Accounting Guideline

Cash Flow
GRAP 2 Statements

All rights reserved. No part of this publication may be reproduced, stored in retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior permission of the National Treasury of South Africa.

Permission to reproduce limited extracts from the publication will not usually be withheld.

Though National Treasury (NT) believes reasonable efforts have been made to ensure the accuracy of the information contained in the guideline, it
may include inaccuracies or typographical errors and may be changed or updated without notice. NT may amend these guidelines at any time by
posting the amended terms on NT's Web site.

Note that this document is not part of the GRAP standard. The GRAP takes precedence while this guideline is used mainly to provide further
explanations on the concepts already in the GRAP
 GRAP 2 – Cash Flow Statements

Contents
1 INTRODUCTION ........................................................................................................... 3

2 SCOPE .......................................................................................................................... 4

3 THE BIG PICTURE ........................................................................................................ 5

4 PRESENTATION OF A CASH FLOW STATEMENT...................................................... 6

4.1 Operating activities ................................................................................................. 8

4.2 Investing activities ................................................................................................. 10

4.3 Financing activities................................................................................................ 11

4.4 Cash and cash equivalents ................................................................................... 11

5 NOTES TO THE CASH FLOW STATEMENT .............................................................. 13

5.1 Cash and cash equivalents ................................................................................... 13

6 GUIDANCE ON OTHER CASH FLOW ITEMS ............................................................ 14

6.1 Interest and dividends or similar distributions ........................................................ 14

6.2 Non-cash transactions .......................................................................................... 14

6.3 Investments in controlled entities, associates and joint ventures ........................... 14

6.4 Acquisitions and disposals of controlled entities and other operating units ............ 16

6.5 Foreign currency cash flows ................................................................................. 17

7 ILLUSTRATIVE EXAMPLE .......................................................................................... 18

8 ENTITY-SPECIFIC GUIDANCE ................................................................................... 25

8.1 Municipalities ........................................................................................................ 25

8.2 Public entities and constitutional institutions.......................................................... 26

9 SUMMARY OF KEY PRINCIPLES............................................................................... 27

9.1 Preparing and presenting a cash flow statement ................................................... 27

January 2014 Page 2

 GRAP 2 – Cash Flow Statements

1 INTRODUCTION

This document provides guidance on the identification and disclosure of information about
the historical changes in cash and cash equivalents of an entity by means of a cash flow
statement, which classifies cash flows during the period from operating, investing and
financing activities.

The contents should be read in conjunction with GRAP 2 (issued February 2010) and
includes any changes made by the board in terms of the Improvements to Standards of
GRAP.

For purposes of this guide, “entities” refer to the following bodies to which the standards of
GRAP relate to, unless specifically stated otherwise:

 Public entities

 Constitutional institutions

 Municipalities and all other entities under their control

 Parliament and the provincial legislatures

Explanation of images used in manual:

Definition

Take note

Management process and decision making

Example

January 2014 Page 3

 GRAP 2 – Cash Flow Statements

2 SCOPE

GRAP 2 is applicable to all entities preparing their financial statements on the accrual basis
of accounting.

Entities will comply with GRAP 2 for the preparation of a cash flow statement which should
be presented as an integral part of the financial statements for each period for which
financial statements are presented.

January 2014 Page 4

 GRAP 2 – Cash Flow Statements

3 THE BIG PICTURE

Cash Flow Statements

Direct Method

Disclose Interest and Exclude Non-Cash Disclose Tax On

Dividends Separately Movements Surplus Separately

Cash Flows From Cash Flows From Cash Flows From

Operating Activities Investing Activities Financing Activities

E.g. E.g. E.g.

Cash FlowsTo/ From Acquisition/Disposal Of Cash Flows From
Suppliers/Customers Long Term Assets Borrowings

Figure 1

January 2014 Page 5

 GRAP 2 – Cash Flow Statements

4 PRESENTATION OF A CASH FLOW STATEMENT

The cash flows during the period reported in the cash flow statement should be classified as
cash flows from operating, investing and financing activities.
Direct method cash flow statement (paragraph .196)
ENTITY – CONSOLIDATED CASH FLOW STATEMENT
FOR YEAR ENDED 31 DECEMBER MARCH 20X2 (in thousands of
currency units rands)
20X2 20X1
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts
Taxation x x
Sales of goods and services x x
Grants x x
Interest received x x
Other receipts x x
Payments x x
Employee costs x x
Suppliers x x
Interest paid x x
Other receipts x x
Payment
Employee costs (x) (x)
Suppliers (x) (x)
Interest paid (x) (x)
Other payments (x) (x)
Net cash flows from operating activities x x
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of plant and equipment (x) (x)
Proceeds from sale of plant and equipment x x
Proceeds from sale of investments x x
Purchase of foreign currency securities (x) (x)
Net cash flows from investing activities (x) (x)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings x x
Repayment of borrowings (x) (x)
Distribution/dividend to government (x) (x)
Net cash flows from financing activities x x
Net increase/ (decrease) in cash and cash equivalents x x
Cash and cash equivalents at beginning of period x x
Cash and cash equivalents at end of period x x

January 2014 Page 6

 GRAP 2 – Cash Flow Statements

Notes to the cash flow statement

(a) Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and balances with banks and
investments in money market instruments. Cash and cash equivalents included in the
cash flow statement comprise the following statement of amounts indicating financial
position:
20X2 20X1
Cash on hand and balances with banks x x
Short-term investments x x
x x
The entity has undrawn borrowing facilities of X, of which X must be used on
infrastructural projects.

(b) Property, plant and equipment

During the period, the economic entity acquired property, plant and equipment with an
aggregate cost of X, of which X was acquired by means of capital grants by the national
government. Cash payments of X were made to purchase property, plant and equipment.

(c) Reconciliation of net cash flows from operating activities to surplus/(deficit)

Surplus/(Deficit) x x
Non-cash movements
Depreciation x x
Amortisation x x
Increase in provision for doubtful debts impairment of
debtors x x
Increase in payables x x
Increase in borrowings x x
Increase in provisions relating to employee costs x x
(Gains)/losses on sale of property, plant and equipment (x) (x)
(Gains)/losses on sale of investments (x) (x)
Increase in other current assets (x) (x)
Increase in investments due to revaluation (x) (x)
Increase in receivables (x) (x)
Net cash flows from operating activities (x) (x)

January 2014 Page 7

 GRAP 2 – Cash Flow Statements

4.1 Operating activities

Operating activities are the activities of the entity that are not investing or financing
activities.

Example 1: Cash flows from operating activities

Cash flows from operating activities are derived from the main cash-generating
activities of the entity, for example:
 Cash receipts from charges for goods and services;
 Cash receipts from grants (operating and capital); or transfers made by national
government or other entities;
 Cash receipts from taxes, levies and fines;
 Cash payments to suppliers for goods and services;
 Cash payments to and on behalf of employees; and
 Cash receipts or payments in relation to litigation settlements.

Cash flows from operating activities should be reported by using only the direct
method, whereby the entity’s significant classes of cash receipts and cash payments
are disclosed.

Example 2: Direct method

Extract from Cash Flow Statement Note 20x1 20x0

R R
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts XX XX
Taxation XX XX

January 2014 Page 8

 GRAP 2 – Cash Flow Statements

Sale of goods and services XX XX

Transfers and subsidies XX XX
Interest received XX XX
Other receipts XX XX
Payments
Employee cost (XX) (XX)
Suppliers (XX) (XX)
Interest paid (XX) (XX)
Other payments (XX) (XX)
Net cash flows from operating activities x XXX XXX

The entity should disclose a reconciliation between the surplus/deficit and the cash flows
from operating activities. This reconciliation may form part of the cash flow statement or be
included in the notes to the financial statements.

Example 3: Reconciliation of net cash flows from operating activities to

surplus/(deficit)

Extract from Notes to the Cash Flow 20x1 20x0

Statement
R R
Surplus/(deficit) XX (XX)
Non-cash movements
Depreciation XX XX
Amortisation XX XX
Increase in impairment of receivables XX XX
(Gain)/loss on sale of property (XX) XX
Increase in provisions relating to employee XX XX
cost
Movement in working capital
Increase in inventory (XX) (XX)
Decrease in receivables XX XX
Increase in unspent conditional grants XX XX
Increase in consumer deposits XX XX

January 2014 Page 9

 GRAP 2 – Cash Flow Statements

Decrease in VAT payable (XX) (XX)

Net cash flow from operating activities XXX XXX

4.2 Investing activities

Investing activities are the acquisition and disposal of long-term assets and other
investments not included in cash and cash equivalents.

Example 4: Cash flows from investing activities

Examples of cash flows arising from investing activities:
 Cash payments to acquire and cash receipts from the sale of property, plant and
equipment, intangibles and other long-term assets. These payments include
those relating to capitalised development costs and self-constructed property,
plant and equipment;
Remember that:
o Proceeds from the sale of property, plant and equipment or similar assets,
as disclosed in the cash flow statement, represents only the cash flow in the
transaction. If an asset is sold for R100 and the carrying value is R65 then
the gain will be R35 but the proceeds to be disclosed in the cash flow
statement are R100. The gain of R35 will be a non-cash item to be included
as part of the reconciliation of net cash flows from operating activities and
the surplus/deficit for the period in the notes.
o When an asset is exchanged for another asset and there is no cash flow,
even if a gain or loss is made, then no proceeds on the sale will be
disclosed in the cash flow statement. If an asset with a carrying value of
R70 is exchanged for an asset with a market value of R60 then the effective
gain on the exchange is R10. No cash has flowed in this transaction and
thus no proceeds on sale of assets should be disclosed in the cash flow
statement.
 Cash payments to acquire and cash receipts from sale of equity or debt
instruments of other entities and interest in joint ventures (other than those
instruments considered to be cash equivalents or those held for trading or
dealing);
o The most commonly known equity instrument is shares in an entity.
o The RSA Government Retail Bond is an example of a debt instrument,

January 2014 Page 10

 GRAP 2 – Cash Flow Statements

where an entity invests with the government of South Africa. These bonds
can be traded, in the market, similarly to equity instruments.
 Cash advances and loans made to other parties, or cash receipts from the
repayment of advances and loans made to other parties (other than advances
and loans of a public financial institution).

As indicated in the example above, cash payments to acquire property, plant and
equipment are classified as investing activities. There is, however, an exception to
this rule. When an entity, in the course of its ordinary activities, acquires an asset for
rental to others which is subsequently held for sale, then the initial cash payments, as
well as all rental income and the proceeds from the sale of these assets should be
classified as operating activities and not investing activities.

4.3 Financing activities

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

Example 5: Cash flows from financing activities

Examples of cash flows arising from financing activities:
 Cash repayments of amounts borrowed;
 Cash repayments of finance leases; and
 Cash proceeds from short- or long-term borrowings.

4.4 Cash and cash equivalents

Cash and 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 cash held for the purpose of meeting the entity’s short-term cash
commitments rather than for investment purposes, thus the intention of management should
be considered when determining what qualifies as cash equivalents.

January 2014 Page 11

 GRAP 2 – Cash Flow Statements

For an investment to qualify as a cash equivalent it must be readily convertible into cash, it
must have a short maturity date, and be subject to an insignificant risk of changes in value.
There is no guideline as to what is considered a short investment period, however the
standard mentions a period of three months or less as an example.

Bank overdrafts form part of cash and cash equivalents; they are repayable on demand and
may form an integral part of an entity’s cash management activities.

Generally excluded from cash and cash equivalents are:

 Equity, unless it is in substance a cash equivalent; and

 Borrowings from the bank (excluding a bank overdraft) as it is considered a financing

activity.

January 2014 Page 12

 GRAP 2 – Cash Flow Statements

5 NOTES TO THE CASH FLOW STATEMENT

5.1 Cash and cash equivalents

Entities should disclose the components of cash and cash equivalents and should present a
reconciliation of the amounts in its cash flow statement with the cash and cash equivalents in
the statement of financial position. An entity should also disclose the amount of significant
cash and cash equivalent balances that are not available for use by the entity.

Some additional information may be relevant to the users of the financial statements in order
to understand the financial position of the entity. Disclosure of this information, together with
commentary by management, is encouraged and may be included. For example:

 The amount of undrawn borrowing facilities, indicating any restrictions on the use of
these facilities;

 The total amount of cash flows from each of operating, investing and financing activities
relating to a joint venture which is accounted for using the proportionate consolidation
method; and

 The amount and nature of restricted cash balances.

Example 6: Example of disclosure requirements

Extract from Note to the Cash Flow Statement 20x1 20x0

R R
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, balances with banks and
investments in money market instruments. Cash and cash equivalents included in
the cash flow statement comprise of the following amounts indicated in the
statement of financial position:
Cash on hand XX XX
Bank balance XX XX
Short-term investment XX XX
Overdraft (XX) (XX)
XXX XXX
The entity has undrawn borrowing facilities of Rx, of which Rx must be used on
infrastructure projects.

January 2014 Page 13

 GRAP 2 – Cash Flow Statements

6 GUIDANCE ON OTHER CASH FLOW ITEMS

6.1 Interest and dividends or similar distributions

Interest and dividends or similar distributions received and paid should be disclosed
separately. These amounts may differ from those recognised in the financial statements.
E.g. where borrowing costs are capitalised, it may differ to actual amounts paid.

Interest paid and interest and dividends (or similar distributions) received may be classified
as either operating, investing or financing activities. The classification of interest paid and
interest and dividends (or similar distributions) received should be driven by the source.

Guidance for classification:

 Interest paid and interest and dividends received from working capital (e.g. bank,
receivables and payables) should be classified as operating cash flows;

 Interest and dividends (or similar distributions) received may be classified as investing
cash flow if they are returns on investments;

 Interest or similar distributions paid on borrowings may also be classified as financing

cash flow because they are a cost of obtaining finance; and

 Interest paid on finance leases should rather be classified as financing cash flow
together with the movement in the liability.

This classification should be consistent from period to period.

6.2 Non-cash transactions

Many operating, investing and financing activities do not require the use of cash and must be
excluded from the cash flow statement.

Example 7: Non-cash transactions

Examples of non-cash transactions are:
 Depreciation and amortisation;
 Increase or decrease in impairment provisions;
 Year-end adjustment to the bonus and leave provision;
 Purchases of an asset by exchanging another asset; and
 Acquiring an asset by means of a finance lease.

6.3 Investments in controlled entities, associates and joint ventures

When an entity has an investment in an associate or a controlled entity accounted for by use
of the equity or cost method, only the cash flows between the entity and the investee will be

January 2014 Page 14

 GRAP 2 – Cash Flow Statements

reported in the cash flow statement. These cash flow transactions include, for example,
dividends or interest paid or received.

When an entity has an investment in a joint venture and it accounts for that investment by
using the proportionate consolidation method, then the entity's proportionate share of the
joint venture’s cash flows should be included in the consolidated cash flow statement of the
entity.

Example 8: The entity has a 50% share in the joint venture and the
proportionate consolidation method is used

Extract from joint venture’s Note 20x1 50% share to be

cash flow statement included in entity’s
consolidated cash flow
statement
R R
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts
Sale of goods and services 1,000 500
Other receipts 250 125
Payments
Employee cost (670) (335)
Net cash from operating 580 290
activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of plant and (10,000) (5,000)
equipment
Proceeds from sale of 20 10
investment
Net cash from investing (9,980) (4,990)
activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 10,000 5,000
Net cash from financing 10,000 5,000
activities
Net increase in cash and 600 300
cash equivalents
Cash and cash equivalents 200 100
and the beginning of the
period

January 2014 Page 15

 GRAP 2 – Cash Flow Statements

Cash and cash equivalents 800 400

at end of the period

6.4 Acquisitions and disposals of controlled entities and other operating units

The total cash flows from acquiring or selling an interest in a controlled entity or an operating
unit should be classified as investing activities.

The entity should disclose in the cash flow statement, and in the notes to the cash flow
statement, the total cash flows from acquiring or selling a controlled entity and other
operating units, and other relating information.

Below is an illustration of the disclosure requirements (refer to the standard for detail).

Example 9: Disclosure extract for purchase of controlled entity

Extract from Cash Flow Statement Note 20x1 20x0

..... R R
CASH FLOW FROM INVESTING ACTIVITIES
Purchase investment in controlled entity x 100 XX
.....
Extract from Notes to the Cash Flow Statement 20x1 20x0
..... R R
Total purchase price 120 XX
Portion of purchase price discharged by (20) XX
means of cash and cash equivalents
Assets
Property, plant and equipment 18 XX
Investment property 80 XX
Receivables 7 XX
Liabilities
Payables (5) XX
Net assets excluding cash and cash 100 XXX
equivalents
Cash and cash equivalents 20 XX

January 2014 Page 16

 GRAP 2 – Cash Flow Statements

Total net asset value 120 XXX

6.5 Foreign currency cash flows

Cash flows from transactions in a foreign currency should be recorded in the entity’s
functional currency by applying to the foreign currency amount the exchange rate at the date
of the cash flow.

The cash flows from foreign controlled entities should also be converted to the entity’s
functional currency at the date of the cash flow.

Example 10: Converting foreign currency at cash flow date

The entity purchased equipment for 100 US dollars on 3 February 20x1; payment was
made on the 28 February 20x1. The entity’s functional currency is South African
Rands. The exchange rate on 3 February 20x1 was R10 for 1 US dollar and on
payment date the exchange rate was R10.50 for 1 US dollar.

Extract from Cash Flow Statement Note 20x1 20x0

..... R R
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of equipment (100US$ @ R10.5) x 1,050 XX
.....

Refer to the accounting guideline GRAP 4 on the effects of changes in foreign

exchange rates for detail on these calculations.

January 2014 Page 17

 GRAP 2 – Cash Flow Statements

7 ILLUSTRATIVE EXAMPLE

Example A – direct method cash flow for an entity other than a financial institution

Extract from Statement of Financial Position

Note 20x1 20x0

R R
Assets
Current assets

Inventory 30,000 23,000

Other receivables 350,000 450,000
Receivables from the sale of goods/services 1 1,450,000 1,690,000

VAT receivable 10,000 9,000

Cash and cash equivalents 2 175,000 150,000
2,015,000 2,322,000
Non-current assets

Property, plant and equipment 3 12,230,000 10,250,000

Investment in controlled entity 3,000 3,000

Investments 60,000 67,000

Long-term receivables 120,000 220,000
12,413,000 10,540,000

Total assets 14,428,000 12,862,000

Liabilities
Current liabilities

Finance lease obligation 561,000 1,139,000

Payables 4 1,095,000 1,077,000
Unspent conditional grants 7,000,000 6,000,000

Bank overdraft 2 35,000 32,000

8,691,000 8,248,000
Non-current liabilities

January 2014 Page 18

 GRAP 2 – Cash Flow Statements

Finance lease obligation - 571,000

Long-term borrowings 840,000 870,000

840,000 1,441,000
Total liabilities 9,531,000 9,689,000

4,897,000 3,173,000

Net assets
Accumulated surplus 4,897,000 3,173,000

Extract from Statement of Financial Performance

Note 20x1 20x0

R R
Revenue
Sales 2,427,000 2,277,000

Interest – Receivables from the sale of 110,000 102,000

goods/services
Interest – Investments 2,000 5,000
Transfers and subsidies 1,393,000 1,308,000
Dividends 300 200
Other income 37,000 305,800
Total revenue 3,969,300 3,998,000

Expenditure

Personnel 890,000 810,000

Depreciation 35,000 32,000
Impairment loss on receivables 1 40,000 62,000
Finance cost – Bank overdraft 800 500
Finance cost – Borrowings 1,200 900

Finance cost – Finance lease 1,000 1,100

Repairs and maintenance 99,000 91,000
General expenditure 1,178,300 1,146,500
Total expenditure 2,245,300 2,144,000

January 2014 Page 19

 GRAP 2 – Cash Flow Statements

Surplus for the period 1,724,000 1,854,000

Extract from Notes to the Annual Financial Statements

20x1 20x0
1. Receivables from the sale of
goods/services
Receivables from the sale of goods/services 2,640,000 2,840,000
Less: Allowance for impairment (1,190,000) (1,150,000)
1,450,000 1,690,000
Reconciliation of Impairment allowances

Balance at the beginning of the period 1,150,000 1,088,000

Contribution to provision 40,000 62,000
1,190,000 1,150,000
2. Cash and cash equivalents
Cash and cash equivalents consist of:

Bank balance 5,000 -

Short-term investments 170,000 150,000
Bank overdraft (35,000) (32,000)
140,000 118,000
3. Property, plant and equipment
Reconciliation of property, plant and equipment
Opening balance 10,250,000 10,082,000
Additions 2,015,000 200,000
Depreciation (35,000) (32,000)
Closing balance 12,230,000 10,250,000
4. Payables

Payables from purchase of goods/services 1,070,000 1,042,000

Bonus provision 13,000 10,000
Sundry payables 12,000 25,000
Closing balance 1,095,000 1,077,000

January 2014 Page 20

 GRAP 2 – Cash Flow Statements

ENTITY – CASH FLOW STATEMENT

FOR THE PERIOD ENDED 31 MARCH 20x1

Note 20x1 20x0

Cash flow from operating activities
Receipts

Taxation - XX
Sale of goods and services 2,620,000 XX
(2,427,000+240,000-40,000-7,000)

Transfers and subsidies (1,393,000+1,000,000) 2,393,000 XX

Interest – Receivables from the sale of 110,000 XX
goods/services
Dividends received 300 XX

Other receipts (37,000+100,000) 137,000 XX

Payments

Employee cost (890,000-3,000) (887,000) (XX)

Suppliers (99,000+1,178,300-15,000) (1,262,300) (XX)
Finance cost – Bank overdraft (800) (XX)
VAT paid (1,000) (XX)
Net cash flow from operating activities 16 3,109,200 XXX

Cash flow from investing activities

Purchases of property, plant and equipment 3 (2,015,000) (XX)

Proceeds from sale of property, plant and - XX
equipment
Proceeds from sale of investments (60,000- 7,000 XX
67,000)

Interest – Investments 2,000 XX

Proceeds from long-term receivables 100,000 XX

(120,000-220,000)

Net cash flow from investing activities (1,906,000) XXX

Cash flow from financing activities

January 2014 Page 21

 GRAP 2 – Cash Flow Statements

Repayments of finance lease (561,000- (1,149,000) (XX)

1,139,000-571,000)

Finance cost – Finance lease (1,000) (XX)

Repayment of long-term borrowings (30,000) (XX)
(840,000-870,000)

Finance cost – Borrowings (1,200) (XX)

Net cash flow from financing activities (1,181,200) XXX

Net increase/(decrease) in cash and cash 22,000 XXX

equivalents
Cash and cash equivalents at the 118,000 XXX
beginning of the period
Cash and cash equivalents at end of the 15 140,000 118,000
period

Notes to the cash flow statement

Note 20x1 20x0

15. Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, balances with banks and investments
in money market instruments. Cash and cash equivalents included in the cash flow
statement comprise the following amounts included in the statement of financial position:
Cash on hand and balance with banks 5,000 -

Short-term investments 170,000 150,000

Bank overdraft (35,000) (32,000)
140,000 118,000

16. Reconciliation of net cash flow from operating activities to surplus/(deficit)

Surplus/(deficit) for the period 1,724,000 XX

Non-cash movements
Depreciation 35,000 XX
Impairment loss on receivables 40,000 XX

Increase in provisions relating to employee cost 3,000 XX

(13,000-10,000)

Items shown separately on the face of cash flow statement

January 2014 Page 22

 GRAP 2 – Cash Flow Statements

Interest received - Investments (2,000) XX

Finance cost – Borrowings 1,200 XX
Finance cost – Finance lease 1,000 XX
Movement in working capital
Increase in inventory (30,000-23,000) (7,000) XX
Decrease in other receivables (350,000-450,000) 100,000 XX
Decrease in receivables from the sale of goods/services 240,000 XX
(1,450,000-1,690,000)

Increase in allowance for impairments (40,000) XX

(1,190,000-1,150,000)

Increase in VAT receivable (10,000-9,000) (1,000) XX

Increase in payables 15,000 XX
(1,095,000-1,077,000)+(-13,000+10,000)

Increase in unspent conditional grants (7,000,000-6,000,000) 1,000,000 XX

Net cash flow from operating activities 3,109,200 XXX

Non-cash items
Non-cash items should be taken out of the surplus/deficit for the period.
Revenue:
 As revenue increased the surplus (or decreased the deficit), it should be
deducted (negative) in the reconciliation.
Expenses:
 As expenses decreased the surplus (or increased the deficit), it should be added
(positive) in the reconciliation.

Working capital movements

Remember that a positive figure represents an inflow of cash and a negative figure
represents an outflow of cash.
Assets:
 Decreases in assets from prior period to current period represent a cash inflow
for the entity.
o For receivables it is an indication that the accounts were paid, which results in
a cash inflow for the entity;

January 2014 Page 23

 GRAP 2 – Cash Flow Statements

o A decrease in inventory is an indication that inventory was sold and sales are
a cash inflow for an entity.
o A decrease in investments (investment that does not form part of cash and
cash equivalents) is the result of funds that were withdrawn from the
investments or investments that were sold, which are cash inflows.
 Increases in assets from prior period to current period represent a cash outflow
for the entity.
o An increase in debtors indicates that additional credit was given which
represents a cash outflow.
o An increase in inventory means the entity purchased more stock than what it
sold and the net effect being an outflow of cash.
o Increase in short term investments (investments that do not form part of cash
and cash equivalents) indicates additional funds were invested which is a
cash outflow.
Liabilities:
 A decrease in liabilities from prior period to current period represents an outflow
of cash for the entity. The decrease indicates that liabilities were paid which is an
outflow of cash.
 When a liability increases from period to period, it represents a cash inflow as
you are effectively receiving additional cash.

January 2014 Page 24

 GRAP 2 – Cash Flow Statements

8 ENTITY-SPECIFIC GUIDANCE

Entity-specific guidance has been included where appropriate to provide specific guidance
on a subject that only relates to those types of entities.

8.1 Municipalities

 Disclosure requirements in terms of the Municipal Finance Management Act 56, 2003

The following additional compulsory disclosures are required in terms of the Municipal
Finance Management Act 56, 2003.

Note to the financial statements Disclosure requirements

Cash and cash equivalents  For each bank account held by the municipality or
the municipal entity during the financial year:
o The name of the bank where the account is or
was held and the type of account and;
o The period opening and period closing
balances in each of these bank accounts.

Example 11: Compulsory disclosure requirements by the MFMA

Extract from the Notes to the Financial 20x1 20x0

Statements
Cash and cash equivalents
ABSA Bank – Current account
Cash book balance at the beginning of the period XX XX
Cash book balance at the end of the period XX XX
Bank statement balance at the beginning of the period XX XX
Bank statement balance at the end of the period XX XX

January 2014 Page 25

 GRAP 2 – Cash Flow Statements

8.2 Public entities and constitutional institutions

Taxes on surplus

Cash flow arising from taxes should be separately disclosed and should be classified as
cash flows from operating activities unless the cash flow from the tax can be specifically
identified with a financing or investing activity.

Entities are generally exempt from taxes on surpluses.

Example 12: Taxes on surplus

An entity paid taxation to the amount of R55, 000 during the period (20x1). The R55,
000 is made up of R49, 000 income tax on the net profit for 20x0 and R6, 000 capital
gains tax on a building sold in 20x0.
The total cash flow in 20x1 for taxes on surplus is R55, 000. R49,000 of the cash flow
should be disclosed under operating activities as the tax was a result of operating
activities and R6,000 under investing activities as buildings are classified as investing
activities.

Extract from Cash Flow Statement Note 20x1 20x0

R R
CASH FLOW FROM OPERATING ACTIVITIES
Payments
Taxation (49,000) XX
.....
CASH FLOW FROM INVESTING ACTIVITIES
Taxation (6,000) XX
.....

January 2014 Page 26

 GRAP 2 – Cash Flow Statements

9 SUMMARY OF KEY PRINCIPLES

GRAP 2 sets out the principles for preparing a cash flow statement. Each entity presents its
cash flow from operating, investing and financing activities in a manner which is most
appropriate to its activities.

9.1 Preparing and presenting a cash flow statement

All cash flow items should be classified into one of 3 main categories:
1. Operating activities
2. Investing activities
3. Financing activities
Cash flows from operating activities should be reported by using the direct method.
An entity should include a reconciliation of the surplus or deficit presented in the statement
of financial performance with the net cash flow from operating activities reflected in the
cash flow statement.
Components of cash and cash equivalents and the amount of cash and cash equivalents
not available for use by the entity should be disclosed.
Cash and cash equivalents are part of the cash management of an entity and thus the
movement in cash and cash equivalents are excluded from cash flow.
Interest paid and interest and dividends or similar distributions received should be
classified into the different activities based on the source.
All non-cash transactions should be excluded from the cash flow statement.
Cash flow from taxes, if practical, should be allocated to the different activities based on
the source, if not practical then it should be classified as an operating activity.
Cash flows from transactions in a foreign currency should be converted to the entity’s
functional currency at the date of the cash flow in accordance with GRAP 4 - The Effects
of Changes in Foreign Exchange Rates.
Legislation may require additional disclosure with regards to cash and cash equivalents.

January 2014 Page 27