1. 1
IAS 7
3/22/2009

2. Classify historic cash flows during a

period into operating, investing and
financing activities
 Basis to assess ability to generate cash
 Assess needs to utilise cash
 Assess timing and certainty of generation
of cash
2
IAS 7 3/22/2009

3. 3
All entities must present a
cash flow statement as part
of financial statements for
each period for which
financial statements are
prepared under IFRS
IAS 7 3/22/2009

4. Evaluate

how net assets have changed
›
financial structure, liquidity and solvency
›
ability to affect amounts, timing and certainty of cash flows
›
ability to adapt to changing circumstances and opportunities
›
ability to generate cash
›
accuracy of past assessments
›
relationship between profit and cash flow
›
impact of changing prices
›
Develop models to assess and compare present value of

future cash flows of different entities (in order to perform
business or project valuations)
 Enhance comparability of operating performance
 Eliminates effects of differences in accounting treatment
between entities
4
IAS 7 3/22/2009

5. Cash: Cash on hand and demand deposits

Cash equivalents: Short-term liquid investments readily

convertible to known amounts of cash with insignificant risk of
changes in value
3 months or less to mature
›
Short term preference shares with definite redemption date
›
Fluctuating bank overdrafts
›
Exclude movements between cash and cash equivalents as cash
›
management is not an operating, investing or financing activity
Cash flows: Inflows and outflows of cash and cash equivalents

Operating activities : Principal revenue-producing activities and

other activities that are not investing or financing
 Investing activities : Acquisition and disposal of long term assets
and other investments not included in cash equivalents
 Financing activities : Changes in the size and composition of
contributed equity and borrowings of the entity
5
IAS 7 3/22/2009

6. Operating activities primarily contribute to profit or

loss
› Indicate if operations generate enough cash to repay
loans, maintain operations, pay dividends and invest
without external sources of cash
Includes:

Receipts from turnover and other income
›
Cash paid to suppliers and employees
›
Insurance payments and receipts
›
Tax payments and receipts
›
Trade or dealing payments and receipts
›
Securities and loans held for sale
›
Cash advances and loans made by financial institutions
›
Excludes profit or loss on sale of property, plant and

equipment
6
IAS 7 3/22/2009

7. Expenditure to generate future income and

cash flows
Includes:

Payments to buy long term assets
›
Development costs
›
Receipts from sale of long term assets
›
Payments and receipts from intangible assets
›
Payments and receipts for debt or equity instruments
›
in other entities, if not held for dealing or trading
› Futures contracts, forward contracts, option
contracts and swap contracts not held for dealing
and trading
7
IAS 7 3/22/2009

8. Financing activities include

› Proceeds from issuing shares and equity
instruments
Payments to acquire or redeem shares
›
Proceeds from
›
debentures, loans, notes, bond, mortgages
and other borrowings
Cash repayments on borrowings
›
Cash repayments on finance leases
›
8
IAS 7 3/22/2009

9. Direct method: disclose major Indirect method: adjust profit or
 
classes of gross cash receipts and loss for :-
payments Non-cash transactions
›
Direct method encouraged by IAS Accruals and deferrals
›

7 Income or expenses with
›
Obtain information from: Investing or financing cash flows

Adjust profit or loss for effects of:
Underlying accounting records
› 
e.g. bank statements or general Changes in inventories
›
ledger
Changes in receivables
›
Adjust income statement for
›
Changes in payables
›
Changes in inventories

Non-cash items
›
Changes in receivables

Depreciation

Changes in payables

Provisions

Non cash items

Deferred tax

Investing cash flows

Unrealised foreign currency gains

Financing cash flows

& losses
Undistributed profits of associates

and minority interests
Investing cash flows
›
Financing cash flows
›
9
IAS 7 3/22/2009

10. ALTERNATIVE TREATMENT UNDER

INDIRECT METHOD:
› Net cash flow from operating activities is
presented by:
Revenues

Expenses

Changes in inventories

Changes in receivables

Changes in payables

10
IAS 7 3/22/2009

11. Present major classes of gross cash payments and receipts

separately but the following may be presented on a net
basis:
› Payments and receipts on behalf of customers for the activities
of the customer
 Demand deposits at banks
 Investment funds
 Rents for property owners
› Payments and receipts for items with quick turnover of large
amounts and short maturities
 Credit card customers
 Purchase and sale of investments
 Short term borrowings with maturity of 3 months or less
› Cash flows from activities of financial institutions
 Deposits with fixed maturity dates
 Placement and withdrawal of deposits
 Loans to customers and repayments of loans
11
IAS 7 3/22/2009

12. Treatment consistent with IAS 21

Permits exchange rates approximate to actual

rate e.g. weighted average rate for a period
Unrealised gains and losses arising on

translation are reported separately in the
statement to reconcile cash and cash
equivalents at the beginning and end of the
period
Convert to reporting currency at date of cash

flow
› Transactions in foreign currency
› Cash flows of foreign subsidiary (use of rate at
balance sheet date not allowed)
12
IAS 7 3/22/2009

13. Cash flows from interest and dividends

received and paid are
› Disclosed separately
 Whether interest is expensed or capitalised
› Classified in a consistent manner from period
to period as
Operating (e.g. for financial institutions)

Investing (cost or returns on investments)

Financing activities (cost of obtaining finance)

There is no consensus for entities other than

financial institutions
13
IAS 7 3/22/2009

14. Disclose cash flows separately under

operating activities
 If specifically identified with financing or
investing activities, classify as
appropriate (usually difficult to identify as
cash flows of tax and transactions arise in
different periods)
 When tax cash flows are allocated over
more than one class, the total amount of
taxes paid is disclosed
14
IAS 7 3/22/2009

15. Only report cash flows between the entity

and investee e.g. dividends and advances
 Joint ventures
› Proportionate consolidation method:
proportionate share of jointly controlled cash
flows are reported in consolidated CFS
› Equity method: disclose cash flows representing
investment in the entity, distributions and other
payments and receipts between entity and
jointly controlled entity
15
IAS 7 3/22/2009

16. Present aggregate cash flows of the following in

separate line items and classify as investing activities
› Cash flow effect of disposals versus acquisitions (not
deducted from each other)
› Cash paid or received as purchase or sale consideration
net of cash and cash equivalents acquired or disposed of
Disclose

› Total purchase and disposal consideration
› Cash and cash equivalent portion of total consideration
› Cash and cash equivalents in the business unit acquired or
disposed of
› Other assets and liabilities in the subsidiary acquired or
disposed of, summarised by each major category
16
IAS 7 3/22/2009

17. Exclude non cash investing and

financing transactions from cash flow
statement e.g.
› Assets purchased with loans or finance
leases
› Acquisition of shares in another entity
› Conversion of debt to equity
17
IAS 7 3/22/2009

18. Reconcile cash and cash equivalents in

the cash flow statement with cash and
cash equivalents in the balance sheet
 Disclose the accounting policy to
determine cash and cash equivalents
 Report changes in accounting policy in
accordance with IAS 8
18
IAS 7 3/22/2009

19. Significant cash and cash equivalent balances

held but not available for use by the group
› E.G. cash held by a subsidiary in a country with
exchange controls
Information about financial position and

liquidity of an entity
› Undrawn borrowing facilities and restrictions on use
› Cash flows of joint ventures reported using
proportionate consolidation
› Cash flows that increase operating capacity vs cash
flows that maintain operating capacity
› Segmental cash flows by industry and geographical
segment
19
IAS 7 3/22/2009

20. All IFRS financial statements must contain a

cash flow statement
Cash flows are presented using the direct

method or the indirect method
Non-cash transactions are excluded

Cash flows are classed as operating

activities, investing activities or financing
activities
Cash flows are reconciled to movements of

cash and cash equivalents in the balance
sheet
Accounting policy and major restrictions on

cash flow are disclosed
20
IAS 7 3/22/2009

21. Cash flows from operating activities

Cash receipts from customers
›
Cash paid to suppliers and employees
›
Cash generated from operations
›
Interest paid
›
Income taxes paid
›
Cash flows from investing activities

Acquisition of subsidiary net of cash acquired
›
Purchase of property, plant and equipment
›
Proceeds from sale of equipment
›
Interest received
›
Dividends received
›
Cash flows from financing activities

Proceeds from issue of share capital
›
Proceeds from long-term borrowings
›
Payment of finance lease liabilities
›
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

21
IAS 7 3/22/2009

22. Cash flows from operating activities

Profit before taxation
›
Adjustments for:
›
 Depreciation
 Foreign exchange loss
 Investment income
 Interest expense
 (Increase)/decrease in trade and other receivables
 (Increase)/decrease in inventories
 Increase/(decrease) in trade payables
 Interest paid
 Income taxes paid
Cash flows from investing activities

Acquisition of subsidiary net of cash acquired
›
Purchase of property, plant and equipment
›
Proceeds from sale of equipment
›
Interest received
›
Dividends received
›
Cash flows from financing activities

Proceeds from issue of share capital
›
Proceeds from long-term borrowings
›
Payment of finance lease liabilities
›
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

22
IAS 7 3/22/2009