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
– 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).
Cash equivalents are short-term, highly liquid
investments that can readily be converted into cash
and are held for meeting short-term commitments.
Cash comprises cash on hand and
• Operating – principal revenue generating activity and not investing
– Direct method
– Indirect method
• Investing – acquisitions and disposal of non-current assets and
• Financing – borrowings and increases and decreases to
shareholders’ contributed capital and dividend payments to equity
Cash flow from operations xxx
Interest paid (X)
Tax paid (X)
Cash flow from operating activities xx
Cash flow from investing activities xx
Cash flow from financing activities xx
Net increase in cash and cash equivalents xx
Cash and cash equivalent at the beginning of period xx
Cash and cash equivalents at the end of the period xx
Cash flow from operations
Cash received from customers xx
Cash paid to suppliers and employees (xx)
Net profit before taxation xxx
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
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
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
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.
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.