MFRS 107 STATEMENT OF CASH FLOWS

Importance of statement of cash flows Users will gain further knowledge of an entity’s Changes in the net assets Management’s decision on cash flows Liquidity and solvency of the entity Assess the effectiveness of management on managing cash and cash equivalent Ability to adapt to changing circumstances Indicator of amount, timing and certainty of future cash flows. Relationship between profit and cash flows can be analysed. Enhance comparability as it is not affected by differing accounting policies (unlike the income statement).

Definition Cash Cash comprises cash on hand and demand deposits. Cash equivalents Cash equivalents are short-term, highly liquid investments that can readily be converted into cash and are held for meeting short-term commitments.

Activities Operating – principal revenue generating activity and not investing or financing Direct method Indirect method Investing – acquisitions and disposal of non-current assets and other investments Financing – borrowings and increases and decreases to shareholders’ contributed capital and dividend payments to equity holders.

Cash flow from operations Two Methods: Direct method Cash received from customers xx Cash paid to suppliers and employees (xx) Cash generated from operations xx Interest paid (xx) Income taxes paid (xx) Net cash flow from operating activities xx

Indirect method Net profit before taxation xxx Adjustments for: Depreciation xx Investment income (xx) Interest expense xx Operating profit before working capital changes xx Increase in trade and other receivables (x) Decrease in inventories x Increase in trade payables x Cash generated from operations xx

Consolidated Statement of Cash Flows The consolidated statement of cash flows is prepared using the consolidated income statement and opening and closing consolidated statements of financial position. The cash flows between the group and parties outside the group are disclosed in the consolidated statement cash flows. The cash flows among members of the group are not disclosed. Dividends paid to the non-controlling interest are disclosed as cash outflow of financing activities.

Statement of Group Cash Flows Acquisitions and disposal of subsidiaries are investing activities. The effect on the cash flows is limited to the net cash flows on acquisition and disposal.

Investees Accounted for Using Equity Method In the consolidated statement of cash flows, the cash flows between these investees and the group will be confined to the actual cash flows, i.e. cash received or paid. For example, the dividends received from the associate will be disclosed under investing activities.

Joint Ventures Accounted for Using Proportionate Consolidation The cash flows reported will include the investor’s proportionate share of the jointly controlled entity’s cash flow.

Foreign Currency Cash flows Foreign Currency Transactions Unrealised gains and losses arising from changes in foreign currency exchange rates are not cash flows. Foreign subsidiaries The cash flows of the foreign subsidiary is to be translated at exchange rate between the functional currency and the foreign currency at the dates of the cash flows. At times a rate that approximates the actual rate is permissible. Where there are numerous transactions the weighted average exchange rate may be used.