CareerDeal – IFRS

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IAS 7 - Statement of Cash
Flows
Agenda

• Introduction and determination of cash equivalents

• Presentation of operating, investing and financing cash flows
• Practical application
• Presentation and disclosure

IAS 7 - Statement of cash flows July 2018

PwC Slide 2
Introduction and determination of
cash and cash equivalents

IAS 7 - Statement of cash flows July 2018

PwC Slide 3
Introduction

• Objective is to provide users of financial statements with a basis to

assess:
- the ability of the entity to generate cash and cash equivalents and
- the needs of the entity to utilise those cash flows
• Statement of cash flows classifies (historical) cash flows as those
arising from:
- operating
- investing, and
- financing

IAS 7 - Statement of cash flows July 2018

PwC Slide 4
Scope

• An entity must prepare a statement of cash flows in accordance

with the requirements of this Standard
• It must present it as an integral part of its financial statements for
each period for which financial statements are presented

IAS 7 - Statement of cash flows July 2018

PwC Slide 5
Definitions

• Cash - cash on hand and demand deposits

• Cash equivalents - 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

IAS 7 - Statement of cash flows July 2018

PwC Slide 6
Definitions
Cash

• ‘Cash’ includes:
- cash in hand
- cash held in demand deposits
• No guidance is given in IAS 7 for the definition of a demand deposit
- these are generally accepted to be deposits with financial
institutions that are repayable on demand and available within 24
hours, or one working day, without penalty, eg. a bank current
account

IAS 7 - Statement of cash flows July 2018

PwC Slide 7
Definitions
Cash equivalents

• ‘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 equivalents are held for the purpose of meeting short-term
cash commitments rather than for investment or other purposes
- investments normally qualify as cash equivalents only when they
have a short maturity of, say, three months or less from the date of
acquisition
- where bank overdrafts are repayable on demand and form an
integral part of an entity’s cash management, they are included as
a component of cash and cash equivalents

IAS 7 - Statement of cash flows July 2018

PwC Slide 8
Cash equivalents
Example 1

Q: Assuming a 31 December 2016 year end, is a term deposit starting on

1 December 2016 and maturing on 31 January 2017 a cash equivalent?

A: Yes. The term of this deposit is shorter than three months and
therefore it is considered to be a cash equivalent

IAS 7 - Statement of cash flows July 2018

PwC Slide 9
Cash equivalents
Example 2

Q: Assuming a 31 December 2016 year end, is a term deposit starting on

1 December 2016 and maturing on 31 May 2017 a cash equivalent?

A: No. The term of this deposit is greater than three months and
therefore it is not considered to be “readily convertible”

IAS 7 - Statement of cash flows July 2018

PwC Slide 10
Cash equivalents
Example 3

Q: Assuming a 31 December 2016 year end, is a term deposit starting on

1 August 2016 and maturing on 31 January 2017 a cash equivalent?

A: No. Despite the fact that the fixed deposit will be maturing within
one month from the end of the reporting period, the term of this deposit
(period from origin till maturity date) is greater than three months and
at acquisition if is therefore not considered to “readily convertible”

IAS 7 - Statement of cash flows July 2018

PwC Slide 11
Cash equivalents
Example 4

Q: Assuming a 31 December 2016 year end, is a 5-year debt security

with a maturity of 31 January 2017, a cash equivalent, assuming it was
acquired on the secondary market on 1 November 2016?

A: Yes. At the date of acquisition, the term to maturity is of a period of

no more than three months and therefore it is considered to be “readily
convertible”

IAS 7 - Statement of cash flows July 2018

PwC Slide 12
Definitions - continued

• Operating activities - the principal revenue-producing activities

• Investing activities - the acquisition and disposal of long-term assets
and other investments not included in cash equivalents
• Financing activities - activities that result in changes in the size and
composition of the contributed equity and borrowings of the entity

IAS 7 - Statement of cash flows July 2018

PwC Slide 13
Operating activities
Common examples

• Receipts from the sale of goods and the rendering of services

• Receipts from royalties, fees, commissions and other revenue
• Payments to suppliers for goods and services
• Payments to and on behalf of employees
• Payments and refunds of income taxes (unless they can be
specifically identified as financing or investing)

IAS 7 - Statement of cash flows July 2018

PwC Slide 14
Investing activities
Common examples

• Payments to acquire/receipts from the sale of long-term assets

(including PPE, intangibles and payments relating to capitalised
development costs)
• Payments to acquire/receipts from the sale of equity or debt
instruments of other entities (including purchases of investments in
subsidiaries, associates and joint ventures)
• Advances and loans (including repayment) made to other parties
• Payments/receipts for derivatives
- except when the contracts are held for dealing or trading purposes,
or
- the payments are classified as financing activities
Only expenditures that result in a recognised asset in the statement of
financial position are eligible for classification as investing activities
IAS 7 - Statement of cash flows July 2018
PwC Slide 15
Financing activities
Common examples

• Receipts from the issue of shares or other equity instruments

• Payments to acquire or redeem the entity's shares
• Receipts from the issue of debentures, loans, notes, bonds, mortgages
and other short or long-term borrowings
• Repayments of amounts borrowed
• Capital element of finance lease repayments

IAS 7 - Statement of cash flows July 2018

PwC Slide 16
Presentation of operating, investing
and financing cash flows

IAS 7 - Statement of cash flows July 2018

PwC Slide 17
Presentation of a
statement of cash flows

• The statement of cash flows

shall report cash flows during
the period classified by:
- operating;
- investing; and
- financing activities

IAS 7 - Statement of cash flows July 2018

PwC Slide 18
Reporting cash flows from operating activities

• Cash flows from operating activities must be reported by using either:

- the direct method
◦ whereby major classes of gross cash receipts and gross cash
payments are disclosed
- the indirect method
◦ whereby profit or loss is adjusted for:
› the effects of transactions of a non-cash nature, any deferrals
or accruals of past or future operating cash receipts or
payments,
› items of income or expense associated with investing or
financing cash flows

IAS 7 - Statement of cash flows July 2018

PwC Slide 19
The direct method

IAS 7 - Statement of cash flows July 2018

PwC Slide 20
The direct method
Practical considerations

• Direct method cash flows may be captured directly from a separate

cash-based accounting system that records amounts paid or received
in any transaction
- this result can also be achieved by using a ‘matrix’ for analysing
cash flows, where each cash flow from operating activities is
analysed by type of receipt/payment

IAS 7 - Statement of cash flows July 2018

PwC Slide 21
The direct method
Practical considerations: matrix analysis
Receipts from Receipts from Payments to Wages and General Tax
Amount debtors cash sales suppliers salaries expenses payment
€ € € € € € €

Opening balance 20,000

Operating activities
Payments for materials (40,000) (40,000)
Rent costs (10,000) (10,000)
Receipts from customers 80,000 80,000
Salaries and wages (25,000) (25,000)
Travelling expenses (6,500) (6,500)
Directors' remuneration (20,000) (20,000)
Utilities (7,000) (7,000)
Telecommunication costs 5,000 5,000
Receipts from cash sales 35,000 35,000
Stationery expenses (3,000) (3,000)
Tax payment (15,000) (15,000)
Net cash movement (6,500) 80,000 35,000 (40,000) (45,000) (21,500) (15,000)

Closing balance 13,500

IAS 7 - Statement of cash flows July 2018

PwC Slide 22
The direct method
Practical considerations: matrix analysis - continued
Receipts from Receipts from Payments to Wages and General Tax
Amount debtors cash sales suppliers salaries expenses payment
€ € € € € € €

Opening balance 20,000

Operating activities
Payments for materials (40,000) (40,000)
Rent costs (10,000) (10,000)
Receipts from customers 80,000 80,000
Salaries and wages (25,000)
Travelling expenses (6,500)
In this case, the(25,000)
cash movements
(6,500)
Directors' remuneration (20,000) from beginning (20,000)
to end of the period
Utilities (7,000) (7,000)
Telecommunication costs 5,000
amount to €6,500 5,000
Receipts from cash sales 35,000 35,000
Stationery expenses (3,000) (3,000)
Tax payment (15,000) (15,000)
Net cash movement (6,500) 80,000 35,000 (40,000) (45,000) (21,500) (15,000)

Closing balance 13,500

IAS 7 - Statement of cash flows July 2018

PwC Slide 23
The direct method
Practical considerations: matrix analysis - continued
Receipts from Receipts from Payments to Wages and General Tax
Amount debtors cash sales suppliers salaries expenses payment
€ € € € € € €

Opening balance 20,000

Operating activities
The cash
Payments movements
for materials of
(40,000) (40,000)
€6,500
Rent costs are analysed(10,000)
by (10,000)
Receipts from customers 80,000 80,000
Salaries type of cash flow(25,000)
and wages (25,000)
Travelling expenses (6,500) (6,500)
Directors' remuneration (20,000) (20,000)
Utilities (7,000) (7,000)
Telecommunication costs 5,000 5,000
Receipts from cash sales 35,000 35,000
Stationery expenses (3,000) (3,000)
Tax payment (15,000) (15,000)
Net cash movement (6,500) 80,000 35,000 (40,000) (45,000) (21,500) (15,000)

Closing balance 13,500

IAS 7 - Statement of cash flows July 2018

PwC Slide 24
The direct method
Practical considerations: matrix analysis - continued
Receipts from Receipts from Payments to Wages and General Tax
Amount debtors cash sales suppliers salaries expenses payment
€ € € € € € €

Opening balance 20,000

Operating activities
Payments for materials (40,000) (40,000)
Rent costs (10,000) (10,000)
Receipts from customers 80,000 80,000
Salaries and wages (25,000) (25,000)
Travelling expenses (6,500) (6,500)
Directors' remuneration Cash from
(20,000) operating activities would include:
(20,000)
Utilities Cash receipts from customers
(7,000) 115,000(7,000)
Telecommunication costs 5,000 5,000
Cash paid to35,000
Receipts from cash sales
suppliers and employees
35,000
(106,500)
Tax payments
Stationery expenses (3,000) (15,000)(3,000)
Tax payment (15,000) (15,000)
Net cash movement (6,500) 80,000 35,000 (40,000) (45,000) (21,500) (15,000)

Closing balance 13,500

IAS 7 - Statement of cash flows July 2018

PwC Slide 25
The direct method

IAS 7 - Statement of cash flows July 2018

PwC Slide 26
The indirect method

IAS 7 - Statement of cash flows July 2018

PwC Slide 27
The indirect method
Practical considerations

• The indirect method is built around the principle that operating

profit for the period comprises operating activities that were:
- settled in cash
- not yet settled in cash, i.e. receivables, payables, accruals, etc.
- non-cash transactions, eg:
◦ depreciation
◦ write-offs and provisions for impairment
◦ profits or losses on disposal of PPE, etc
• Therefore, if operating profit is adjusted for non-cash transactions
and for transactions that were not yet settled in cash, the result is
cash flows from operating activities

IAS 7 - Statement of cash flows July 2018

PwC Slide 28
The indirect method
Practical considerations - continued
Not yet
Amount Settled in cash settled in cash Non-cash
€ € € €
Revenue 100,000 80,000 20,000
Cost of sales (60,000) (45,000) (15,000)
Gross profit 40,000
Selling and distribution costs (7,000) (6,000) (1,000)
Administrative expenses (16,000) (10,000) (6,000)
Other gains 8,000 5,000 3,000
Operating profit 25,000 24,000 (2,000) 3,000

€24,000 of the operating profit was

received in cash

IAS 7 - Statement of cash flows July 2018

PwC Slide 29
The indirect method
Practical considerations - continued
Not yet
Amount Settled in cash settled in cash Non-cash
€ € € €
Revenue 100,000 80,000 20,000
Cost of sales (60,000) (45,000) (15,000)
Gross profit 40,000
Selling and distribution costs (7,000) (6,000) (1,000)
Administrative expenses (16,000) (10,000) (6,000)
Other gains 8,000 5,000 3,000
Operating profit 25,000 24,000 (2,000) 3,000

Cash from operating activities would be presented as:

Operating profit 25,000
Adjustment for non-cash transactions (3,000)
Movements in working capital 2,000

IAS 7 - Statement of cash flows July 2018

PwC Slide 30
The two methods compared

Direct method Indirect method

IAS 7 - Statement of cash flows July 2018

PwC Slide 31
Reporting cash flows from investing and financing activities

• An entity shall report separately major classes of gross cash receipts

and payments arising from investing and financing activities except
to the extent that cash flows are reported on a net basis:
- cash receipts and payments on behalf of customers when the cash
flows reflect the activities of the customer rather than those of the
entity; and
- cash receipts and payments for items in which the turnover is
quick, the amounts are large, and the maturities are short

IAS 7 - Statement of cash flows July 2018

PwC Slide 32
Reporting cash flows from investing and financing activities
Reporting cash flows on a net basis

• Examples of cash receipts and payments relating to customer:

- the acceptance and repayment of demand deposits of a bank;
- funds held for customers by an investment entity; and
- rent collected on behalf of, and paid over to, the owners of
properties
• Examples of cash receipts and payments with quick turnover and
short maturities:
- principal amounts relating to credit card customers;
- the purchase and sale of investments; and
- other short-term borrowings, for example, those which have a
maturity period of three months or less

IAS 7 - Statement of cash flows July 2018

PwC Slide 33
Presentation of cash flows
from interest and dividends

• Cash flows from interest and

dividends (received and paid)
shall each be disclosed
separately
• Each shall be classified in a
consistent manner from period
to period

IAS 7 - Statement of cash flows July 2018

PwC Slide 34
Presentation of cash flows
from taxes on income

• Cash flows arising from taxes

shall be separately disclosed
• They must be classified as
operating activities unless they
can be identified with financing
and investing activities

IAS 7 - Statement of cash flows July 2018

PwC Slide 35
Investment in subsidiaries,
associates and joint ventures

• When accounting for an

investment in an associate or a
subsidiary, an investor restricts
its reporting in the statement of
cash flows to the cash flows
between itself and the investee,
(eg. dividends or advances)

IAS 7 - Statement of cash flows July 2018

PwC Slide 36
Acquisitions and disposals of subsidiaries and
other business units

• The aggregate cash flows arising from acquisitions, and disposals, of

subsidiaries or other business units must be presented separately and
classified as investing activities
• Disclosure, in aggregate, of each of the following is necessary:
- the total consideration paid or received;
- the portion of the consideration consisting of cash and cash
equivalents;
- the amount of cash and cash equivalents in the subsidiaries or
other businesses over which control is obtained or lost; and
- the amount of the assets and liabilities other than cash or cash
equivalents in the subsidiaries or other businesses over which
control is obtained or lost, summarised by each major category

IAS 7 - Statement of cash flows July 2018

PwC Slide 37
Acquisitions and disposals of subsidiaries and
other business units - continued

IAS 7 - Statement of cash flows July 2018

PwC Slide 38
Acquisitions and disposals of subsidiaries and
other business units - continued

IAS 7 - Statement of cash flows July 2018

PwC Slide 39
Foreign currency cash flows

• Cash flows arising from transactions in a foreign currency are

recorded in an entity’s functional currency
- the exchange rate to be used is the exchange rate applicable at the
date of the cash flow
- the cash flows of a foreign subsidiary are translated at the
exchange rates between the functional currency and the foreign
currency at the dates of the cash flows

IAS 7 - Statement of cash flows July 2018

PwC Slide 40
Non-cash transactions

• Investing and financing transactions that do not require the use of

cash or cash equivalents are excluded from a statement of cash flows
- these transactions must however be disclosed elsewhere in the
financial statements in a way that provides all the relevant
information about these investing and financing activities

IAS 7 - Statement of cash flows July 2018

PwC Slide 41
Components of cash and cash equivalents

• An entity must disclose the components of cash and cash equivalents

• It must also present a reconciliation of the amounts in its statement
of cash flows with the equivalent items reported in the statement of
financial position

IAS 7 - Statement of cash flows July 2018

PwC Slide 42
Other disclosures
Restrictions on cash and cash equivalents

• An entity shall disclose, together with a commentary by management,

the amount of significant cash and cash equivalent balances held by
the entity that are not available for use by the group
- eg. cash held by a subsidiary in a foreign country where there are
exchange controls in place

IAS 7 - Statement of cash flows July 2018

PwC Slide 43
Practical application

IAS 7 - Statement of cash flows July 2018

PwC Slide 44
Preparing a statement of cash flows
Basic principles

• The following items are needed in order to prepare a statement of

cash flows:
- Statement of financial position
- Income statement
- Statement of changes in equity
- Notes supporting investing and financing activities, eg:
◦ PPE, investment property and intangible assets notes
◦ investments in subsidiaries, associates and joint ventures
◦ Borrowings
• If there is a casting error in any of the above the statement of cash
flows will never agree!
IAS 7 - Statement of cash flows July 2018
PwC Slide 45
The indirect method
Basic principles: 1

The movement in any line item

(including cash and cash
equivalents) equals the aggregate
of the movement in all the other
line items

IAS 7 - Statement of cash flows July 2018

PwC Slide 46
The indirect method
Basic principles: 1 - continued

The movement of €10,000 in

cash and cash equivalents is
therefore equal to the sum of
all the other movements

IAS 7 - Statement of cash flows July 2018

PwC Slide 47
The indirect method
Basic principles: 2

AA decrease
decrease inin an asset’s
asset’sbalance
balance
from
from the
the prior
prior period (i.e. an
period (i.e. an
aggregated
aggregatedcredit
creditentry)
entry) will
will have
have
arisen
arisen from
from anan aggregated
aggregateddebitdebit
entry
entry in
in other line items,
other line items, eg.
eg. cash
cash

IAS 7 - Statement of cash flows July 2018

PwC Slide 48
The indirect method
Basic principles: 2 - continued

Conversely, an
Conversely, an increase
increase in in an
an
asset’s balance
asset’s balancefrom
fromthe
theprior
prior
period
period will have arisen
will have arisen from
from anan
aggregated
aggregatedcredit
credit entry
entry in
in other
other
line items,
line items, eg.
eg. cash
cash

IAS 7 - Statement of cash flows July 2018

PwC Slide 49
The indirect method
Basic principles: 2 - continued

• The same concept applies to liabilities, i.e.

- an increase in liabilities will have arisen from an aggregated debit
entry against another line item, eg. cash
- a decrease in liabilities will have arisen from an aggregated credit
entry against another line item, eg. cash

IAS 7 - Statement of cash flows July 2018

PwC Slide 50
The indirect method
Basic principles: 3

IfIfa amovement
movementinina aline lineitem
item
arosefrom
arose fromtransaction
transactionthatthat
doesn’tininany
doesn’t anymanner
mannerimpact
impact
profit
profitforfor the
the year
yearandandcash,
cash,then
it will
then have
it will no no
have impact on on
impact the
the statement
statement of of cash
cashflows
flows

IAS 7 - Statement of cash flows July 2018

PwC Slide 51
The indirect method
Case study

• Company X has a December year end

• The following information is being provided:
- Statement of financial position as at 31 December 2010 and 2009
- Income statement and Statement of changes in equity for the year
ended 31 December 2010
- Extracts from the notes to the financial statements

IAS 7 - Statement of cash flows July 2018

PwC Slide 52
The indirect method
Case study - continued

IAS 7 - Statement of cash flows July 2018

PwC Slide 53
The indirect method
Property, plant and equipment: revaluation surplus

• The movement in PPE,

amounting to €240,000, is
analysed in the respective note
to the financial statements
• For the purposes of the
statement of cash flows, each
type of movement is analysed
separately and categorised
appropriately in the statement
• The revaluation surplus of €70,000 affects neither accounting profit
nor cash
• It is therefore ignored for the purposes of the statement, as is the
equivalent movement in the reserve
IAS 7 - Statement of cash flows July 2018
PwC Slide 54
The indirect method
Property, plant and equipment: additions

• Additions are a result of cash

outflows
• On the assumption that all
additions were paid for in cash,
the effect is an outflow of
€543,000 from investing
activities

IAS 7 - Statement of cash flows July 2018

PwC Slide 55
The indirect method
Property, plant and equipment: disposals

• Disposals in the note are stated at

carrying amount, which is not
necessarily equal to proceeds
- proceeds equal carrying amount
plus/(less) profit/(loss) on
disposal
- the results on disposal are a non-
cash transaction and therefore
adjusted against operating profit

IAS 7 - Statement of cash flows July 2018

PwC Slide 56
The indirect method
Property, plant and equipment: disposals

• Disposals as presented in the note

are stated at carrying amount,
which is not necessarily equal to
proceeds
- proceeds equal carrying amount
plus/(less) profit/(loss) on
disposal
- the results on disposal are a non-
cash transaction and therefore
adjusted against operating profit

IAS 7 - Statement of cash flows July 2018

PwC Slide 57
The indirect method
Property, plant and equipment: depreciation and impairment

• Depreciation and impairment

charges are non-cash
transactions that are included
in operating profit
- they are therefore adjusted
against operating profit

IAS 7 - Statement of cash flows July 2018

PwC Slide 58
The indirect method
Property, plant and equipment: summary of movements

IAS 7 - Statement of cash flows July 2018

PwC Slide 59
The indirect method
Intangible assets

• Although not included in the case study, the analysis of cash flows on
investments in intangible assets is consistent with the analysis for
property, plant and equipment

IAS 7 - Statement of cash flows July 2018

PwC Slide 60
The indirect method
Investment property

• The movement in investment

property, amounting to
€40,000, is analysed in the
respective note to the financial
statements
• This is a non-cash transaction

• Fair value gains are included in the income statement

• They are however not included in operating profit, and
• Operating profit should not therefore be adjusted for this non-cash
transaction
• Additions and disposals would be treated in a similar manner to
property, plant and equipment
IAS 7 - Statement of cash flows July 2018
PwC Slide 61
The indirect method
Investment property: summary of movements

IAS 7 - Statement of cash flows July 2018

PwC Slide 62
The indirect method
Available-for-sale financial assets: fair value gains

• The movement in AFS financial

assets, amounting to €25,000, is
analysed in the respective note
to the financial statements

• Similar to property, plant and equipment, the fair value gains of

€12,000 affect neither accounting profit nor cash
− they are therefore ignored for the purposes of the statement, as is
the equivalent movement in the reserve

IAS 7 - Statement of cash flows July 2018

PwC Slide 63
The indirect method
Available-for-sale financial assets: additions

• Additions are a result of cash

outflows
• On the assumption that all
additions were paid for in cash,
the effect is an outflow of
€28,000 from investing
activities

IAS 7 - Statement of cash flows July 2018

PwC Slide 64
The indirect method
Available-for-sale financial assets: disposals

• AFS financial assets are always

carried at FV
• On the assumption that the
disposal transaction was an
arm’s length transaction, the
proceeds on disposal will equal
FV
- they will therefore also equal
carrying amount

IAS 7 - Statement of cash flows July 2018

PwC Slide 65
The indirect method
Available-for-sale financial assets: summary of movements

IAS 7 - Statement of cash flows July 2018

PwC Slide 66
The indirect method
Inventories

• The movement in inventories,

amounting to €127,000, is:
- a movement in working
capital, and
- included in operating profit
• It is therefore adjusted against
operating profit
• Being an decrease in an asset,
i.e. it arose from an aggregate
debit entry to operating profit,
this movement is added back to
operating profit

IAS 7 - Statement of cash flows July 2018

PwC Slide 67
The indirect method
Trade and other receivables

• The movement in receivables,

amounting to €80,000, is also:
- a movement in working
capital, and
- included in operating profit
(indirectly through the
inclusion of revenue in
operating profit)
• It is therefore adjusted against operating profit
• However, Company X also recognised an increase in provision for
impairment of receivables

IAS 7 - Statement of cash flows July 2018

PwC Slide 68
The indirect method
Trade and other receivables - continued

• Being a non-cash transaction

that directly impacts operating
profit, the movement in the
provision is added back to
operating profit
- working capital movements
exclude the movement in
provision

IAS 7 - Statement of cash flows July 2018

PwC Slide 69
The indirect method
Trade and other receivables: summary of movements

IAS 7 - Statement of cash flows July 2018

PwC Slide 70
The indirect method
Share capital

• The movement in share capital,

amounting to €183,000, is
analysed in the Statement of
changes in equity
• Assuming the proceeds were for
cash, this inflow is presented as
a financing transaction

IAS 7 - Statement of cash flows July 2018

PwC Slide 71
The indirect method
Revaluation and other reserves

• The movements in reserves,

amounting to €64,300, are
analysed in the respective note
to the financial statements
• Being non-cash transactions
that do not impact operating
profit, the movements are
ignored for the purposes of the
statement

IAS 7 - Statement of cash flows July 2018

PwC Slide 72
The indirect method
Revaluation and other reserves: summary of movements

IAS 7 - Statement of cash flows July 2018

PwC Slide 73
The indirect method
Borrowings

• The movement in borrowings,

amounting to €88,000 (non-
current plus current), is
analysed in the respective note
to the financial statements
between movements in
- bank overdraft
- other borrowings
• The movement in the bank overdraft is ignored as this is a component
of cash and cash equivalents

IAS 7 - Statement of cash flows July 2018

PwC Slide 74
The indirect method
Borrowings - continued

• The movement in other borrowings

are a result of proceeds on
drawdowns, together with
repayments
− these are presented in the
Statement of cash flows as
financing activities

IAS 7 - Statement of cash flows July 2018

PwC Slide 75
The indirect method
Deferred tax

• The movements in deferred tax,

amounting to €12,350, are
analysed in the respective note
to the financial statements
• Similar to the movements in
reserves, being non-cash
transactions that do not impact
operating profit, the movements
are ignored for the purposes of
the statement

IAS 7 - Statement of cash flows July 2018

PwC Slide 76
The indirect method
Deferred tax: summary of movements

IAS 7 - Statement of cash flows July 2018

PwC Slide 77
The indirect method
Trade and other payables

• The movement in payables,

amounting to €139,000, is:
- a movement in working
capital, and
- included in operating profit
(indirectly through the
inclusion of purchases and
costs in operating profit)
• It is therefore adjusted against operating profit
• However, Company X also recognised an increase in accruals for
interest

IAS 7 - Statement of cash flows July 2018

PwC Slide 78
The indirect method
Trade and other payables

• Being a transaction not yet paid

for in cash, the movement in the
accrual is adjusted against the
respective expense, i.e. interest
- working capital movements
exclude the movement in
accrual

IAS 7 - Statement of cash flows July 2018

PwC Slide 79
The indirect method
Trade and other payables: summary of movements

The difference of €500

arises because of
accrued interest

Interest paid comprises:

Interest expense 6,000
Interest accrued (as above) (500)
Interest paid 1,500

IAS 7 - Statement of cash flows July 2018

PwC Slide 80
The indirect method
Current tax

• The movement in the current tax

asset/liability is typically a result
of two types of transactions:
− current tax expense for the
period
€
− tax payments/refunds made
during the period
Opening balance (55,000)
• Based on the above information,
Current tax expense (65,000) the tax payments/refunds can be
Tax payments/refunds ??? calculated with a simple analysis
Closing balance (65,000) of the nominal ledger account
Based on the analysis, the tax
payment was €55,000
IAS 7 - Statement of cash flows July 2018
PwC Slide 81
The indirect method
Current tax - continued

• The movement in the current tax

asset/liability is typically a result
of two types of transactions:
− current tax expense for the
period
− tax payments/refunds made
during the period
• Based on the above information, the tax payments/refunds can be
calculated with a simple analysis of the nominal ledger account

IAS 7 - Statement of cash flows July 2018

PwC Slide 82
The indirect method
Current tax: summary of movements

IAS 7 - Statement of cash flows July 2018

PwC Slide 83
The indirect method
Retained earnings

• The movement in retained

earnings, amounting to €41,350,
is analysed in the Statement of
changes in equity
• In this case, the movement
comprises:
- profit for the year
- dividend distribution

IAS 7 - Statement of cash flows July 2018

PwC Slide 84
The indirect method
Retained earnings: dividend

• Assuming that the dividend was

paid for in cash, this is
presented as a cash flow from
financing activities

IAS 7 - Statement of cash flows July 2018

PwC Slide 85
The indirect method
Retained earnings: profit for the year

• The profit for the year,

amounting to €141,350,
comprises:
- operating profit
- investment and other related
income
- finance costs
- tax expense

IAS 7 - Statement of cash flows July 2018

PwC Slide 86
The indirect method
Retained earnings: operating profit

• Operating profit is included

directly in the statement of cash
flows:

IAS 7 - Statement of cash flows July 2018

PwC Slide 87
The indirect method
Retained earnings: investment and other related income

• Investment and other related

income is analysed in the
respective note:

• Fair value gains on investment

property and gains on disposal
of AFS investments are non-
cash transactions that are not
included in operating profit
- thus, they are ignored when
completing the statement
IAS 7 - Statement of cash flows July 2018
PwC Slide 88
The indirect method
Retained earnings: investment and other related income -
continued
• Investment and other related
income is analysed in the
respective note:

• Assuming that the dividend

income has been received in
cash, this is presented as a cash
flow from operating or from
investing activities

IAS 7 - Statement of cash flows July 2018

PwC Slide 89
The indirect method
Retained earnings: finance costs

• Finance costs are analysed in the

respective note:

• Bank interest is presented as an

operating or financing cash flow
- it is however adjusted for the
effect of movement in accrued
interest
• Being a non-cash transaction,
notional interest is ignored

IAS 7 - Statement of cash flows July 2018

PwC Slide 90
The indirect method
Retained earnings: tax expense

• Tax expense is analysed in the

respective note:

• Both current and deferred tax

have been considered previously

IAS 7 - Statement of cash flows July 2018

PwC Slide 91
The indirect method
The statement of cash flows

IAS 7 - Statement of cash flows July 2018

PwC Slide 92
The indirect method

• Any movement in a line item in the statement of financial position

must either:
- offset a movement in another line item; or
- be presented in the Statement of cash flows; or
- a mixture of the above

IAS 7 - Statement of cash flows July 2018

PwC Slide 93
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