IFRS

1. IAS 7
Statement of Cash
Flows

2. Related Standards
IAS 1 Presentation of financial
statements
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3. Overview
 Objective and scope
 Cash flows
 Reporting operating cash flows
 Reporting investing cash flows
 Reporting financing cash flows
 Specific items
 Disclosures
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4. Objective and Scope
 IAS 7 objective: to provide a statement to help investors
assess the prospects for future cash flows, and to confirm
or change their past expectations
 Statement provides historical information on the entity’s
operating, investing and financing cash flows and how its
cash balances have changed in the period as a result
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5. Cash Flows
 Cash and cash equivalents:
Cash on hand and on deposit and “short-term, highly
liquid investments that are readily convertible to known
amounts of cash and which are subject to an
insignificant risk of changes in value”
 Can include bank overdrafts if part of cash management
activities and balance fluctuates between positive and
negative amounts
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6. Reporting Operating Cash
Flows
 Operating activities are the principal revenue-producing
activities; and those that are not investing or financing
activities
 Operating cash flows are important: surplus cash flows
needed to invest in increased capacity, pay debt when
due, and provide a return to shareholders
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7. Reporting Operating Cash
Flows
Operating cash flows:
a) Cash received from customers for the sale of goods and
provision of services, or on account of royalties, fees, or
commissions
b) Cash payments to suppliers for goods and services
provided; and to and on behalf of employees for their
services
c) Cash received from or paid for financial instruments
held specifically for dealing or trading purposes
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8. Reporting Operating Cash
Flows
Two methods:
Direct method
Indirect method
 Either allowed although preference for direct method
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9. Reporting Operating Cash
Flows
 Direct method
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10. Reporting Operating Cash
Flows
 Indirect method…same entity?
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11. Reporting Operating Cash
Flows
Common adjustments to convert profit or
loss to cash from operations:
 Changes in working capital accounts
 Elimination of non-cash items
 Elimination of investing and financing items
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12. Reporting Investing Cash Flows
Investing activities:
“the acquisition and disposal of long-term assets and
other investments not included in cash equivalents”
Importance:
Is the entity maintaining its capacity and increasing the
potential for increased operating cash flows in the
future?

13. Reporting Investing Cash Flows
Examples:
 Cash payments to acquire property, plant, and equipment;
intangibles; and other long-term assets, including capitalized
development costs
 Cash receipts from the disposal of items in (a)
 Cash payments to acquire debt and equity instruments of other
entities or interests in joint ventures; excluding investments
held for trading or in cash equivalents
 Cash receipts from the disposal of items in (c)
 Cash advances and loans to other parties and their cash
repayments
 Cash payments for and receipts from futures, forwards, options
and swaps unless they are held for trading or are classified as
financing flows.

14. Reporting Investing Cash Flows
 Example –
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15. Reporting Financing Cash
Flows
Financing activities:
“result in changes in the size and composition of the
contributed equity and borrowings of the entity”
Importance:
Financing cash flows change the capital structure of the firm
and affect the relative interests of those with claims to future
cash flows of the entity
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16. Reporting Financing Cash
Flows
 Example –
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17. Specific Items
 No netting of inflows and outflows
 Interest and dividends received and interest and
dividends paid – choice of operating, investing or
financing flows as appropriate
 Income tax cash flows – generally operating flows
 Non-cash transactions – not included in statement;
disclosed instead
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18. Disclosures
 Operating, investing, financing flows
 Change in cash and cash equivalents
 Components of cash and cash equivalents
 Reconciliation of change to amounts on statement of
financial position
 Explanation of significant cash balances not available
for use
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19. Practice Questions
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1. Companies are affected by a number of events and transactions, some of which have an effect on their
cash and cash equivalents, and some which do not. Following are some examples of such events and
transactions:
1. Annual payment of $100 on a finance lease obligation, $2 of which is interest
2. Acquisition of a 4100, 3%, 90-day government treasury bill
3. Payment of $25 to a pension fund trustee
4. Cash received on the maturity of the treasury bill in item 2 above
5. Annual payment of $100 on an operating lease for sales office space
6. Receipt of $10 on the sublease of excess sales office space
7. Acquisition of the company’s treasury shares at a cost of $75
8. Conversion of convertible debt into common shares
9. Payment of $30 of a portion of long-term debt reported in current liabilities along with $3 of interest
10.Costs incurred to repair a customer’s product under warranty—inventory supplies used $1; labor paid
$4
Instructions
For each item listed above
(a)identify the effect on the company’s cash and cash equivalents; and
(b)indicate how the transaction or event will be reported on the company’s statement of cash flows, if at
all, and if any special disclosures are required.

20. Thank You

21. Questions and
Discussion

22. Case study 1
 Facts
 ethio telecom, as part of its cash management activities,
invested 10 million birr in Ethiopian Government treasury bill
which is redeemable after a three month period. ethio telecom
has no plan to re-invest the money after the maturity date. It
rather will deposited back to its main bank account.
 Required
 Determine how ethio telecom would treat in its cash flow
statement the cash outflows resulting from the investment of
funds in Government treasury bill and the cash inflows resulting
from the initial withdrawal of funds from the bank.
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23. Case study 2
 Facts
 ethio telecom is preparing its cash flow statement under the direct method and has provided this
information:
 Required
 For the purposes of the cash flow statement under the direct method, you are required to compute the cash
collections from customers, payments to suppliers, and cash paid for operating expenses.
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Net credit sales 5,000,000
Accounts receivable, end of the year 1,500,000
Accounts receivable, beginning of the year 2,500,000
Purchases (on account) 4,000,000
Trade payable, end of the year 1,900,000
Trade payable, beginning of the year 2,000,000
Operating expenses 3,000,000
Accrued expenses, beginning of the year 500,000
Accrued expenses, end of the year 400,000
Depreciation on property, plant, and equipment 600,000