IAS 7 Statement of Cash Flows

Cash comprises cash on hand and demand deposits.

Cash equivalents are 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.Cash flows are inflows and outflows of cash and cash equivalents.

Operating activities are the principal revenue-producing activities of the entity and other activitiesthat are not investing or financing activities.

Investing activities are the acquisition and disposal of non-current assets and other investmentsnot included in cash equivalents.

Financing activities are activities that result in changes in the size and composition of the equity capital and borrowings of the entity.

Received or paid interest and dividends are disclosed separately and can be classified as operating, investing or financing, based on their nature and as long as they are consistently treated from period to period.

DIRECT METHOD

 Cash received from customers

 Cash paid to suppliers

 Cash paid to employees

 Cash paid for operating expenses

 Interest paid

 Taxes paid

 Dividends paid

 Net cash from operating activities.

INDIRECT METHOD

The net cash flow from operating activities is determined by adjusting profit or loss for the effects of:

 Changes during the period in inventories and operating receivables and payables

 Non-cash items such as depreciation, provisions, deferred taxes, unrealised foreign currency gains and losses, and undistributed profits of associates

 All other items for which the cash effects are investing or financing cash flows.

CONSIDERATIONS TO NOTE

 Non cash investing and financing activities must be disclosed separately

 Cash flows must be reported gross. Set-off is only permitted in very limited cases and additional disclosures are required (refer to IAS 7.24 for examples relating to term deposits and loans)

 Foreign exchange transactions should be recorded at the rate at the date of the cash flow

 Acquisition and disposal of subsidiaries are investment activities and specific additional disclosures are required

 Where the equity method is used for joint ventures and associates, the statement of cash flows should only show cash flows between the investor and investee

 Disclose cash not available for use by the group

 Assets and liabilities denominated in a foreign currency generally include an element of unrealised exchange difference at the reporting date . Disclose the components of cash and cash equivalents

and provide a reconciliation back to the statement of financial position amount if required

 Non-cash investing and financing transactions are not included in the statement of cash flows and should be disclosed elsewhere in the financial statements.

 Disclose changes in liabilities arising from financing activities, distinguishing between changes from:

− financing cash flows;

− obtaining or losing control of subsidiaries and other businesses;

− the effect of changes in foreign exchange;

− fair value movements; and

− other changes.

 Cash payments made by lessees for the reduction of lease liability are financing activities.