Statement of Cash Flows

Statement Cash Flowsisthe financial statements which provide information on business’s
cash flows during the period classified by operating, investing and financing activities.

Cash flows are inflows and outflows of cash and cash equivalents.

Cash comprises cash on hand and demand deposits.

Cash equivalents are short-term, highly liquid investments that are readily convertible to
known amounts of cash and which are subject toan insignificant risk of changes in value.

Operating activities are the principal revenue-producing activities of theenterprise and
other activities that are not investing or financingactivities.

Investing activities are the acquisition and disposal of long-term assetsand other
investments not included in cash equivalents.

Financing activitiesare activities that result in changes in the size and composition of the
equity capital and borrowings of the enterprise.
(LKAS 07)
Statement of Cash Flow
Cash flows from operating activities- Direct Method
Cash receipts from customers
Cash paid to suppliers and employees
Interest paid
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Acquisition of Investments
Proceeds from sales of investment
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipmentxxx
Interest received
Dividends received
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of share capital
Proceeds from long-term borrowings
Payment of finance lease liabilities
Payment for settlement of borrowings
Dividends paid
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
RangajeewaHerath
xxx
(xxx)
(xx)
(xx)
XXX
(xxx)
xxx
(xxx)
xx
xx
XXX
xxx
xxx
(xxx)
xxx
(xxx)
XXX
XX
XX
Page 1
Indirect Method Statement of Cash Flow
Cash flow statement under indirect method will only vary from direct method in relation to cash
flows of operating activities. Cash flows from Investing activities and Financing activities will
remain as same with the direct method.
Cash flows from operating activities –Indirect Method
Net profit before taxation
Adjustments for:
Depreciation
xxx
Investment income
(xx)
Interest expense
xx
Profit on sales of PPE
(xx)
Working capital changes
(Increase)/Decrease in trade and other receivables (xx)/xx
(Increase)/Decrease in inventories
(xx)/xx
Increase /(Decrease) in trade payables
xx/(xx)
Cash generated from operations
xxx
Interest paid
(xx)
Income taxes paid
(xx)
Net cash from operating activities
XXX
XXX
XXX
Question No. 01
Following information has been taken from the financial statements of Kandy PLC.
Rs.000
Sales – all on credit
1 560
Less: Cost of sales
(936)
Gross Profit
624
Add: Other Income – dividend income
51
675
Less: Expenses
Operating expenses
408
Depreciation
52
Interest expenses
70
Loss on sales of motor vehicle
5 (535)
Net profit before tax
140
Less: Income tax for the year
(45)
Net profit after tax
95
Selected statements of financial position items:
Trade debtors
Trade stock
Prepaid operating expenses
Trade creditors
Accrued Interest
Income tax payable
RangajeewaHerath
31.03.2015
Rs.000
540
162
15
566
40
20
31.03.2014
Rs.000
500
150
7
490
10
15
Page 2
Required:
Cash flows from operating activities using direct method and indirect method.
Question No. 02
Statement of Profit or loss for year ended 31.03.2015.
Rs.000
Revenue
25,000
Cost of sales
(12,000)
Gross profit
13,000
Other income
500
Distribution expenses
(3,500)
Administrative expenses
(2,600)
Finance expense
(350)
Profit before tax
7,050
Tax
(1,050)
Net Profit for the year
6,000
Statements of financial position as at 31.03.2015 and 31.03.2014
2015
2014
Rs.000
Rs.000
Stated Capital
30,000
20,000 NCA
Revaluation Reserve
2,000
- PPE
General Reserve
3,000
1,800 Investments
Retained profit
14,000
14,000
NCL
Bank loan
6,500
6,000 CA
Inventories
CL
Creditors
2,600
3,000 Debtors
Accrued Admin. expense
200
- Prepayments
Accrued interest
150
80 Bank
Income tax payable
450
120 Cash
Bank overdraft
100
59,000
45,000
2015
Rs.000
2014
Rs.000
34,000
12,000
25,000
8,500
4,500
7,300
300
860
40
6,100
4,900
120
320
60
59,000
45,000
Following additional information is also provided.
1. The depreciation expenses for the year ending 31.03.2015was Rs.4 million.
2. The land of the business was revalued during the year.
3. During the few vehicles were purchased and an old vehicle had a carrying amount of 7
million was sold at Rs.500 000 profit and this is included under the other income.
4. During the year bonus issue of shares were made at 1 for every five shares. Further, at end
of the year new share issue was made to public.
5. A new bank loan of Rs.1,600,000 was obtained during the period.
6. Prepayments are relating to the distribution expenses.
7. Interim dividend was paid during the year.
Required: Statement of cash flows for year ended 31.03.2015.
RangajeewaHerath
Page 3
LKAS 11
Construction Contracts
What is a Constriction Contract?
A construction contract is a contract specifically negotiated for the construction of an asset or a
combination of assets that are closely Interrelated or interdependent in terms of their design,
technology and function or their ultimate purpose or use.
A construction contract may be negotiated for the construction of a single asset such as a bridge,
building, dam, pipeline, road, ship or tunnel. A construction contract may also deal with the
construction of a number of assets which are closely interrelated or interdependent in terms of their
design, technology and function or their ultimate purpose or use; examples of such contracts
include those for the construction of refineries and other complex pieces of plant or equipment.
Construction contracts are formulated in a number of ways which, for the purposes of this
Standard, are classified as;
1. Fixed price contract
2. Cost plus contract
A fixed price contract is a construction contract in which the contractor agrees to a fixed contract
price, or a fixed rate per unit of output, which in some cases is subject to cost escalation clauses
A cost plus contract is a construction contract in which the contractor is reimbursed for allowable
or otherwise defined costs, plus a percentage of these costs or a fixed fee.
Contract Revenue
Contract revenue should comprise:
(a)The initial amount of revenue agreed in the contract; and
(b)Variations in contract work, claims and incentive payments:
(i)to the extent that it is probable that they will result in revenue; and
(ii)they are capable of being reliably measured
A variation is an instruction by the customer for a change in the scope of the work to be performed
under the contract.
A claim is an amount that the contractor seeks to collect from the customer or another party as
reimbursement for costs not included in the contract price.
Incentive payments are additional amounts paid to the contractor if specified performance
standards are met or exceeded.
RangajeewaHerath
Page 4
Contract Costs
Contract costs should comprise:
(a) Costs that relate directly to the specific contract;
 site labour costs, including site supervision;
 costs of materials used in construction;
 depreciation of plant and equipment used on the contract
 costs of moving plant, equipment and materials to and from the contract site;
 costs of hiring plant and equipment;
 costs of design and technical assistance that is directly related to the contract;
 the estimated costs of rectification and guarantee work, including expected warranty costs;
and
 claims from third parties.
(b) costs that are attributable to contract activity in general and can be allocated to the
contract; and
 insurance;
 costs of design and technical assistance that is not directly related to a specific contract;
 Construction overheads.
Recognition of Contract Revenue and Expenses
When the outcome of a construction contract can be estimated reliably, contract revenue and
contract costs associated with the construction contract should be recognised as revenue and
expenses respectively by reference to the stage of completion of the contract activity at the
balance sheet date.
An expected loss on the construction contract should be recognised as an expense immediately.
The recognition of revenue and expenses by reference to the stage of completion of a contract is
often referred to as the percentage of completion method. Under this method, contract revenue is
matched with the contract costs incurred in reaching the stage of completion, resulting in the
reporting of revenue, expenses and profit which can be attributed to the proportion of work
completed.
Method of calculating the stage of completions
(a) The proportion that contract costs incurred for work performed to date bear to the
estimated total contract costs;
(b) surveys of work performed; or
(c) completion of a physical proportion of the contract work.
RangajeewaHerath
Page 5
Exercise 1
Following information is relating to a construction contract undertaken by the ABC PLC
Contract price – Rs.40 million
Initial contact cost – Rs.32 million
Cost incurred as at the year-end –Rs.16 million
Required: Calculate the stage of completion as at the year end.
Exercise 2
Following information is relating to a construction contract undertaken by the DEF PLC
Contract price – Rs.50 million
Initial contact cost – Rs.40 million
Cost incurred as at the year-end –Rs.25 million
Cost incurred during the year includes Rs.1 million building material purchased but still stored in
the site.
Required: Calculate the stage of completion as at the year end.
Exercise 3
Following information is relating to a construction contract undertaken by the LMN PLC
Contract price – Rs.70 million
Initial contact cost – Rs.50 million
Cost incurred as at the year-end –Rs.25 million
Value of work certified as at year end –Rs.28 million
Required: Calculate the stage of completion as at the year end.
Exercise 4
Following information is relating to a construction contract undertaken by the PQR PLC
Contract price – Rs.100 million
Initial contact cost – Rs.80 million
Cost incurred as at the year-end –Rs.35 million
Value of work certified as at year end –Rs.40 million
Required: Calculate the stage of completion as at the year end.
Exercise 5
Following information is relating to a construction contract undertaken by the XYZ PLC.
Contract price – Rs.80 million
Initial contact cost – Rs.60 million
Cost incurred as at the year-end –Rs.22 million
The contract consist of installation of 1000 telephone boxes in a large city and 300 telephone boxes
are fully installed as at the year. There are some telephone boxes which are not completely installed
as at the year end.
Required: Calculate the stage of completion as at the year end.
RangajeewaHerath
Page 6
Exercise 6
Consider the information given in exercise 1-5.
Required:
(a) Calculate the contact revenue, cost and profit for each contact of the exercise 1, 2, 3, 4 and 5
given above.
(b) Show the financial statements extracts of 1, 2, 3, 4and 5 given above.
Progress payments and advances received from customers often do not reflect the work performed.
When the stage of completion is determined by reference to the contract costs incurred to date, only
those contract costs that reflect work performed are included in costs incurred to date. Examples of
contract costs which are excluded are:
(a) contract costs that relate to future activity on the contract, such as costs of materials that have
been delivered to a contract site or set aside for use in a contract but not yet installed, used or
applied during contract performance, unless the materials have been made specially for the
contract; and
(b) payments made to subcontractors in advance of work performed under the subcontract.
Exercise 7
Following information related to a construction contact under taken by ABC PLC
Year
Contract price
Total estimated cost of the
contract
Cost incurred up to date
Value of work certified
Progress payment received
2012
1,250
Rs. millions
2013
1,350
2014
1,500
1,000
325
375
200
1,100
800
945
750
1,200
1,200
1,500
1,500
Required:
1. Stage of completion at end of each year.
2. Revenue, cost and profit recognizes for each year.
3. Prepare the necessary ledger accounts in the ABC PLC
Retentions are amounts of progress billings which are not paid until the satisfaction of conditions
specified in the contract for the payment of such amounts or until defects have been rectified.
Progress billings are amounts billed for work performed on a contract whether or not they have
been paid by the customer. Advances are amounts received by the contractor before the related
work is performed.
RangajeewaHerath
Page 7
Exercise 8
Following information related to a construction contact under taken by ABC PLC
Year
Contract price
Total estimated cost of the
contract
Cost incurred up to date
Value of work certified
Progress payment received
2012
1,250
Rs. millions
2013
1,250
2014
1,250
1,400
325
375
200
1,400
800
875
650
1,400
1,400
1,250
1,250
Required:
1. Stage of completion at end of each year.
2. Revenue, cost and profit recognizes for each year.
3. Prepare the necessary ledger accounts in the ABC PLC
RangajeewaHerath
Page 8