FAC2602
Open Rubric
LEARNING OUTCOME
You should be able to draft the statement of cash flows for a company in accordance
with International Financial Reporting Standards (IFRS).
OVERVIEW
10.1
INTRODUCTION ............................................................................................... 2
10.2
PURPOSE AND PRESENTATION OF A STATEMENT OF CASH FLOWS .... 2
10.3
ELEMENTS AND FRAMEWORK OF A STATEMENT OF CASH FLOWS ...... 3
10.4
EXERCISES ..................................................................................................... 18
SELF-ASSESSMENT.................................................................................................... 30
KEY CONCEPTS
•
•
•
•
•
•
Preparation of a cash flow statement
Cash and cash equivalents
Non-cash items
Direct method
Indirect method
Operating vs investing vs financing activities
ASSESSMENT CRITERIA
After studying this learning unit, you should be able to:
• draft a statement of cash flows, with accompanying notes, for a
company using the direct method in accordance with IFRS
• draft a statement of cash flows, with accompanying notes, for a
company using the indirect method in accordance with IFRS
• distinguish between cash and non-cash items
1
10.1 INTRODUCTION
In Accounting I, we introduced you to company annual financial statements. You studied
aspects such as the statement of financial position and the statement of profit or loss
and other comprehensive income. In Accounting II, you will be studying the above
aspects in greater detail and will acquire knowledge of IFRS.
Although the sections of the Companies Act and the IFRS statements are very important
for your studies, we don’t expect you to read them all. However, in order to equip you
thoroughly, we will refer to them in the learning unit from time to time.
Cash flow information involves the meaningful presentation of the cash that the entity
generated and applied. We present this information to the readers of financial statements
in the form of a statement of cash flows.
A complete set of financial statements comprises the following:
•
•
•
•
•
statement of financial position
statement of profit or loss and other comprehensive income
statements of changes in equity
statement of cash flows, and
notes to the financial statements
Users of financial statements are interested in the information on cash flow, which can
be derived from the statement of cash flows. As the name indicates, this statement has to
do with the cash flows in an enterprise, which implies that we omit all the items in the
annual financial statements that have nothing to do with the cash flow when we compile
the statement of cash flows.
10.2 PURPOSE AND PRESENTATION OF A STATEMENT OF CASH
FLOWS
The purpose of the statement of cash flows is to provide information to the various users
of financial statements. Each enterprise presents its cash flows from operations,
investment and financing in the way most suitable for its business.
2
The following represents the logical presentation:
Net cash flow from operating activities
o cash receipts from customers
o cash paid to suppliers and employees
o investment income
o interest paid
o income tax paid
o dividends paid
o proceeds from the sale of financial assets at fair value through profit or loss: held
for trading
Net cash flow from investing activities
Net cash flow from financing activities
Net change in cash and cash equivalents
Operating activities are the principal income-producing activities of the enterprise as well
as other activities which are not investing or financing activities.
Investing activities include the acquisition and sale of non-current assets and other
investments not included in cash flow equivalents.
Financing activities are activities that result in changes in the size and composition of the
equity capital and borrowings to the enterprise.
10.3 ELEMENTS AND FRAMEWORK OF A STATEMENT OF CASH
FLOWS
The elements of a statement of cash flows are the following:
•
•
•
operating activities
investing activities
financing activities
Operating activities
The amount of cash arising from operating activities is a key indicator of the extent to which
the operations of the entity have generated sufficient cash to repay loans, maintain the
operating capability of the entity, pay dividends and make new investments without
recourse to external financing.
3
Cash flows from operating activities are derived primarily from the principal revenueproducing activities of the entity. Therefore, they generally result from the transactions
and other events that determine profit or loss. The following are examples of cash flows
from operating activities:
•
•
•
•
cash receipts from the sale of goods and the rendering of services
cash payments to suppliers for goods and services
cash payments to and on behalf of employees
cash payments and refunds in respect of income taxes
Investing activities
It is important to disclose cash flows from investing activities because they represent the
extent to which payments have been made for resources intended to generate future
receipts and cash flows.
The following are examples of cash flows arising from investing activities:
•
•
cash payments to acquire property, plant and equipment and other non-current
assets
cash receipts from sales of property, plant and equipment and other non-current
assets
Financing activities
It is important to disclose cash flows arising from financing activities because they are
useful in predicting claims from providers of capital to the entity on future cash flows.
The following are examples of cash flows arising from financing activities:
•
•
•
•
cash proceeds from issuing shares
cash payments to owners to acquire or redeem the entity's shares
cash proceeds from issuing debentures, loans, mortgage bonds and current or noncurrent borrowings
cash repayments for amounts borrowed
4
We can represent a statement of cash flows schematically as follows:
STATEMENT OF CASH FLOWS
CASH FLOW FROM OPERATING ACTIVITIES
PLUS/MINUS
CASH FLOW FROM INVESTING ACTIVITIES
PLUS/MINUS
CASH FLOW FROM FINANCING ACTIVITIES
PLUS/MINUS
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS
We do not compile the statement of cash flows from separate transactions. To draft a
statement of cash flows for the year ended 31 December 20.8, we use the following:
•
•
•
statement of profit or loss and other comprehensive income for the year ended 31
December 20.8
statements of financial position as at 31 December 20.7 and 31 December 20.8
additional information
Remember: Amounts that are not in brackets represent the inflow of cash, and
amounts in brackets represent the outflow of cash.
An enterprise should report cash flow from operating activities by means of either the
direct or the indirect method.
5
If a company uses the direct method, it will disclose the principal categories of gross
cash proceeds and gross cash payments. On the other hand, if it uses the indirect
method, profit or loss is adjusted for the effect of non-cash transactions as well as any
deferrals or accruals of previous or future operating cash receipts or payments and
income or expenditure items which are related to investment or financing cash flow.
The only difference between the direct and indirect method lies in the presentation of the
section dealing with cash flow from operating activities. The sections dealing with investing
and financing activities remain in the same format, irrespective of the method used.
FRAMEWORK OF A STATEMENT OF CASH FLOWS IN ACCORDANCE WITH THE
DIRECT METHOD
R
R
Cash flows from operating activities
Cash receipts from customers
xxx
Cash paid to suppliers and employees
(xxx)
Cash generated from operations
xxx
Interest received
xxx
Interest paid
(xxx)
Dividends received
xxx
Dividends paid
(xxx)
Tax paid
(xxx)
Proceeds from the sale of financial assets at fair value through profit or
xxx
loss: held for trading (such as listed shares)
Net cash from/(used in) operating activities
xxx
Cash flows from investing activities
Investment to maintain production capacity
(xxx)
xxx
Replacement of non-current assets
Investment to expand production capacity
(xxx)
xxx
Additions to non-current assets
Proceeds from the sale of property, plant and equipment
xxx
Proceeds from the sale of investments (such as in equity shares or
xxx
loans)
Net cash from/(used in) investing activities
(xxx)
Cash flows from financing activities
Proceeds from the issue of shares
xxx
Proceeds from long-term borrowings/debentures
xxx
Repayment of loans
(xxx)
Redemption of redeemable preference shares
(xxx)
Net cash from/(used in) financing activities
xxx
Net increase in cash and cash equivalents
xxx
Cash and cash equivalents at beginning of year
xxx
Cash and cash equivalents at end of year
xxx
6
FRAMEWORK OF A STATEMENT OF CASH FLOWS IN ACCORDANCE WITH THE
INDIRECT METHOD
Cash flows from operating activities
Profit before tax
Adjustments for:
Depreciation
Loss on sale of non-current assets
Profit on sale of non-current assets
Investment income
Interest expense
R
xxx
Changes in working capital
Decrease/(Increase) in inventory
Decrease/(Increase) in trade and other receivables
(Decrease)/Increase in trade and other payables
Cash generated from operations
Interest received
Interest paid
Dividends received
Dividends paid
Tax paid
Proceeds from the sale of financial assets at fair value through
profit or loss: held for trading (such as listed shares)
Net cash from/(used in) operating activities
Cash flows from investing activities
Investment to maintain production capacity
Replacement of non-current assets
Investment to expand production capacity
Additions to non-current assets
Proceeds from the sale of property, plant and equipment
Proceeds from the sale of investments (such as in equity shares
or loans)
Net cash from/(used in) investing activities
Cash flows from financing activities
Proceeds from the issue of shares
Proceeds from long-term borrowings/debentures
Repayment of loans
Redemption of redeemable preference shares
Net cash from/(used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
7
R
xxx
xxx
(xxx)
(xxx)
xxx
xxx
xxx
xxx
xxx
(xxx)
xxx
xxx
(xxx)
xxx
(xxx)
(xxx)
xxx
xxx
(xxx)
xxx
(xxx)
xxx
xxx
xxx
(xxx)
xxx
xxx
(xxx)
(xxx)
xxx
xxx
xxx
xxx
We will use the following example throughout the learning unit to illustrate certain aspects
of cash flow information:
The following balances appear in the books of Ross Ltd for the financial year ended 30
June:
20.6
Land and buildings
Plant and machinery
Motor vehicles
Financial assets at amortised cost
Inventory
Trade and other receivables
Prepaid expenses
Bank
Share capital (280 000/250 000 shares)
Long-term borrowings
Revaluation surplus – land
Retained earnings
10% R200 debentures
Tax payable
Ordinary dividends payable
Accumulated depreciation
- Plant and machinery
- Motor vehicles
Trade and other payables
Accrued interest
Bank overdraft
8
R
350 000
105 000
108 900
67 000
37 400
500
2 000
670 800
20.5
R
340 000
124 000
67 300
25 200
50 000
50 000
2 600
659 100
292 000
15 000
188 700
40 000
23 300
16 800
258 200
80 000
220 000
46 600
-
27 000
27 200
38 800
2 000
670 800
18 000
10 000
26 000
300
659 100
ROSS LTD
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR
THE YEAR ENDED 30 JUNE 20.6
R
Revenue
Cost of sales
Gross profit
Other income (3 000 + 2 000)
Administrative expenses (78 200 + 63 600)
Selling expenses
Other costs
Finance cost
Profit before tax
Income tax expense
PROFIT FOR THE YEAR
Other comprehensive income for the year
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
500 000
(250 000)
250 000
5 000
(141 800)
(87 400)
(8 000)
(7 300)
10 500
10 500
10 500
Additional information
1. The long-term borrowing bears interest at 12% per annum, payable in arrears, and
was repaid on 31 December 20.5. Interest did not qualify for capitalisation.
2. In December 20.5, a piece of land that cost R15 000 was sold for its carrying amount
and replaced with another piece of land. On 30 June 20.6, the remaining land was
revalued. These were the only transactions in respect of land and buildings for the
current financial year.
3. During the current financial year, a machine with a carrying amount of R51 000 was
sold at a loss of R8 000 and replaced with a new machine which cost R62 000. The
total depreciation on plant and machinery for the current financial year amounted to
R39 000.
4. A motor vehicle with a cost price of R14 400 on which depreciation of R7 400 had
already been written off was traded in for R9 000 on a new vehicle that cost R35 000.
5. No other machines or motor vehicles were sold during the year, but one additional
motor vehicle was purchased.
6. The provision for tax for the current financial year was R15 000. This includes an
under-provision of R5 100 for the 20.5 tax year.
7. New shares were issued on 30 April 20.6.
9
8. On 31 December 20.5, an interim ordinary dividend of 4c per share was declared and
paid.
9. Ordinary dividends of 6c per share were declared on 30 June 20.6.
10. The financial assets were sold at amortised cost on 1 July 20.5. These shares were
purchased without the intention of short-term profit taking as part of the business
model.
11. During the year, dividends to the value of R3 000 were received.
Cash flows from operating activities (using the direct method)
Cash receipts from customers
Please note: This amount is determined by reconstructing the trade and other receivables
account.
Cash receipts from customers
Balance
Sales
b/d
Trade and other receivables
R
50 000
Bank*
500 000
Balance
550 000
c/d
R
512 600
37 400
550 000
* Balancing figure
Cash paid to suppliers and employees
We calculate this amount by comparing the figures for inventory and trade and other
payables as given in the two statements of financial position. If inventory increased from
one year to the next, the effect on cash flow would be negative, as it implies more cash
flowed out to purchase inventory. If the figure of trade and other payables increased from
one year to the next, this means that less cash flowed out to pay creditors and the figure
would then be positive in respect of cash flow. All purchases of inventory and expenses
which were paid for in cash are also included in the calculation.
10
Cash paid to suppliers and employees
R
Balances
b/d
Balance
b/d
Inventory
50 000
Trade and other
payables
Prepaid
2 600
Cost of sales
expenses
Bank*
417 700
Administrative
Balance
c/d
expenses
Trade and other payables
38 800
Selling expenses
Balances
c/d
Inventory
Prepaid expenses
509 100
* Balancing figure
R
26 000
250 000
78 200
87 400
67 000
500
509 100
Depreciation to the value of R63 600 does not give rise to a cash flow.
Plant and machinery
Vehicles
39 000 (given)
24 600 [27 200 − (10 000 − 7 400)]
63 600
Cash generated from operations
We obtain this amount by subtracting the cash paid to suppliers and employees from
cash receipts from customers.
Interest paid, dividends received and paid and normal tax paid
The company normally makes all payments to the South African Revenue Service
(SARS) and to suppliers of funds from cash generated by operating activities. We should
therefore disclose interest paid as well as tax and dividends paid during a year separately
from cash generated by operating activities.
Dividends paid
Unpaid amount at beginning of period (statement of financial position 20.5)
Amount debited against income* (total dividends declared for 20.6)
Unpaid amount at end of period (statement of financial position 20.6)
*Ordinary dividends
- Interim (250 000 x 4c)
- Final (280 000 x 6c)
R
26 800
(16 800)
10 000
10 000
16 800
26 800
11
Tax paid
Unpaid amount at beginning of period (statement of financial position 20.5)
Amount debited against income (additional information 6)
Unpaid amount at end of period (statement of financial position 20.6)
R
46 600
15 000
(23 300)
38 300
We can now complete the section described as cash flows from operating activities using
the direct method:
Cash flows from operating activities (according to the direct method)
ROSS LTD
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 20.6
R
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from operations
Interest paid (7 300 − 2 000)
Dividends received
Dividends paid
Tax paid
Net cash from operating activities
R
512 600
(417 700)
94 900
(5 300)
3 000
(10 000)
(38 300)
44 300
Cash flows from operating activities (using the indirect method)
When we prepare the statement of cash flows using the indirect method, we must ignore
the calculations for cash received from customers and cash payments to suppliers and
employees. We now calculate cash generated by operations by adjusting profit or loss for
the effect of non-cash transactions, any deferrals or accruals of previous or future
operating cash receipts or payments and income or expenditure items related to
investment or financing cash flow. The calculations for interest, dividends and tax remain
unaltered, irrespective of the method used.
12
Cash flows from operating activities (using the indirect method)
ROSS LTD
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 20.6
R
Cash flows from operating activities
Profit before tax
Adjustments for:
Depreciation
Profit on sale of non-current asset
Loss on sale of non-current asset
Interest expense
Investment income
R
10 500
Changes in working capital
Increase in inventory (50 000 − 67 000)
Decrease in trade and other receivables (50 000 − 37 400)
Decrease in prepaid expenses (2 600 − 500)
Increase in trade and other payables (38 800 − 26 000)
63 600
(2 000)
8 000
7 300
(3 000)
84 400
10 500
(17 000)
12 600
2 100
12 800
94 900
Cash generated from operations
Interest paid (7 300 − 2 000)
Dividends received
Dividends paid
Tax paid
Net cash from operating activities
(5 300)
3 000
(10 000)
(38 300)
44 300
Cash flows from investing activities
Cash flows related to investing activities may include both the inflow and the outflow of
cash. The outflow of cash includes the purchase of assets and investments, whereas the
inflow of cash includes items such as proceeds from the sale of non-current assets.
Regarding the amount of assets purchased, we distinguish between the amount for
replacement and that for addition to assets. Replacement refers to the maintenance of
operations, and additions refer to the expansion of operations.
13
Assets purchased
When the increase in the balance of the accumulated depreciation accounts in the two
statements of financial position is equal to the depreciation in the statement of profit or
loss and other comprehensive income, the company did not sell or write off any assets
during the year. We can then account for any increase in the asset account (at cost price)
directly as purchases of assets.
Revaluation of property
Companies often revalue property, and when this happens during a particular financial
year, we treat it as follows: the value of the property increased because of the revaluation
and because there was in fact no flow of cash, we can ignore it when drafting the
statement of cash flows. The increase in the revaluation surplus represents the increase
in the value of the property.
Purchase and sale of assets
If an enterprise has purchased or sold assets during the year, it is recommended that
you reconstruct the ledger accounts concerned.
Land
Balance
Revaluation#
Replacement*
Balance
b/d
b/d
R
340 000
15 000
10 000
365 000
350 000
Proceeds on sale
Balance
c/d
R
15 000
350 000
365 000
# Increase in balance of surplus on revaluation account
* Balancing figure
Balance
Replacement (given)
Addition*
Balance
Motor vehicles at cost price
R
b/d
67 300
Cost of trade-in
35 000
Balance
21 000
123 300
b/d
108 900
* Balancing figure
14
c/d
R
14 400
108 900
123 300
Accumulated depreciation: motor vehicles
R
Accumulated depreciation
Balance
on trade-in
7 400
Depreciation*
Balance
c/d
27 200
34 600
Balance
b/d
b/d
R
10 000
24 600
34 600
27 200
* Balancing figure
Realisation account: motor vehicles
R
Cost price of trade-in
14 400
Accumulated depreciation
Profit on trade-in
on trade-in
[(14 400 - 7 400) - 9 000]
2 000
Proceeds
16 400
Balance
Replacement (given)
Balance
Carrying amount sold
Plant and machinery at carrying amount
R
b/d
106 000
Carrying amount
-sold
62 000
Depreciation
Balance
c/d
168 000
b/d
78 000
Realisation account: plant and machinery
R
51 000
Proceeds on sale
(51 000 - 8 000)
Loss on sale
51 000
15
R
7 400
9 000
16 400
R
51 000
39 000
78 000
168 000
R
43 000
8 000
51 000
Financial assets
When trading in shares is part of the business model of the company and there is an
intention of short-term profit taking, typically listed shares held for trading, the increase or
decrease in cash would be part of the operating activities. In this example, however, the
shares were purchased without the intention of short-term profit taking as part of the
business model. The shares not held for trading will be disclosed in the cash flows from
investing activities section.
We are now able to complete the section described as cash flows from investing
activities.
Cash flows from investing activities (both methods)
Investment to maintain production capacity
Replacement of land
Replacement of motor vehicle
Replacement of machine
Investment to expand production capacity
Addition to motor vehicles
Proceeds from the sale of financial assets at amortised cost
Proceeds of sale of land
Proceeds on sale of motor vehicle
Proceeds on sale of machine
Net cash used in investing activities
Cash flows from financing activities (both methods)
R
(107 000)
10 000
35 000
62 000
(21 000)
21 000
25 200
15 000
9 000
43 000
R
(35 800)
An enterprise must report on the main classes of gross cash receipts and gross cash
payments that resulted from financing activities separately.
We usually derive the effecting of new borrowings, the redemption of existing borrowings
and the issue of shares from the given statements of financial position.
2 .6
R
40 000
292 000
10% R200 debentures
Long-term borrowings
Share capital (280 000/250 000 shares)
2 .5
R
80 000
258 200
Change
R
40 000
80 000
33 800
The share capital increased by R33 800. Therefore, the total amount received upon issue
of the shares was R33 800.
16
We can now complete the section that deals with cash flows from financing activities.
Cash flows from financing activities (both methods)
Proceeds from debentures issued
Payment on redemption of long-term borrowings
Proceeds on issue of shares
Net cash used in financing activities
R
40 000
(80 000)
33 800
R
(6 200)
Net change in cash and cash equivalents
The net effect of the first three sections of the statement of cash flows produced the net
change.
Net cash from operating activities
Net cash used in investing activities
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
17
R
44 300
(35 800)
(6 200)
2 300
(300)
2 000
10.4 EXERCISES
QUESTION 1
Debits
Property
Motor vehicles
Machinery
Inventory
Trade and other receivables
Cash in bank
Financial assets at fair value through profit or loss
Credits
Share capital (400 000/300 000 shares)
Revaluation surplus
Retained earnings
Long-term borrowings: interest free
Accumulated depreciation – Motor vehicles
– Machinery
Trade and other payables
Tax payable
Dividends payables (ordinary)
18
20 .3
R
20.2
R
1 750 000
436 000
385 000
178 000
214 000
2 000
2 965 000
1 400 000
410 000
370 000
154 000
220 000
76 000
40 000
2 670 000
440 000
220 000
981 000
900 000
76 000
141 000
139 000
44 000
24 000
2 965 000
330 000
10 000
870 000
1 100 000
54 000
120 000
142 000
28 000
16 000
2 670 000
Additional information
1. The following information was obtained from the statement of profit or loss and
other comprehensive income of A Ltd for the year ended 31 October 20.3:
Revenue
Cost of sales
Gross profit
Other income
Administrative and selling expenses (88 000 + 48 000 + 72 000)
Other expenses
Profit before tax
Income tax expense
PROFIT FOR THE YEAR
Other comprehensive income for the year
– Revaluation surplus
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
R
750 000
(300 000)
450 000
4 000
(208 000)
(26 000)
220 000
(85 000)
135 000
210 000
345 000
2. Extract from the statement of changes in equity for the year ended 31 October 20.3
Revaluation
surplus
R
Profit for the year
Dividends declared
Revaluation surplus
210 000
Retained
earnings
R
135 000
(24 000)
Total
R
155 000
(24 000)
210 000
3. On 31 October 20.3, A Ltd purchased a new motor car for R54 000 and sold an old
vehicle at its carrying amount.
4. A Ltd traded in a machine with a carrying amount of R60 000 on which R51 000 had
already been written off in depreciation for R54 000 and replaced it with a new
machine.
5. Depreciation for the current year
R
Vehicles
Machinery
48 000
72 000
19
6. A Ltd sold the investment for R24 000 on 28 February 20.3, at a profit of R4 000.
There was also a fair value adjustment during the current year. Trading in shares is
part of the business model of A Ltd.
REQUIRED
Draft the statement of cash flows of A Ltd for the year ended 31
October 20.3 in accordance with the requirements of IFRS using the
direct method. Ignore comparative figures, but show the following
calculations:
1. Cash receipts from clients
2. Cash paid to suppliers and employees
3. Normal tax paid
4. Dividends paid
20
QUESTION 2
The following information was derived from the books of B Ltd:
TRIAL BALANCE AT 28 FEBRUARY
20.5
R
20.4
R
Land at valuation
Machinery at cost price
Financial assets at amortised cost
Inventory
Trade and other receivables
Bank
244 500
14 800
15 000
18 000
8 000
300 300
200 000
52 300
2 400
19 000
15 400
14 000
303 100
Share capital – 100 000 shares
Interest-free long-term borrowings
Revaluation surplus
Retained earnings
Dividends payable
Accumulated depreciation – machinery
Allowance for credit losses
Trade and other payables
Tax payable
100 000
40 000
59 500
65 000
20 000
3 400
1 000
7 400
4 000
300 300
100 000
50 000
15 000
107 000
10 000
4 800
1 200
11 300
3 800
303 100
21
Additional information
1. The following information was derived from the statement of profit or loss and other
comprehensive income of B Ltd for the year ended 28 February 20.5:
R
179 500
(76 200)
103 300
1 200
(90 600)
(400)
13 500
(5 500)
8 000
Revenue
Cost of sales
Gross profit
Other income (1 000 + 200)
Administrative and selling expenses (48 000 + 42 600)
Other expenses
Profit before tax
Income tax expense
PROFIT FOR THE YEAR
Other comprehensive income for the year
– Revaluation surplus
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
44 500
52 500
2. Extract from the statement of changes in equity for the year ended 28 February 20.5
Revaluation
surplus
R
15 000
Balance at 1 March 20.4
Changes in equity for 20.5
Total comprehensive income for the year
Profit for the year
Other comprehensive income for the year
Dividend paid: ordinary
Balance at 28 February 20.5
Retained
earnings
R
R
107 000
8 000
44 500
59 500
(50 000)
65 000
Total
R
122 000
8 000
44 500
(50 000)
124 500
3. B Ltd grew rapidly during the year, and unless otherwise indicated, they purchased all
assets for the purposes of expanding the enterprise. The following transactions
occurred during the year ended 28 February 20.5:
3.1 B Ltd purchased new machinery to the value of R8 000 during the year to
replace the obsolete machinery. The cost price of the old machinery was
R45 500, and B Ltd resold it for R2 500. The accumulated depreciation on the
machinery that was sold was R44 000.
22
3.2 The company sold its financial assets at 1 March 20.4 for R2 000. These assets
were not held with the intention of short-term profit taking as part of the business
model.
REQUIRED
Draft the statement of cash flows for B Ltd for the financial year ended
28 February 20.5 in compliance with the requirements of IFRS using
the indirect method. Ignore comparative figures, but show the following
calculations:
1.
2.
Normal tax paid
Dividends paid
23
SOLUTION
QUESTION 1
A LTD
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 OCTOBER 20.3
R
Cash flows from operating activities
Cash receipts from customers (C1)
Cash paid to suppliers and employees (C2)
Cash generated from operations
Dividends paid (C3)
Tax paid (C4)
Proceeds from the sale of financial assets at fair value
through profit or loss: held for trading
Net cash from operating activities
Cash flows from investing activities
Investment to maintain production capacity
Replacement of machinery (C5)
Replacement of motor vehicle (C5)
Investment to expand production capacity
Additions to property (C5)
Proceeds from sale of motor vehicles (28 000 – 26 000)
Proceeds from sale of machinery (60 000 – 6 000)
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares (440 000 – 330 000)
Repayment of long-term borrowings (1 100 000 – 900 000)
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
24
R
756 000
(415 000)
341 000
(16 000)
(69 000)
24 000
280 000
(180 000)
(126 000)
(54 000)
(140 000)
(140 000)
2 000
54 000
(264 000)
110 000
(200 000)
(90 000)
(74 000)
76 000
2 000
Calculations
C1. Cash receipts from customers
Balance
Sales
Trade and other receivables
R
b/d
220 000
Bank*
750 000
Balance
970 000
c/d
R
756 000
214 000
970 000
* Balancing figure
C2. Cash paid to suppliers and employees
Cash paid to suppliers and employees
R
Balance (inventory)
b/d
154 000
Balance (trade and
Bank*
415 000
other payables)
Balance (trade and other
Cost of sales
payables)
c/d
139 000
Administrative and
selling expenses
Balance (inventory)
708 000
* Balancing figure
R
b/d
142 000
300 000
c/d
88 000
178 000
708 000
C3. Dividends paid
Unpaid amounts at the beginning of the period
Amounts debited to income
Unpaid amounts at the end of the period
16 000
24 000
(24 000)
16 000
C4. Tax paid
Unpaid amounts at the beginning of the year
Amounts debited to income
Unpaid amounts at the end of the year
25
28 000
85 000
(44 000)
69 000
C5. Ledger accounts
Property
Balance
Revaluation
Purchases
Balance
New purchases
b/d
b/d
R
1 400 000
210 000
140 000
1 750 000
Balance
Motor vehicles at cost
R
410 000
Sales*
54 000
Balance
464 000
c/d
R
1 750 000
1 750 000
c/d
R
28 000
436 000
464 000
* Balancing figure
Sales*
Balance
Accumulated depreciation – motor vehicles
R
c/d
26 000
Balance
76 000
Depreciation
102 000
b/d
R
54 000
48 000
102 000
* Balancing figure
Balance
New purchases*
b/d
Machinery at cost
R
370 000
Sales (60 000 + 51 000)
126 000
Balance
496 000
* Balancing figure
26
c/d
R
111 000
385 000
496 000
Sales
Balance
Balance
Accumulated depreciation – machinery
R
51 000
Balance
c/d
141 000
Depreciation
192 000
Financial assets at fair value through profit or loss
R
b/d
40 000
Sold (24 000 – 4 000)
Impairment loss *
Balance
40 000
* Balancing figure
27
b/d
b/d
R
120 000
72 000
192 000
R
20 000
20 000
40 000
QUESTION 2
B LTD
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 28 FEBRUARY 20.5
R
Cash flows from operating activities
Profit before tax
Adjustments for:
Depreciation (C4)
Decrease in allowance for credit losses
Profit on sale of non-current assets
Loss on sale of financial assets at amortised cost
Changes in working capital
Decrease in inventory (15 000 − 19 000)
Increase in trade and other receivables (18 000 – 15 400)
Decrease in trade and other payables (7 400 – 11 300)
Cash generated from operations
Dividends paid (C1)
Tax paid (C2)
Net cash from operating activities
Cash flows from investing activities
Investment to maintain production capacity
Replacement of machinery (C3)
Proceeds from sale of non-current assets
Proceeds from sale of financial assets at amortised cost
Net cash used in investing activities
Cash flows from financing activities
Redemption of long-term borrowings (50 000 – 40 000)
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
28
R
13 500
42 600
(200)
(1 000)
400
55 300
(2 500)
4 000
(2 600)
(3 900)
52 800
(40 000)
(5 300)
7 500
(8 000)
(8 000)
2 500
2 000
(3 500)
(10 000)
(10 000)
(6 000)
14 000
8 000
Calculations
C1. Dividends paid
Unpaid amounts at the beginning of the year
Amount debited to income
Unpaid amounts at the end of the year
10 000
50 000
(20 000)
40 000
C2. Tax paid
Unpaid amounts at the beginning of the year
Amount debited to income
Unpaid amounts at the end of the year
3 800
5 500
(4 000)
5 300
C3.
Machinery
Balance
New purchases*
b/d
R
52 300
8 000
60 300
Sales
Balance
c/d
R
45 500
14 800
60 300
* Balancing figure
C4.
Sales
Balance
Accumulated depreciation – machinery
R
44 000
Balance
c/d
3 400
Depreciation current year*
47 400
* Balancing figure
29
b/d
R
4 800
42 600
47 400
SELF-ASSESSMENT
After studying this learning unit, are you able to:
• draft a statement of cash flows, with accompanying notes, for a
company using the direct method in accordance with IFRS?
• draft a statement of cash flows, with accompanying notes, for a
company using the indirect method in accordance with IFRS?
• distinguish between cash and non-cash items?
30