The statement of cash flows provides important information about a company's cash inflows and outflows over a period of time. It shows how changes in the balance sheet accounts affect cash and cash equivalents, and is divided into three sections for operating, investing, and financing activities. The direct and indirect methods are two approaches for presenting cash flows from operations. The statement of cash flows also provides guidance on handling cash flows for consolidated groups, equity investments, foreign currency transactions, and other specific scenarios.

1. FRS 107
Statement OF Cash Flows

3. 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).

4. 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.
Cash
Cash comprises cash on hand and
demand deposits.

5. 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.

6. Format
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

7. Cash flow from operations
Two Methods:
Direct method
Cash received from customers xx
Cash paid to suppliers and employees (xx)
xx

8. 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

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.