1. Section 7 Statement of Cash Flows
The IFRS for SMEs
Section 7
Statement of Cash Flows
By: Olonje
11/15/2018

2. Section 7- Scope
The statement of cash flows provides information about the changes in cash and cash equivalents of an entity for a reporting period, showing separately changes from operating activities, investing activities and financing activities.
Section 7
sets out the information that is to be presented in a statement of cash flows and how to present it
By: Olonje
11/15/2018

3. Section 7- Cash equivalents
Cash equivalents are short-term, highly liquid investments held to meet short-term cash commitments rather than for investment or other purposes
Cash equivalents include;
investments with a short maturity (say 3 months or less from the date of acquisition)
bank overdrafts only if they are repayable on demand and form an integral part of an entity’s cash management, bank overdrafts
By: Olonje
11/15/2018

4. Section 7- Cash equivalents
Present
the components of cash and cash equivalents
reconciliation to the amounts in the statement of financial position (unless identical and similarly described)
Disclose commentary by management the amount of
significant cash and cash equivalents that are not available for use by the entity
examples: foreign exchange controls or legal restrictions
By: Olonje
11/15/2018

5. Section 7- unrealized gains and losses
Unrealised gain and losses are not cash flows
However, unrealised exchange rate gain/loss on foreign currency cash and cash equivalents are shown in CFS
separate from operating, investing and financing activities
i.e. in the reconciliation of cash and cash equivalents
By: Olonje
11/15/2018

6. Section 7- Operating activities
Operating activities are the principal revenue-producing activities of the entity
Operating activity cash flows include
cash receipts from customers
cash payments to suppliers & employees
cash flows of income tax, unless specifically identified with financing and investing activities
cash flows from investments, loans and other contracts held for dealing or trading purposes
By: Olonje
11/15/2018

7. Section 7- Direct and Indirect method
Accounting policy choice to present operating cash flows
indirect method
profit or loss is adjusted for the effects of non-cash transactions, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows
direct method
major classes of gross cash receipts & gross cash payments are presented
By: Olonje
11/15/2018

8. Section 7- Investing activities
Investing activities are the acquisition & disposal of long-term assets & other investments not included in cash equivalents.
Investing activity cash flows include;
cash payments to acquire (cash receipts from sale of) long- term assets (e.g. PP&E)
cash payments to acquire (cash receipts from the sale) equity or debt instruments of other entities and interests in joint ventures (other than payments/receipts for those instruments classified as cash equivalents or held for dealing/trading)
By: Olonje
11/15/2018

9. Section 7- Financing activities
Financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of an entity
Financing activity cash flows include;
cash proceeds from issuing shares or other equity instruments and cash payments to owners to acquire or redeem the entity’s shares
cash proceeds from borrowings and cash repayments of amounts borrowed
cash payments by a lessee for the reduction of the outstanding liability relating to a finance lease
By: Olonje
11/15/2018

10. Section 7- Financing and Investing
Present separately major classes of gross cash receipts and gross cash payments arising from investing and financing activities.
The aggregate cash flows arising from acquisitions and from disposals of subsidiaries or other business units shall be presented separately and classified as investing activities.
By: Olonje
11/15/2018

11. Section 7- Example 1
In 20X7 A acquires 50% of the equity of B for Kshs. 110 when B’s cash and cash equivalents = Kshs.10. From 1/1/20X7 A controls B (i.e. B is a subsidiary of A)
Scenarios
(i) A settles the purchase price in cash
(ii) A buys on credit (will settle next year)
(iii) A settles by issuing its own equity to the seller
(iv) A borrows Kshs.110 from the bank and uses cash borrowed to settle
By: Olonje
11/15/2018

12. Section 7- Example 1 continued
The group (A & B consolidated) would present a cash flow in the investing activities section for the purchase of a subsidiary of:
scenario (i) Kshs.100 outflow (i.e. Kshs.110 less Kshs.10)
scenario (ii) Kshs.10 inflow
scenario (iii) Kshs.10 inflow
scenario (iv) Kshs.100 outflow (in investing activities) & Kshs.110 inflow in financing activities
By: Olonje
11/15/2018

13. Section 7- Example 2
Same as Ex 1 except A has significant influence over B (ie B is an associate of A)
A would present:
scenario (i) Kshs.110 outflow in investing activities
scenario (ii) no cash flows
scenario (iii) no cash flows
scenario (iv) Kshs.110 outflow in investing activities & Kshs.110 inflow in financing activities
By: Olonje
11/15/2018

14. Section 7- interest and dividends
Interest and dividends CFs:
show separately and classify consistently
interest & dividends received = operating or investing activity
interest paid = operating or financing activity
dividends paid usually = financing activity
By: Olonje
11/15/2018

15. Section 7- foreign currency and hedging
Foreign currency: record CFs at the exchange rate on the date of the cash flow
Hedge accounting: CFs of the hedging instrument are classified same way as CFs of hedged item
By: Olonje
11/15/2018

16. Section 7- non-cash transaction
Exclude from statement of cash flows
however, disclose elsewhere in the financial statements (e.g. notes)
Examples
finance lease (initial recognition)
issue own equity to acquire business
convert debt into equity
By: Olonje
11/15/2018