IAS 7 – Statement of Cash Flows

FINANCIAL ACCOUNTING &REPORTING-I

IAS 7 STATEMENT OF CASH FLOWS

Scope of IAS-7:
IAS 7 requires all entities to prepare a statement of cash flows as an integral component of financial
statements for each period for which financial statements are presented.

All entities need cash, regardless of how different their principal revenue‑producing activities might
be, to conduct their operations, to pay their obligations, and to provide returns to their investors. Users
of an entity’s financial statements are interested in how the entity generates and uses cash and cash
equivalents.

Definition of 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.

Not all investments are cash equivalents. An investment normally qualifies as a cash equivalent only
when it has a short maturity of, say, three months or less from the date of acquisition. Equity
investments are excluded from cash equivalents unless they are, in substance, cash equivalents, for
example, redeemable preference shares acquired within a short period of their specified maturity date.

Disclosure:
An entity shall disclose the components of cash and cash equivalents and shall present a reconciliation
of the amounts in its statement of cash flows with the equivalent items reported in the statement of
financial position.

Presentation of statement of cash flows:

The statement of cash flows shall report cash flows during the period classified by operating,
investing and financing activities.

Operating Activities:
Operating activities are the principal revenue‑producing activities of the entity and other activities
that are not investing or financing activities.

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

Financing Activities:
Financing activities are activities that result in changes in the size and composition of the contributed
equity and borrowings of the entity.
 FINANCIAL ACCOUNTING
&REPORTING-I IAS 7 STATEMENT OF
CASH FLOWS
Benefits of cash flow information:

A statement of cash flows (along with other financial statements) enables users to evaluate:
a) the changes in net assets of an entity,
b) its financial structure (including its liquidity and solvency); and
c) its ability to affect the amounts; and
d) timing of cash flows in order to adapt to changing circumstances and opportunities.

Historical cash flow information is used as an indicator of the amount, timing and certainty of future
cash flows.

a) in checking the accuracy of past assessments of future cash flows;

b) in examining the relationship between profitability and net cash flow and the impact of
changing prices; and
c) in comparability of the reporting of operating performance by different entities because it
eliminates the effects of using different accounting treatments for the same transactions and
events.
Classification wise usefulness:

Cash flows are classified by operating, investing and financing activities as each of these classifications
provide useful information from different perspective:

Cash flows arising from Usefulness

Operating Activities It is a key indicator of the extent to which the operations of the entity
have generated sufficient cash flows to repay loans, maintain the
operating capability of the entity, pay dividends, and make new
investments without recourse to external sources of financing.
Information about the specific components of historical operating
cash flows is useful, in conjunction with other information, in
forecasting future operating cash flows.
Investing activities These cash flows represent the extent to which expenditures have
been made for resources intended to generate future income and
cash flows.
Financing activities It is useful in predicting claims on future cash flows by providers of
capital to the entity.
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IAS 7 STATEMENT OF CASH FLOWS

Comparison of usefulness of cash flow information with profit or loss:

Businesses must have sufficient cash; otherwise they cannot survive.

 A business may be incurring losses but may still survive if it has sufficient cash or has access
to other liquid assets.
 A profitable business may not survive if it is unable to pay its obligations when they fall due,
because it does not have enough cash or access to other liquid assets.

The fundamental purpose of being in business is to generate profit, as this will increase the owners'
wealth. Profitability relates to the long‑term performance of the business and indicates that over the
long term a business will generate cash. In the short term, the business' viability is determined by its
ability to generate cash. However, as a statement of profit or loss is prepared on an accrual basis, the
profit for the year is unlikely to correlate with the movement in the company's bank balance.
Therefore, understanding cash inflows and outflows is important.
Each financial statement, individually and in combination with other financial statements and other
information, provides useful information that helps users of financial statements to make informed
decisions. A balance between profitability and liquidity (cash balance) is required, a huge cash
balance does not usually indicate good management as this could have been invested to earn more
profits. In particular, following points should be considered:

 The amount and composition of net assets of an entity changes due to income and expenses
(statement of profit or loss) and cash flows (statement of cash flows). Both statements are
relevant but provide different aspects of information.
 Many decision‑making models and valuation models rely on present value of the future cash
flows generated by an entity e.g. NPV and IRR. Historical cash flow information can be useful
to check the accuracy of past assessments and development of future assessments.
 Profitability is an important performance measure, and this information is provided by
statement of profit or loss, liquidity information is also important, and this information is
provided by statement of cash flows in conjunction with statement of financial position.
 Cash flows are necessary to survive in short term but in long term business must be profitable
to survive. Entities often forego short term benefits for long term major benefits e.g. sales on
credit usually earns higher profit margin as compared to cash sales.
 The cash flow is not affected by different accounting policies and estimates, and this makes
cash flow information more comparable, and consequently, less vulnerable to manipulation.
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IAS 7 STATEMENT OF CASH FLOWS

BASIC STRUCTURE

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax xxx
Adjustments for non-cash and other adjustments:
‑ Depreciation expense xxx
‑ Amortization expense xxx
‑ bad debt exp xxx
‑ (Gain)/loss on disposal of PPE (xxx)/xxx
‑ Interest expense xxx
‑ Gratuity expense xxx
Working capital changes:
‑ (Increase)/Decrease in receivable (xxx)/xxx
‑ (Increase)/Decrease in inventory (xxx)/xxx
‑ Increase/(Decrease) in payable xxx/(xxx)
Cash generated from operations xxx
‑ Tax paid (xxx)
‑ Interest paid (xxx)
‑ Gratuity paid (xxx)
Net-cash generated from / (used) in operations xxx/(xxx) A

CASH FLOWS FROM INVESTING ACTIVITIES

‑ 'Purchase of property, plant and equipment (xxx)
‑ 'Proceeds from disposal of Property, plant and equipment xxx
Net-cash generated from / (used) in investing activities xxx/(xxx) B

CASH FLOWS FROM FINANCING ACTIVITIES

‑ Proceeds from issuance of shares xxx
‑ Proceeds from loan xxx
‑ Loan repaid (xxx)
‑ Dividend paid (xxx)
Net-cash generated from / (used) in financing activities xxx/(xxx) C
Net Increase / (decrease) in cash and cash equivalents xxx/(xxx) A+B+C Cash
and cash equivalents at the beginning of the year xxx
Cash and cash equivalents at the end of the year xxx

This amount should be equal to cash and bank balance appearing in current
year Balance sheet.
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IAS 7 STATEMENT OF CASH FLOWS

Non-Cash Expenses
Note: Goods purchased from supplier during 2020 for Rs. 150,000 on cash and sold to customer
for Rs. 250,000 on cash.
Statement of profit or loss for the year ended December 31, 2020 (Extracts):
Sales 250,000
Cogs (150,000)
Gross profit 100,000
Depreciation expense (20,000)
Profit before tax 80,000

Statement of financial position (Extracts):

2020 2019
Property, plant and equipment (N1) 60,000 80,000
Cash and bank balance 300,000 200,000
N1: No addition or disposal during the year however, depreciation is Rs. 20,000.

Profit before tax 80,000 (This includes Depreciation expense)

Depreciation ‑ Add 20,000
Cash inflow for the year 100,000
Add: Opening cash balance 200,000
Closing cash balance 2020 300,000

Illus. Profit before tax Rs.250,000

Balance Sheet Extracts As At December 31, 2020

2020 2019
Cash and bank balances 600,000 300,000
Property, plant and equipment 100,000 150,000

Property, Plant and Equipment Related Adjustment

CASE 1: Addition in PPE
Note: Goods purchased from supplier during 2020 for Rs. 100,000 on cash and sold to customer
for Rs. 300,000 on cash.
Statement of profit or loss for the year ended December 31, 2020 (Extracts):
Sales 300,000
Cost of sales (100,000)
Gross profit 200,000
Depreciation expense (60,000)
Profit before tax 140,000
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IAS 7 STATEMENT OF CASH FLOWS
Statement of financial position (Extracts):
2020 2019
Property, plant and equipment (N1) 630,000 650,000
Cash and bank balance 760,000 600,000
N1: During the year, depreciation expense for the year was Rs.60,000. Further, company also
acquired property, plant and equipment on cash.

Property, Plant and Equipment

Opening balance 650,000 Depreciation600,000
Addition (Bal. Fig.) 40,000
Closing balance 630,000
690,000 690,000

Profit before tax 140,000 (This includes Depreciation expense)

Adjustments For:
Depreciation ‑ Add 60,000

Investing activities
Cash paid to acquire PPE (40,000)

Cash inflow for the year 160,000

Add: Opening cash balance 600,000
Closing cash balance 2020 760,000

Illus. Profit before tax Rs.550,000

Balance Sheet Extracts As At December 31, 2020
2020 2019
Property, plant and equipment 766,520 726,520
Cash and bank balances 1,110,000 600,000

Further Information:
Depreciation expense for the year was Rs.80,000. However, company also acquired
property plant and equipment during the year 2020
Required: Prepare statement of cash flows for the year ended December 31, 2020
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IAS 7 STATEMENT OF CASH FLOWS
CASE 2: With Disposal – Gain
Note: Company purchased inventory worth Rs.100,000 for cash and sold it for Rs.300,0000 on
cash.
Statement of profit or loss for the year ended December 31, 2020 (Extracts):
Sales 300,000
Cogs (100,000)
Gross profit 200,000
Gain on disposal of PPE 15,000
Depreciation expense (40,000)
Profit before tax 175,000

Statement of financial position (Extracts):

2020 2019
Property, plant and equipment (N1) 630,000 650,000
Cash and bank balance 795,000 600,000
N1: During the year depreciation expense was Rs.40,000. Further, the company acquired PPE on
cash and disposed off one plant having a carrying amount of Rs.30,000 at a price of Rs.45,000

Property, Plant and Equipment

Opening balance 650,000 Depreciation40,000
Addition (Bal. Fig.) 50,000 Disposal30,000

Closing balance 630,000

700,000 700,000

Cash proceeds Rs.45000

Carrying amount (Rs.30,000)
Gain on disposal 15,000
Statement of Cash Flows
Profit before tax 175,000
Adjustments For:
Depreciation expense – non cash expense 40,0000
Gain on disposal of PPE (15,000)

Investing activities
Cash paid to acquire PPE (50,000)
Proceeds from disposal of PPE 45,000
Cash inflow for the year 195,000
Add: Opening cash balance 600,000
Closing cash balance 2020 795,000
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IAS 7 STATEMENT OF CASH FLOWS
CASE 3: With Disposal – Loss
Note: Goods purchased from supplier during 2020 were of Rs.150,000 on cash and sold to
costumers for Rs.250,000 on cash.

Statement of profit or loss for the year ended December 31, 2020 (Extracts):
Sales 250,000
Cogs (150,000)
Gross profit 100,000
Depreciation expense (20,000
Loss on disposal of PPE (4,000)
Profit before tax 76,000

Statement of financial position (Extracts):

2020 2019
Property, plant and equipment (N1) 75,000 80,000
Cash and bank balance 281,000 200,000
N1: During the year depreciation expense was Rs.20,000. Further the addition is of Rs.30,000
and disposal of PPE having carrying amount of Rs.15,000 at a price of Rs.11,000.

Property, Plant and Equipment

Opening balance 80,000 Depreciation20,000
Addition 30,000 Disposal15,000

Closing balance 75,000

110,000 110,000

Cash proceeds Rs.11,000

Carrying amount (Rs.15,000)
Gain on disposal 4,000
Statement of Cash Flows
Profit before tax 76,000
Adjustments For:
Depreciation expense – non cash expense 20,000
Loss on disposal – add 4,000

Investing activities
Cash paid to acquire PPE (30,000)
Proceeds from disposal of PPE 11,000
Cash inflow for the year 81,000
Add: Opening cash balance 200,000
Closing cash balance 2020 281,000
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IAS 7 STATEMENT OF CASH FLOWS

Concept of Interest Expense / Payable

Q 1. Balance sheet extracts
As at December 31, 2020
Assets 2020 2019
Property, plant and equipment 609,400 550,000
Cash and bank 1,185,000 125,600

Liabilities
Interest Payable 89,400 75,000

Statement of profit or loss extracts

For the year ended December 31, 2020
2020
Sales 1,500,000
Cogs (300,000)
1,200,000
Depreciation (40,000)
Gain on disposal of PPE 4,400
Finance cost (60,000)
Profit before tax 1,104,400

Further Information:
1. Details of property, plant and equipment:
a. Depreciation for the year ended Rs. 40,000.
b. Company disposed one of its plants having a carrying amount of Rs. 25,600
at a price of Rs. 30,000.
2. Interest expense for the year Rs. 60,000.

Required: Prepare statement of cash flows for the year ended December 31, 2020.

Q 2. Balance sheet extracts

As at December 31, 2020
2020 2019
Assets
Property, plant and equipment 754,400 650,000
Cash and bank 1,142,500 652,600

Liabilities
Interest Payable 75,000 85,600
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IAS 7 STATEMENT OF CASH FLOWS

Statement of profit or loss extracts

For the year ended December 31, 2020
2020
Sales 1,300,000
Cogs (500,000)
Gross profit 800,000
Depreciation (60,000)
Loss on disposal of PPE (15,100)
Interest expense (120,000)
Profit before tax 604,900

Further Information:
1. Details of property, plant and equipment:
a. Depreciation for the year ended Rs. 60,000.
b. Company disposed one of its plants having at a price of Rs. 20,500.
However, company acquired a machine at a price of Rs. 200,000.
2. Interest paid for the year Rs. 130,600.

Required: Prepare statement of cash flows for the year ended December 31, 2020.

Q 3. Balance sheet extracts

As at December 31, 2020
2020 2019
Assets
Property, plant and equipment 881,860 756,200
Cash and bank 1,933,620 856,200

Liabilities
Interest Payable 46,244 85,624

Statement of profit or loss extracts

For the year ended December 31, 2020
2020
Sales 2,184,300
Cogs (728,100)
Gross profit 1,456,200
Depreciation (145,000)
Gain on disposal of PPE 16,880
Interest expense (85,620)
Profit before tax 1,242,460
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IAS 7 STATEMENT OF CASH FLOWS
Further Information:
1. Details of property, plant and equipment:
a. Depreciation for the year ended Rs. 145,000.
b. Company disposed one of its plant at a price of Rs. 202,500 at a gain of
Rs.16,880.
2. Interest paid for the year Rs. 125,000.

Required: Prepare statement of cash flows for the year ended December 31, 2020.

Q 4. Balance sheet extracts

As at December 31, 2020
2020 2019
Assets
Property, plant and equipment 809,200 725,000
Cash and bank 567,750 456,250
Debtors 705,000 250,000

Liabilities
Interest Payable 51,280 25,680

Statement of profit or loss extracts

For the year ended December 31, 2020
2020
Sales 1,705,000
Cogs (1,023,000)
Gross profit 682,000
Depreciation (46,500)

Gain on disposal of PPE 40,200

Interest expense (50,600)
Profit before tax 625,100

Further Information:
1. Details of property, plant and equipment:
a. Depreciation for the year ended Rs. 46,500.
b. Company disposed one of its plant at a gain of Rs. 40,200. However,
company acquired a machine at a price of Rs. 156,200.
2. Interest expense for the year Rs. 50,600.

Required: Prepare statement of cash flows for the year ended December 31, 2020.
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IAS 7 STATEMENT OF CASH FLOWS

Q 5. Balance sheet extracts

As at December 31, 2020
2020 2019
Assets
Property, plant and equipment 1,205,000 862,500
Cash and bank 1,090,400 562,500
Debtors 69,000 125,000
Interest receivable 82,500 62,500

Liabilities
Interest Payable 680 25,680

Statement of profit or loss extracts

For the year ended December 31, 2020
2020
Sales 1,700,000
Cogs (765,000)
Gross profit 935,000
Depreciation expense (125,000)
Interest income 65,000
Interest expense (25,600)
Gain on disposal of PPE 10,000
Profit before tax 859,400
Further Information:
1. Company disposed one of its plant at a price of Rs. 105,000 earning a gain of Rs.
10,000. However, company acquired a machine at a price of Rs. 562,500.
2. Interest expense for the year Rs. 25,600.
3. Interest income for the year Rs. 65,000.

Required: Prepare statement of cash flows for the year ended December 31, 2020.

Q 6. Balance sheet extracts

As at December 31, 2020
2020 2019
Assets
Property, plant and equipment 251,860 256,840
Trade debts (Rec) 1,049,020 456,820
Cash and bank 179,740 87,560

Liabilities
Interest Payable 85,180 89,560
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Statement of profit or loss extracts

For the year ended December 31, 2020
2020
Sales 1,250,000
Cogs (350,000)
Gross profit 900,000
Interest expense (125,620)
Depreciation expense (85,000)
Loss on disposal of PPE (5,600)
Profit before tax 683,780
Further Information:
Company disposed one of its plants at a price of Rs. 40,000.

Required: Prepare statement of cash flows for the year ended December 31, 2020.

Q 7. Balance sheet extracts

As at December 31, 2020
2020 2019
Assets
Property, plant and equipment 1,194,032 562,802
Trade debts 1,625,620 875,620
Cash and bank 2,285,410 752,260
Investments 793,200 568,200
Dividend Receivable 105,000 125,000

Liabilities
Interest Payable 105,632 85,632

Statement of profit or loss extracts

For the year ended December 31, 2020
2020
Sales 4,500,000
Cogs (1,250,000)
Gross profit 3,250,000
Interest expense (75,620)
Depreciation expense (145,000)
Other income 70,000
Profit before tax 3,099,380
Further Information:
1. Company disposed one of its plant at a price of Rs. 40,000.
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IAS 7 STATEMENT OF CASH FLOWS
2. Other income represents dividend income of Rs. 60,000 and remaining gain on
disposal of PPE.
3. Investments above represent investment in shares of Babu limited. Company
made further investment during the in Babu limited.

Required: Prepare statement of cash flows for the year ended December 31, 2020.

Q 8. Balance sheet extracts

As at December 31, 2020
2020 2019
Assets
Property, plant and equipment 789,350 820,600
Cash and bank 2,417,480 745,260
Debtors 438,190 128,750
Inventory 194,600 165,200
Interest receivable 52,580 62,580

Liabilities
Interest Payable 4,280 25,680
Trade payable 118,560 98,560

Statement of profit or loss extracts

For the year ended December 31, 2020
2020
Sales 2,205,960
Cogs (35,600)
2,170,360
Depreciation expense (156,250)
Interest expense (80,600)
Interest income 52,500
Loss on disposal of PPE (14,800)
Profit before tax 1,971,210

Further Information:
1. Details of property, plant and equipment:
a. Company disposed one of its plant at a price of Rs. 135,200 having a
carrying amount of Rs. 150,000.
b. Depreciation expense for the year Rs. 156,250
2. Interest paid during the year Rs. 102,000.
3. Interest received for the year Rs. 62,500.

Required: Prepare statement of cash flows for the year ended December 31, 2020.
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Q 9. Balance sheet extracts

As at December 31, 2020
2020 2019
Assets
Property, plant and equipment 1,192,840 1,025,000
Cash and bank 2,941,800 625,300
Debtors 335,000 765,000
Inventory 184,420 265,000
Interest receivable 225,400 256,300

Liabilities
Interest Payable 195,000 160,000
Trade payable 875,820 956,200

Statement of profit or loss extracts

For the year ended December 31, 2020
2020
Sales 2,320,000
Cogs (256,200)
Gross profit 2,063,800
Depreciation expense (102,560)
Interest expense (60,000)
Interest Income 75,600
Gain on disposal of PPE 11,400
Profit before tax 1,988,240

Further Information:
1. Details of property, plant and equipment:
a. Company disposed one of its plant at a price of Rs. 97,000 having a carrying
amount of Rs. 85,600.
b. Depreciation expense for the year Rs. 102,560
2. Interest paid during the year Rs. 25,000.
3. Interest received for the year Rs. 106,500.

Required: Prepare statement of cash flows for the year ended December 31, 2020.
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Q 10. Balance sheet extracts

As at December 31, 2020
2020 2019
Assets
Property, plant and equipment 1,424,600 1,256,200
Cash and bank 2,777,020 895,620
Debtors 1,223,620 785,620
Inventory 362,600 562,000
Interest receivable 886,800 856,200
6,674,640 4,355,640
Equity and liabilities
Share capital of Rs. 10 each 725,000 500,000
Retained earnings 5,309,640 3,455,040
Liabilities
Interest Payable 214,400 175,000
Trade payable 425,600 225,600
6,674,640 4,355,640

Statement of profit or loss extracts

For the year ended December 31, 2020
2020
Sales 3,000,000
Cogs (625,000)
Gross profit 2,375,000
Depreciation expense (256,000)
Interest expense (85,000)
Interest income 56,200
Gain on disposal of PPE 14,400
Profit before tax 2,104,600
Further Information:
1. Details of property, plant and equipment:
a. Company disposed one of its plant at a price of Rs. 140,000 having a
carrying amount of Rs. 125,600.
b. Depreciation expense for the year Rs. 256,000
2. Interest expense for the Rs. 85,000.
3. Interest income for the year Rs. 56,200.
4. 10% bonus shares declared by company on July 1, 2020. Company also paid
interim cash dividend on October 1, 2020.
5. Company also made a further issue of shares on October 1, 2020.

Required: Prepare statement of cash flows for the year ended December 31, 2020.
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Tax Expense / Paid

Note: Cash income earned during the year 2020 ended Rs. 750,000.
* Tax expense for the year amounting to Rs. 187,500
Profit before tax 750,000
Tax paid (317,500)
Cash balance 432,500

Balance Sheet 2020 2019

Tax payable 20,000 150,000
Cash 432,500 ‑

Tax Payable
Cash (Bal. Fig.) 317,500 Opening balance150,000
(150K + 187.5K ‑ 20K) Tax expense187,500

Closing balance 20,000

337,500 337,500

Q 11. Balance sheet extracts

As at December 31, 2020
2020 2019
Assets
Property, plant and equipment 3,025,200 2,655,200
Cash and bank 1,948,000 1,562,800
Debtors 702,600 752,600
Inventory 637,021 562,021
Interest receivable 280,200 265,400
Total assets 6,593,021 5,798,021

Equity and liabilities

Share capital of Rs. 10 each 800,000 500,000
Retained earnings 4,998,921 4,672,421
5,798,921 5,172,421
Liabilities
Interest Payable 160,000 175,000
Trade payable 335,600 225,600
Tax payable 298,500 225,000
794,100 625,600
6,593,021 5,798,021
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Statement of profit or loss extracts

For the year ended December 31, 2020
2020
Sales 1,250,000
Cost of sales (450,000)
Gross profit 800,000
Operating expenses (175,000)
Profit from operations 625,000
Other income 70,000
Finance cost (50,000)
Profit before tax 645,000
Tax (193,500)
Profit after tax 451,500
Further Information:
1. Details of property, plant and equipment:
a. Company disposed one of its plant at a price of Rs. 115,000 having a
carrying amount of Rs. 105,000.
b. Depreciation expense for the year Rs. 175,000.
2. 15% bonus dividend declared by company on July 1, 2020. Company also paid
interim cash dividend on October 1, 2020.
3. Other income includes gain on disposal of Property, plant and equipment and
interest income.

Required: Prepare statement of cash flows for the year ended December 31, 2020.
Q 12. 2020 2019
Assets
Property, plant and equipment 2,177,100 1,652,300
Trade debts 1,472,820 875,620
Inventory 915,680 652,300
Cash and bank 6,045,600 1,369,850
Dividend Receivable 144,420 125,000

Equity
Share capital of Rs. 10 each 1,750,000 1,000,000
Share premium 800,000 500,000
Retained earnings 8,111,238 3,089,438

Liabilities
Interest Payable 94,382 85,632
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Statement of profit or loss extracts

For the year ended December 31, 2020
2020
Sales 6,523,500
Cogs (889,620)
Gross profit 5,633,880
Other operating expenses (337,700)
Profit from operations 5,296,180
Other income 195,620
Finance cost (95,000)
Profit before tax 5,396,800
Further Information:
1. Company disposed one of its plant at price of Rs. 120,000 earning a gain of Rs.
20,000 on July 1, 2020.
2. Impairment review carried at December 31, 2020 indicated that one of its machine
purchased on January 1, 2019 at a cost of Rs. 500,000 having a useful life of 5 years
have been impaired.
Details for impairment calculation are:
Fair value Rs.280,000
Cost to sell Rs.15,000
Expected net cash inflow for the remaining useful life from the machine are
116,613. interest rate applicable is 10%
3. During the year company purchased a plant at a price of Rs. 900,000.
4. Operating expenses include impairment loss and depreciation expense for the year
ended December 31, 2020.
5. Other income includes Dividend income and gain on disposal of Plant.
6. Finance cost for the year amounted to Rs. 95,000.
7. Company made a bonus issue of 15% on July 1, 2020. However, company also
issued further shares on October 1, 2020.
8. Cash dividend declared by the company on November 1, 2020.

Required: Prepare statement of cashflows for the year ended December 31, 2020.

6. Long Term Loans

CASE 1: Further Loan Obtained
Note: Cash income earned during the year 2020 ended Rs. 800,000 (assume no tax)
Profit before tax 800,000
Financing activities
Proceeds from loan 150,000

Cash balance 600,000

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Balance Sheet 2020 2019
Loan payable 1,050,000 900,000
Cash 950,000 ‑

Loan Payable
Opening balance 900,000
Cash 150,000
Closing balance 1,050,000
1,050,000 1,050,000
S.NO Particulars DR CR

1
Loan payable 150,000
CASE 2: Loan repayment
Note: Cash income earned during the year 2020 ended Rs. 800,000 (assume no tax)
Profit before tax 800,000
Financing activities
Repayment of loan (200,000

Cash balance 600,000

Balance Sheet 2020 2019

Loan payable 700,000 900,000
Cash 600,000 ‑

Loan Payable
Cash 200,000 Opening balance 900,000

Closing balance 700,000

900,000 900,000

S.NO Particulars DR CR
Loan Payable 200,000
1
Cash 200,000
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS
Q 13. The following are the draft financial statements for Hamza Ltd. for the year ended 31
March 2015.
STATEMENT OF PROFIT AND LOSS
Revenue 5,650,500
Cost of sales (3,460,600)
Gross profit 2,189,900
Distribution costs (978,800)
Administrative costs (256,000)
Profit from operations 955,100
Finance costs (89,000)
Profit before tax 866,100
Income tax (297,600)
Profit after tax 568,500
STATEMENT OF FINANCIAL POSITION 2015 2014
Non-Current Assets
Property, Plant and Equipment (at book value) 4,360,400 2,950,300
Investments 172,000 156,000
4,532,400 3,106,300
Current Assets
Inventories 460,600 365,100
Trade and other receivables 269,000 244,500
Government bonds 105,000 100,000
Cash and Cash equivalent 180,000 20,200
1,014,600 729,800
5,547,000 3,836,100
Equity
Ordinary share capital of Rs. 10 each 3,000,000 1,800,000
Share premium 1,050,000 850,000
Retained earnings 142,500 74,500
4,192,500 2,724,500
Non-Current Liabilities
Loans 556,000 472,000
Redeemable preference shares 150,000 ‑
Current Liabilities
Trade payables 348,500 289,600
Income tax payable 300,000 350,000

648,500 639,600
 5,547,000 3,836,100
Further Information:
1. During the year Hamza Ltd. made a 1 for 10 bonus issue of its ordinary shares. It
subsequently issued further shares at the market price.
2. An impairment review at 31 March 2015 identified a fall in the recoverable amount
of certain non‑current investments. As a result, an impairment loss of Rs.12,000
was identified and written off to administrative expenses.
3. During the year Hamza Ltd. acquired plant and equipment for cash of
Rs.2,057,000. In addition, plant and equipment with a fair value of Rs.600,000 was
acquired through a long‑term loan. The depreciation charge for the year, charged
to cost of sales, was Rs.750,600. A loss on sale of plant of Rs.55,000 was made
during the year.
4. Interest payable of Rs.10,000 has been included in trade payables at year end. The
corresponding figure in 2014 was Rs.5,000.
5. The government bonds are highly liquid and management has decided to class
them as cash equivalents.
6. Hamza Ltd. issued Rs.150,000 redeemable preference shares during the year.
7. Included in trade payables is Rs.10,000 in relation to the acquisition of long‑term
investments.
Required: Prepare a statement of cash flows for Hamza Ltd. the year ended 31
March 2015 in accordance with IAS 7.
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS

Q 14. The following are the draft financial statements for Farwa Ltd for the year ended 31
December 2017.
STATEMENT OF PROFIT AND LOSS
Revenue 7,350,500
Cost of sales (4,560,600)
Gross profit 2,789,900
Distribution costs (1,060,800)
Administrative costs (780,500)
Profit from operations 948,600
Investment income 12,500
Finance costs (75,000)
Profit before tax 886,100
Income tax (350,000)
Profit after tax 536,100
STATEMENT OF FINANCIAL POSITION 2017 2016
Non Current Assets
Property, Plant and Equipment ‑ NBV 6,985,400 6,713,500
Intangibles 350,700 300,500
7,336,100 7,014,000
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS

Current Assets
Inventories 60,500 365,100
Trade and other receivables 169,000 144,500
Investments 25,000 12,400
Cash and Cash equivalent 10,700 20,200
265,200 542,200
7,601,300 7,556,200
Equity
Ordinary share capital of Rs. 10 each 4,000,000 3,500,000
Share premium 1,200,000 950,000
Retained earnings 1,342,800 2,206,700
6,542,800 6,656,700
Non-Current Liabilities
Redeemable preference shares 500,000 400,000
Current Liabilities
Trade payables 148,500 139,500
Income tax payable 410,000 360,000
558,500 499,500
7,601,300 7,556,200
Further Information:
1. During the year Farwa Ltd issued redeemable preference shares at par.
2. The current asset investments are government bonds and management has
decided to class them as cash equivalents.
3. During the year Farwa Ltd sold plant and equipment with a carrying amount of
Rs.560,500 for Rs.600,000. Total depreciation charges for the year were Rs.750,600.
4. Trade payables include accrued interest of Rs.5,000 (2016 Rs.7,000).
5. Farwa Ltd acquired new intangible assets at a cost of Rs.77,500 during the year.
6. Included in trade and other receivables is dividend receivable of Rs.14,500 (2016
Rs.2,000).
7. An impairment review at 31 December 2017 identified a fall in the recoverable
amount of intangible assets. As a result, an impairment loss of Rs.15,000 was
identified and written off to administrative expenses.
8. Included in trade payables is Rs.10,000 which relates to the purchase of machinery.
9. During the year Farwa Ltd made a 1 for 100 bonus issue of its ordinary shares.
Required: Prepare a statement of cash flows for the year ended 31 December 2017 in
accordance with IAS 7.
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS
Q 15. As at 30 November 2022 Bamboo Ltd had the following summarized SOFP and SOCI:
STATEMENT OF FINANCIAL POSITION 2022 2021
Non-Current Assets
Property, Plant and Equipment ‑ Book value 2,543,000 2,401,000
Intangibles 550,000 584,000
Investment 406,000 ‑
3,499,000 2,985,000
Current Assets
Inventories 685,000 598,000
Trade and other receivables 480,000 465,000
Prepayments 96,000 126,000
Cash and Cash equivalent 426,000 200,000

1,687,000 1,389,000
5,186,000 4,374,000

Equity
Ordinary share capital of Rs. 10 each 1,100,000 1,000,000
Share premium 342,000 200,000
Retained earnings 1,785,000 1,311,000
3,227,000 2,511,000
Non-Current Liabilities
Loans 500,000 1,000,000
Redeemable preference shares 200,000 ‑

700,000 1,000,000
Current Liabilities
Trade payables 749,000 427,000
Accruals 108,000 131,000
Income tax payable 282,000 165,000
Provisions 120,000 140,000
1,259,000 863,000
5,186,000 4,374,000
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS

STATEMENT OF PROFIT AND LOSS

Revenue 5,762,000
Cost of sales (4,630,000)
Gross profit 1,132,000
Distribution costs (236,000)
Administrative costs (127,000)
Profit from operations 769,000
Finance costs (68,000)
Investment income 55,000
Profit before tax 756,000
Income tax (232,000)
Profit after tax 524,000
Further Information:
1. Included within trade payables at 30 November 2022 is Rs.351,000 (2021
Rs.106,000) relating to purchases of property, plant and equipment.
2. Included within accruals at 30 November 2022 is Rs.25,000 (2021 Rs.50,000) for
interest payable.
3. Property, plant and equipment and intangible assets can be analyzed as follows:
2022 2021
Property, plant and equipment
Cost 7,464,000 6,375,000
Accumulated depreciation (4,921,000) (3,974,000)
2,543,000 2,401,000
Intangible assets
Cost 883,000 938,000
Accumulated amortization (333,000) (354,000)
550,000 584,000
4. During the year, plant with an original cost of Rs.479,000 and a carrying amount at
the date of disposal of Rs.326,000 was sold for Rs.424,000 which was received in cash.
5. Bamboo Ltd. received Rs.20,000 during the year from the sale of highly liquid
investments, which were classed as cash equivalents.
6. During the year, Bamboo Ltd. made a 1 for 20 bonus issue of its ordinary shares
from retained profits. Company also made a further issue.
7. Included in trade and other receivables at the year‑end was Rs.25,000 in relation
to investment income. The corresponding figure for 2021 was Rs.15,000.
8. Intangible assets with accumulated amortization at the date of disposal of
Rs.40,000 were sold for Rs.12,000. There were no acquisitions of intangible assets
during the year.
9. Redeemable preference shares in the amount of Rs.200,000 were issued during the year.
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS

Required: Prepare a statement of cash flows for Bamboo Ltd, for the year ended 30
November 2022 in accordance with IAS 7.

Q 16. As at May 31 2022, Chintu Ltd had the following summarized statement of financial
position:
STATEMENT OF FINANCIAL POSITION 2022 2021
Non-Current Assets
Property, Plant and Equipment ‑ book value 1,086,000 1,090,000
Intangibles ‑ Book value 5,670,000 5,930,000
Investments 2,145,000 127,000
8,901,000 7,147,000
Current Assets
Investments 60,000 40,000
Inventories 1,112,000 1,086,000
Trade receivables 948,000 840,000
Prepayments 95,000 108,000
Cash 299,000 182,000

2,514,000 2,256,000
11,415,000 9,403,000
Equity
Ordinary share capital 1,800,000 1,000,000
Share premium 1,543,000 1,421,000
Retained earnings 2,689,000 746,000
6,032,000 3,167,000
Non-Current Liabilities
15% Debenture Loan 3,000,000 4,500,000
Preference shares 100,000 ‑
3,100,000 4,500,000
Current Liabilities
Trade payables 1,417,000 896,000
Accruals 225,000 337,000
Income tax payable 641,000 503,000
2,283,000 1,736,000
11,415,000 9,403,000
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS

STATEMENT OF PROFIT AND LOSS

Revenue 8,646,000
Cost of sales (3,705,000)
Gross profit 4,941,000
Distribution costs (465,000)
Administrative costs (621,000)
Profit from operations 3,855,000
Finance costs (563,000)
Investment income 78,000
Profit before tax 3,370,000
Income tax (684,000)
Profit after tax 2,686,000

Further Information
1. During the year plant and equipment with an original cost of Rs.1,201,000 and a
carrying amount at the date of disposal of Rs.496,000 was sold at a loss of
Rs.189,000. As at 31 May 2022 Rs.165,000 of the sale proceeds had yet to be
received and is included within trade receivables. As at 31 May 2021 the
corresponding figure in respect of disposals made during the year then ended
was Rs.79,000, which was received in full in June 2021.
2. As in the previous year, all acquisitions of property, plant and equipment made
during the year were paid for in cash at the date of acquisition. However,
included within trade payables at 31 May 2022 is Rs.376,000 (2021 – Rs. Nil)
relating to the acquisition of intangible assets.
3. There were no disposals of intangible assets or investments during the year.
Trade receivables at 31 May 2022 include Rs.10,000 (2021 – Rs.8,000) in respect of
interest receivable on investments.
4. As at 31 May 2021 the ordinary share capital of Chintu Ltd. consisted of 100,000
shares, each with a Rs.10 nominal value. The following day the company made a
1 for 2 bonus issue of 50,000 shares (utilizing available profits).
5. Dividends of Rs.243,000 were paid during the year ended 31 May 2022.
6. The current asset investments are government bonds and management has
decided to class them as cash equivalents.
7. During the year Chintu Ltd. issued 10,000 redeemable preference shares of Rs. 10
each.
8. Included within accruals at 31 May 2022 is Rs.125,000 (2021 Rs.75,000) for interest
payable.
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS
9. Property, plant and equipment and intangible assets can be analyzed as follows.

2022 2021
Property, plant and equipment
Cost 3,284,000 3,091,000
Accumulated depreciation ‑ 2,198,000 ‑ 2,001,000
1,086,000 1,090,000
2022 2021
Intangible assets
Cost 9,360,000 8,645,000
Accumulated amortization ‑ 3,690,000 ‑ 2,715,000
5,670,000 5,930,000

Required: Prepare a statement of cash flows for the year ended 31 May 2022 in
accordance with IAS 7.

DIRECT METHOD

Comparison between Indirect and Direct method

Indirect method Direct method
Profit before tax xxx Not started from PBT
Cash received from customers xxx
Dep xxx Cash paid to suppliers (xxx)
Amortization xxx Cash paid to employees and others (xxx)
Profit from Operations xxx Cash generated from op activities xxx
Working capital changes
‑ Account receivable xxx/(xxx)
‑ Account payable xxx/(xxx) Tax paid (xxx)
‑ Inventory xxx/(xxx) Interest paid (xxx)
Cash generated from op activities xxx Net ‑ cash generated from op activities xxx

Tax paid (xxx)

Interest paid (xxx)
Net ‑ cash generated from op activities xxx
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS
Q 17. Basic Case
2019 2018
Current assets
Stock in trade 900,000 800,000
Trade Receivable 700,000 600,000
Cash 977,500 900,000
Current Liabilities
Trade payable 200,000 400,000
Interest payable 45,000 85,000
Tax payable 85,000 150,000
Statement of profit or loss
For the year ended December 31, 2019
Sales 1,200,000
COGS (400,000)
Gross profit 800,000
Operating expenses (50,000)
Interest exp (40,000)
Profit before tax 710,000
Tax (177,500)
Profit after tax 532,500
Further Information:
Operating expenses represents depreciation expense of Rs. 50,000.

Required: Prepare cashflow statements for the year ended December 31, 2019.

Q 18. Basic Case - with unidentifiable expenses

2019 2018
Current assets
Stock in trade 900,000 650,000
Trade Receivable 700,000 500,000
Cash 998,750 1,200,000
Current Liabilities
Trade payable 200,000 300,000
Interest payable 45,000 95,000
Other payable 125,000 250,000
Tax payable 75,000 175,000
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS

Statement of profit or loss

For the year ended December 31, 2019
Sales 1,700,000
COGS (650,000)
Gross profit 1,050,000
Operating expenses (225,000)
Interest exp (60,000)
Profit before tax 765,000
Tax (191,250)
Profit after tax 573,750
Further Information:
Operating expenses include depreciation expense of Rs. 50,000.

Required: Prepare cashflow statements for the year ended December 31, 2019.

Q 19. Balance sheet as at December 31, 2019 2019 2018

Current assets
Stock in trade 1,100,000 725,000
Trade Receivable 450,000 1,500,000
Cash 1,882,500 1,200,000
Current Liabilities
Trade payable
Interest payable 125,000 550,000
Tax payable 45,000 95,000
Statement of profit or loss
For the year ended December 31, 2019
Sales 2,000,000
COGS (850,000)
Gross profit 1,150,000
Operating expenses (325,000)
Interest exp (75,000)
Profit before tax 750,000
Tax (187,500)
Profit after tax 562,500
Further Information:
Operating expenses represents depreciation expense of Rs. 50,000.

Required: Prepare cashflow statements for the year ended December 31, 2019.
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS
Q 20. Balance sheet as at December 31, 2019 2019 2018
Non-current assets
Property, plant and equipment 2,117,560 1,560,000
Investment property 6,500,000 5,000,000

Current assets
Stock in trade 200,000 650,000
Trade Receivable 3,500,000 1,100,000
Cash 2,343,690 1,500,000
Total Assets 14,661,250 9,810,000

Equity and liabilities

Share capital (of Rs. 10 each) 6,000,000 5,000,000
Retained earnings 7,307,250 4,076,000
Current Liabilities
Trade and other pay 859,000 414,000
Interest payable 45,000 95,000
Tax payable 450,000 225,000
14,661,250 9,810,000
Statement of profit or loss
For the year ended December 31, 2019
Sales 5,500,000
COGS (1,500,000)
Gross profit 4,000,000
Operating expenses (230,000)
Interest exp (95,000)
Other income 1,500,000
Profit before tax 5,175,000
Tax (1,293,750)
Profit after tax 3,881,250
Further Information:
1. Details of Property, plant and equipment:
2019 2018
Property, plant and equipment 1,930,000 1,310,000
CWIP Note 1 187,560 250,000
2,117,560 1,560,000
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS

Details of CWIP
Op Addition Transfer Closing
250,000 87,560 (150,000) 187,560
During the year company disposed Plant having book value of Rs. 235,000 at
a price of Rs. 355,000. Gain on disposal of plant have been netted against
operating expenses.
2. Depreciation for the year amounting to Rs. 75,000 (included in operating expenses)
3. Other income above represents gain on fair valuation of investment property.
4. Company issued bonus shares of 10% to shareholders available at start of the year.

Required: Prepare cashflow statements for the year ended December 31, 2019.

Q 21. Set out below are extracts from Assam plc’s draft financial statements for the year
ended 30 September 2012. The financial controller, who has not yet prepared a
statement of cash flows, has also provided some additional information.
Income statement for the year ended 30 September 2012 (extract)
£
Profit from operations 126,800
Finance cost (20,000)
Profit before taxation 106,800
Income tax expense (35,000)
Profit after taxation 71,800

2012 2011 Extract

Assets Rs. In "000" from
Property plant & equipment ‑ net 1,940,250 1,197,600 statement
Current assets: of
Inventories 98,500 101,500 financial
Trade and other receivables 105,780 156,850 position as
Cash & cash equivalent 200 1,500 on 30
2,144,730 1,457,450 September
Equity and Labilities 2012
Share capital (£1 each) 500,000 300,000
Share premium 250,000 150,000
Retained earnings 632,670 710,850

Non-current liabilities:
5% irredeemable preference share capital (50p shares) 500,000 ‑
Finance lease liabilities 44,000 50,000

Current liabilities:
Trade and other payables 123,560 145,600
Finance lease liabilities 17,000 15,000
Bank overdraft 2,500 ‑
Income tax payable 75,000 86,000
2,144,730 1,457,450
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS
Further Information:
1. During the current year the following occurred in relation to property, plant and
equipment:
 Machinery with a carrying amount of £10,500 was scrapped.
 Other machinery was sold for a profit of £12,000.
 Total depreciation of £235,750 was charged.
 Plant with a cash price of £13,900 was acquired under a finance lease.
 Machinery was purchased outright for cash of £980,000.
There were no other movements on property, plant and equipment during the
year.
2. The finance costs for the current year include the following:
 Amount paid on 30 September 2012 on the irredeemable preference shares.
 Interest on finance leases.
 Interest on the bank overdraft. Accrued bank interest of £750 (2011: £450)
is included in trade and other payables.
The irredeemable preference shares were issued at par on 1 April 2012. The
financial controller has included these shares under non‑current liabilities
although he is unsure if this is the correct treatment.
3. During the year, Assam plc issued a number of ordinary shares for cash. This was
followed by a 1 for 4 bonus issue of ordinary shares out of retained earnings.
4. Assam plc’s draft statement of changes in equity for the current year shows that it
paid an interim ordinary dividend.

Required: Prepare a statement of cash flows for Assam plc for the year ended 30
September 2012, including a note reconciling profit before tax to cash generated from
operations, using the indirect method.
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS

Q 22. The financial controller of Dalma plc has supplied an extract from the company’s draft
income statement for the year ended 30 June 2011 and its draft statement of financial
position as at that date, along with some additional information, in readiness for the
preparation of Dalma plc’s statement of cash flows.
Income statement for the year ended 30 June 2011 (extract)
£
Profit from operations 104,700
Investment income 1,200
Finance cost (11,500)
Profit before taxation 94,400
Income tax expense (25,600)
Profit after taxation 68,800

Extract from statement of financial position as on 31 December 2017

2011 2010
Assets Rs. In "000"
Property plant & equipment ‑ net 567,250 528,460
Investments 35,000 35,000
Current assets:
Inventories 20,890 31,760
Trade and other receivables 41,800 61,600
Cash & cash equivalent 6,060 4,980
671,000 661,800
Equity and Labilities
Share capital (£1 each) 250,000 175,000
Share premium 193,750 137,500
4% Irredeemable preference shares 50,000 50,000
Retained earnings 61,045 67,245

Non-current liabilities:
6% Debentures 50,000 170,000

Current liabilities:
Trade and other payables 17,915 9,385
Provisions 23,390 24,780
Income tax payable 24,900 27,890
671,000 661,800
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS
Further Information:
1. During the year Dalma plc acquired new property, plant and equipment for cash.
Depreciation of £82,600 was correctly calculated and charged for the year. Several
items of property, plant and equipment were sold for cash of £57,000, making a
profit of £3,700 and a machine with a carrying amount of £1,010 was scrapped on
30 June 2011.
2. Trade and other receivables include interest receivable of £4,700 (2010: £5,650).
3. Trade and other payables include interest payable of £4,100 (2010: £5,900).
4. The correct amount due on the 4% irredeemable preference shares was paid at the
year end, although the amount was incorrectly recognised as finance costs. In
addition, Dalma plc paid an ordinary dividend during the year.
5. New ordinary shares were issued on 1 November 2010. Some of these shares were
issued to the holders of the 6% Debentures to redeem part of the debt at par (there
were no other movements on the 6% Debentures during the year). The remaining
shares were issued for cash.

Required: Prepare a statement of cash flows for Dalma plc for the year ended 30 June
2011, including a note reconciling profit before tax to cash generated from operations,
using the indirect method.
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS

PAST PAPERS

Q 23. SPRING 2018 (15 MARKS)

Following information pertains to Nadir Limited:
Extract from statement of profit or loss for the year ended 31 December 2017
Rs. in '000
Profit before taxation 8,955
Taxation (2,945)
Profit after taxation 6,010
Extract from statement of financial position as on 31 December 2017
2017 2016
Assets Rs. In "000"
Property plant & equipment ‑ net 17,400 15,800
Current assets:
Stock in trade 5,600 5,750
Trade receivables ‑ net 6,840 4,446
Other receivables 2,385 800
Cash & bank 2,355 3,204
34,580 30,000
Equity and Labilities
Share capital 12,400 10,000
Share premium 1,400 ‑
Retained earnings 13,450 12,440

Non-current liabilities:
Long‑term loans 4,100 5,000
Current liabilities:
Trade payables 1,900 1,400
Accruals & other payables 680 660
Tax liability 650 500
34,580 30,000

Further-Information:
1. Shares issued during the year were as follows:
a. 10% bonus shares in March 2017.
b. Further issue of shares at market price in July 2017.
2. During the year, a plant costing Rs. 9,500,000 and having a book value of Rs.
5,200,000 was disposed of for Rs. 4,800,000 of which Rs. 1,800,000 are still
outstanding.
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS
3. Depreciation for the year amounted to Rs. 7,350,000.
4. Financial charges for the year amounted to Rs. 1,100,000. Accrued financial charges
as on 31 December 2017 amounted to Rs. 112,000 (2016: Rs. 48,000).
5. Provision for doubtful trade receivables is maintained at 5%.

Required: Prepare statement of cash flows for the year ended 31 December 2017, in
accordance with IAS 7 ‘Statement of Cash Flows’ using indirect method.

Q 24. SPRING 2019 (14 MARKS)

Junior Accountant of Drum Limited has prepared the following statement of cash
flows for the year ended 31 December 2018:
Statement of cash flows Rs. in '000
Cash flows from operating activities
Increase in retained earnings 1,360
Increase in dividend payable 200
Increase in net trade receivables ‑100
Increase in interest accrued 50
1,510
Cash flows from investing activities
Increase in land and building (2,600)
Increase in equipment (1,550)
Decrease in inventory 400
Decrease in tax payable (60)
(3,810)
Cash flows from financing activities
Increase in share capital and premium 2,350
Decrease in long term loan (1,000)
Increase in trade and other payables 600
1,950
Decrease in cash balance during the year (350)
Opening cash balance 450
Closing cash balance 100
Further Information:
Junior Accountant informed you that he has taken the difference of opening and
closing balances of each balance sheet item and classified each difference as either
operating, investing or financing cash flows. He further informed that the statement is
tied up with the cash balances appearing in the balance sheet. He has ignored the
following information:
1. Depreciation on building and equipment amounted to Rs. 480,000 and Rs. 810,000
respectively.
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS
2. During the year, equipment costing Rs. 560,000 and having a book value of Rs.
310,000 was sold for Rs. 440,000.
3. Provision for doubtful debts was increased by Rs. 140,000.
4. Dividend amounting to Rs. 700,000 was paid during the year.
5. Interest and tax expenses for the year amounted to Rs. 378,000 and Rs. 650,000
respectively.
6. Trade and other payables as at 31 December 2018 included Rs. 950,000 for purchase
of land and building.

Required: Prepare statement of cash flows for the year ended 31 December 2018, in
accordance with IAS 7 ‘Statement of Cash Flows’ using indirect method.

Q 25. AUTUMN 2019 (19 MARKS)

Following are the extracts from the financial statements of Sunday Traders Limited
(STL) for the year ended 30 June 2019:
2019 2018
Assets Rs. in million
Property, plant & equipment 8,555 7,240
Investment property 1,800 1,120
Stock in trade 4,800 4,500
Prepayments 184 268
Trade receivables 3,800 3,600
Cash 194 480
19,333 17,208
Equity & Liabilities
Share capital (Rs. 100 each) 4,650 3,450
Share premium 1,600 1,240
Retained earnings 1,652 (655)
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOW

Long Term Loans 6,024 6,523

Trade Payable 3,422 5,390
Contract Liability 250 40
Accrued Liability 310 180
Interest payable 135 110
Current maturity of long‑term loan 850 700
Provision for taxation 440 230
19,333 17,208

STATEMENT OF PROFIT AND LOSS YR ENDED 30 JUNE Rs.in Million

2019
Sales 29,700
Cost of sales (15,750)
Gross profit 13,950
Distribution cost (6,185)
Administrative cost (2,302)
Other income 404
Profit before interest and tax 5,867
Interest expenses (1,210)
Profit before tax 4,657
Tax expense (1,150)
Profit after tax 3,507
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOW

Further Information
1. 72% of sales were made on credit.
2. Depreciation expense for the year amounted to Rs. 750 million which was
charged to distribution and administrative cost in the ratio of 3:1.
3. Distribution cost includes:
a. Rs. 40 million in respect of loss on disposal of equipment. The written
down value at the time of disposal was Rs. 152 million.
b. impairment loss on vehicles amounting to Rs. 24 million.

4. Loan instalments (including interest) of Rs. 1,984 million were paid during the
year.

5. Other income comprises of:

a. increase in fair value of investment property amounting to Rs. 220
million.
b. rent received from investment property amounting to Rs. 184 million.
6. During the year, STL issued right shares at premium.

Required: Prepare STL’s statement of cash flows for the year ended 30 June 2019 using
direct method.

Q 26. AUTUMN 2020 (17 MARKS)

Statement of financial position of Taxila Limited (TL) as on 30 June 2020 is as follows:

2020 2019
Assets Rs. in million
Property, plant & equipment 1,539 1,200
Investment property 290 120
Inventories 205 180
Trade receivables 342 291
Prepayments & other receivables 14 20
Short‑term investments 60 48
Cash and bank balances 24 6
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS

2,474 1,865
Equity & liabilities
Share capital (Rs. 100 each) 1,200 800
Share premium 290 150
Retained earnings 395 290
Long‑term loans 367 445
Trade & other payables 144 120
Current portion of long‑term loans 78 60
2,474 1,865
Further Information
1. Equipment having fair value of Rs. 240 million was acquired by issuing 2 million
shares.
2. During the year, fully depreciated items of property, plant and equipment
costing Rs. 36 million were sold for Rs. 8 million out of which Rs. 3 million is still
outstanding.
3. Depreciation on property, plant and equipment for the year amounted to Rs. 290
million.
4. An investment property was acquired for Rs. 180 million. TL applies cost model
for subsequent measurement of its investment property.
5. Financial charges for the year amounted to Rs. 45 million. Trade and other
payables include accrued financial charges of Rs. 12 million (2019: Rs. 17 million).
6. Short‑term investments amounting to Rs. 35 million are readily convertible to
cash (2019: Rs. 20 million). Investment income for the year amounted to Rs. 6
million.

Required: Prepare TL’s statement of cash flows for the year ended 30 June 2020 in
accordance with the requirements of IFRSs.
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS
Q 27. AUTUMN 2021 (16 MARKS)
Following are the extracts from the financial statements of Saguaro Limited (SL) for
the year ended 30 June 2021:
2021 2020
Assets Rs. In Million
Operating fixed assets 820 848
Accumulated depreciation (300) (262)
Capital work in progress 84 ‑
Inventories 274 245
Trade receivables 177 204
Insurance claim ‑ 31
Advance to supplier 78 60
Cash and bank balances 193 112
1,326 1,238
Equity and Liabilities
Share capital (Rs.10 each) 700 500
Share discount (40) ‑
Retained earnings 220 315
Long term loans 175 210
Trade payables 180 130
Accrued expenses 48 43
Current portion of long‑term loan 43 40
1,326 1,238
Statement of profit or loss
Sales 757
Cost of sales (485)
Gross profit 272
Operating expenses (310)
Gain on disposal of equipment 17
Loss before interest (21)
Further Information
1. SL declared a final dividend of 10% on 30 September 2020 which was paid in
December 2020.
2. 20 million shares were issued in May 2021.
3. Insurance claim was related to plant and machinery destroyed in April 2020. The
plant had cost and book value of Rs. 63 million and Rs. 42 million respectively.
4. During the year, SL disposed of equipment having cost and net book value of Rs.
75 million and Rs. 35 million respectively.
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS
5. Current portion of long‑term loans include accrued interest of Rs. 5 million.
(2020: Rs. 1 million)
6. Trade payables include an amount of Rs. 14 million payable against capital work
in progress.

Required: Prepare SL’s statement of cash flows for the year ended 30 June 2021.

Q 28. AUTUMN 2022 (15 MARKS)

Following is the statement of financial position of Quicken Limited (QL) as at 30 June
2022:
2022 2021
Assets Rs. In Million
Land and building 748 526
Vehicles 118 96
Inventories 365 444
Trade & other receivables 212 185
Cash and bank balances 73 111
1,516 1,362
Equity and Liabilities
Share capital 480 400
Revaluation surplus 135 ‑
Retained earnings 337 325
Long term loans 335 460
Trade and other payables 160 142
Advance from customers 69 35
1,516 1,362
Additional Information
1. During the year, land and building were revalued for the first time, resulting in a
surplus of Rs. 150 million and incremental depreciation of Rs. 15 million.
2. Depreciation on building charged to profit or loss amounted to Rs. 72 million.
3. During the year, vehicles having book value of Rs. 8 million were sold for Rs. 11
million received in cash. Further, sale proceeds of Rs. 6 million of another vehicles
(book value Rs. 7 million) disposed of in May 2021 were received in August 2021.
4. Vehicles costing Rs. 51 million were purchased during the year of which Rs. 12
million is still unpaid.
5. Inventories as at 30 June 2022 included work in process inventories of Rs. 96
million (2021: Rs. 80 million) which are not available for sale.
6. Interest on loan for the year amounted to Rs. 48 million of which Rs. 14 million
was capitalized in the cost of a building constructed during the year.
 FINANCIAL ACCOUNTING & REPORTING I
IAS 7 STATEMENT OF CASH FLOWS
7. Following dividends were announced for the year ended 30 June 2022 and 2021:

2022 20% interim bonus shares and 15% final cash dividend
2021 5% interim bonus shares and 10% final cash dividend

Required: Prepare QL’s statement of cash flows for the year ended 30 June 2022.

Q 29. SPRING 2022 (08 MARKS)

Following information pertains to Dahl Limited (DL):
Summarized statement of financial position as at 31 December 2021
2021 2020
Assets Rs. In Million
Property plant & Equipment 14.7 10.6
Working capital other than cash 24.5 17.8
Cash 4.7 15.4
43.9 43.8
Equity and Liabilities
Share capital 11 10
Retained earnings 32.9 33.8
43.9 43.8

Additional Information
(i) Final dividend was paid in respect of year 2020 amounting to Rs. 3.4
million.
(ii) Additions to property, plant and equipment during the year amounted to
Rs. 14 million.
(iii) Tax expense for the year amounted to Rs. 2.4 million. Tax payable as at 31
December 2021 amounted to Rs. 1 million (2020: Rs. 0.2 million)

Required: Prepare DL’s statement of cash flows for the year ended 31 December 2021.

FINANCIAL ACCOUNTING & REPORTING I

 IAS 7 STATEMENT OF CASH FLOWS

Q.30. Theory Question:

You are working as Finance Manager in Broad Peak Limited (BPL). Faraz has recently joined BPL
as an internee for three months. You have asked him to develop an understanding of the
statement of cash flows. After going through few statements, he has raised the following queries:
i. Depreciation is not a cash flow but was still appearing as an addition in the statement of cash
flows.
ii. In the statement of cash flows of a competitor, interest paid was shown as a financing activity,
but BPL showed it in operating activities.
iii. BPL purchased inventories throughout the year, but total purchases of inventory were not
shown in the statement. However, only decrease in inventory was added.
iv. Cash and bank balance in the statement of financial position was not in agreement with the
opening and closing balances at the end of statement of cash flows.

Required: Briefly answer the queries raised by Faraz.

Q.31. Autumn 2023 – 18 Marks

2023 2022 2023 2022
Equity And Liabilities Assets
Rs. In Million Rs. In Million
Share capital 16,000 13,000 Property, plant and equipment 13,835 14,300
Share premium 1,120 ‑ Capital work‑in‑progress 3,485 2,500
Retained earnings 10,150 10,800 Investment properties 1,820 1,950
Long‑term loan 3,275 3,540 Inventories 7,450 5,000
Trade and other payables 1,485 935 Trade receivables ‑ net 3,588 4,085
Accrued interest 140 195 Advance tax 36 ‑
Dividend payable 260 140 Cash and bank balances 2,216 1,010
Tax payable ‑ 235
32,430 28,845 32,430 28,845

Additional Information
1. The interest payment for the year amounted to Rs. 700 million, of which Rs. 300 million
has been capitalized in capital work‑in‑progress.
2. The transfer from capital work‑in‑progress to property, plant and equipment amounted to
Rs. 550 million.
3. An old machine costing Rs. 520 million with a book value of Rs. 350 million was traded‑in
for a new machine costing Rs. 600 million on payment of Rs. 200 million.
4. DL acquired an investment property costing Rs. 300 million, of which Rs. 125 million is
still unpaid. DL applies fair value model for subsequent measurement of its investment
properties.
5. The provision for doubtful trade receivables at 30 June 2023 was estimated at 8% (2022:
5%).
6. During the year, DL issued 10% bonus shares. Subsequently, a right issue was also made.
7. The tax charge for the year amounted to Rs. 750 million at 30% of profit before tax.
8. DL classifies dividends and interest payments in a way that keeps ‘cash flows from
operating activities’ higher.

Required
Prepare DL's statement of cash flows for the year ended 30 June 2023.

Q.32 AUTUMN-2024 – 18 Marks:

The draft financial statements of Lyallpur Limited (LL) are presented below:

Statement of financial position as at 31 December 2023

Assets 2023 2022 Equity and Liabilities 2023 2022

Rs.in Million Rs.in Million
Property, plant and equipment 555 218 Share capital (Rs. 10 each) 681 410
Accumulated depreciation (148) (92) Share premium 120 50
Investment property 310 210 Retained earnings 130 90
Inventories 275 261 Long-term loans 220 150
Trade receivables 255 230 Trade payables 109 60
Allowance for doubtful debts (17) (11) Accrued expenses 25 21
Prepayments 12 4 Accrued interest 4 6
Cash and bank balances 47 9 Bank overdraft ‑ 42
1,289 829 1,289 829

Statement of profit or loss for the year ended 31 December 2023

Rs.in Million
Sales 1,450
Cost of sales (860)
Gross profit 590
Selling and administrative expenses (450)
Other income 30
Financial charges (16)
Net profit 154

Additional information:
1. 10 million shares were issued in consideration for the purchase of machinery having a fair value
of Rs. 150 million.
2. Equipment with a cost of Rs. 35 million and accumulated depreciation of Rs. 21 million was
sold at a gain of Rs. 5 million.
3. The fair value model was applied for the subsequent measurement of investment property.
During the year, the fair value of the investment property was decreased by Rs. 40 million and
rent amounting to Rs. 25 million was received from the investment property.
4. Bad debts amounting to Rs. 36 million were written off, while bad debts previously written off,
amounting to Rs. 15 million, were recovered.

Required:
Prepare LL’s statement of cash flows for the year ended 31 December 2023 using the direct
method.