables
Cash generated from operations
Interest paid
Income tax paid
Net cash flows from operating activities
* Note: If
you PAT , interest should be add back
xxx
x
x
(x)/x
(x)/x
x/(x)
xx
(x)
(x)
xx
• Components of cash & cash equivalents
The components of cash & cash equivalents
should be disclosed and reconciliation should be
presented, showing the amounts in the
statement of cash flows, reconciled with the
equivalents items reported in the statement of
financial position.