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IFRS – The structure of the Cash Flow Statement

IFRS The structure of the Cash Flow Statement

IFRS The structure of the Cash Flow Statement : International Financial Reporting Standards (IFRS) is a set of accounting standards developed by an independent, not-for-profit organisation called the International Accounting Standards Board (IASB).

IFSR Provides global framework for should companies prepare and disclose their financial statements. All the general guidelines for preparation of financial statements are provided in IFRS.

IFRS provides international standards, having an international standard is very much important for the company. A single set of world wide standard will simply accounting procedure for a company to use one reporting language. Investors and auditors will also be provided with cohesive view of finance.

IFRS The structure of the Cash Flow Statement

Conceptual Foundations of Financial Statements.

  • – The objective of financial reporting;
  • – The main assumptions;
  • – Qualitative characteristics of financial reporting;
  • – Elements of Financial Statements: recognition and measurement;
  • – Concepts of capital.

IFRS IAS 7 Statement of Cash Flows (CCF): Contents

  1. Introduction to the requirements
  2. Requirements
  3. Scope of this Section
  4. Cash equivalents
  5. Information to be presented in the statement of cash flows
  6. Reporting cash flows from operating activities
  7. Reporting cash flows from investing and financing activities
  8. Foreign currency cash flows 21 Interest and dividends Income tax
  9.  Non-cash and cash transactions
  10. Components of cash and cash equivalents
  11.  Other disclosures

IFRS The structure of the Cash Flow Statement:

This module, updated in January 2013, focuses on the requirements for the presentation of the statement of cash flows in accordance with Section 7 Statement of Cash Flows of the IFRS for SMEs that was issued in July 2009 and the related non-mandatory guidance subsequently provided by the IFRS Foundation SME Implementation Group.. Section 3 Financial Statement Presentation sets out general presentation requirements and Sections 4–8 focus on the requirements for presenting the individual statements that together comprise a complete set of financial statements.

This module introduces the learner to the subject, guides the learner through the official text, develops the learner’s understanding of the requirements through the use of examples and indicates significant judgements that are required in presenting a statement of cash flows. Furthermore, the module includes questions designed to test the learner’s knowledge of the requirements and case studies to develop the learner’s ability to present a statement of cash flows in accordance with the IFRS for SMEs.

IFRS The structure of the Cash Flow Statement

IFRS IAS 7 Statement of Cash Flows (CCF): Learning objectives Upon successful completion of this module you should know the financial reporting requirements for the statement of cash flows in accordance with the IFRS for SMEs as issued in July 2009. Furthermore, through the completion of case studies that simulate aspects of the real-world application of that knowledge, you should have enhanced your competence to present the statement of cash flows in accordance with the IFRS for SMEs. In particular you should, in the context of the IFRS for SMEs:

  1. Know the purpose of the statement of cash flows;
  2. Understand the requirements for presenting this statement;
  3. Be able to distinguish cash equivalents from other financial assets;
  4. Be able to distinguish the cash flows from operating, investing and financing activities;
  5. Be able to prepare the statement of cash flows using both the indirect method and the direct method; and
  6. Be able to prepare notes to financial statements and commentary by management in accordance with the requirements of Section 7 of the IFRS for SMEs.

IFRS The structure of the Cash Flow Statement: Demo example

Structure of IFRS The structure of the Cash Flow Statement

Consolidated statement of comprehensive income for the period ended 20X2
Sales30,650
Cost of sales( 26,000)
Gross profit4,650
Depreciation( 450)
Administrative and selling expenses( 910)
Interest expense( 400)
Investment income500
Foreign exchange loss( 40)
Profit before taxation3,350
Taxes on income( 300)
Profit3,050 (a)
(a)   The entity did not recognise any components of other comprehensive income in the period ended 20X2
Consolidated statement of financial position as at end of 20X2
20X220X1
Assets
Cash and cash equivalents230160
Accounts receivable1,9001,200
Inventory1,0001,950
Portfolio investments2,5002,500
Property, plant and equipment net2,280850
Total assets7,9106,660
Liabilities
Trade payables2501,890
Interest payable230100
Income taxes payable4001,000
Long-term debt2,3001,040
Total liabilities3,1804,030
Shareholders’ equity
Share capital1,5001,250
Retained earnings3,2301,380
Total shareholders’ equity4,7302,630
Total liabilities and shareholders’ equity7,9106,660
 Direct method statement of cash flows
20X2
Cash flows from operating activities
Cash receipts from customers30,150
Cash paid to suppliers and employees( 27,600)
Cash generated from operations2,550
Interest paid( 270)
Income taxes paid( 900)
Net cash from operating activities1,380
Cash flows from investing activities
Acquisition of subsidiary X, net of cash acquired( 550)
Purchase of property, plant and equipment( 350)
Proceeds from sale of equipment20
Interest received200
Dividends received200
Net cash used in investing activities( 480)
Cash flows from financing activities
Proceeds from issue of share capital250
Proceeds from long-term borrowings250
Payment of finance lease liabilities( 90)
Dividends paid [1]( 1,200)
[1] This could also be shown as an operating cash flow.
Net cash used in financing activities( 790)
Effect of exchange rate changes( 40)
Net increase in cash and cash equivalents70
Cash and cash equivalents at beginning of period160
Cash and cash equivalents at end of period230
Indirect method statement of cash flows
20X2
Cash flows from operating activities
Profit before taxation3,350
Adjustments for:
Depreciation450
Foreign exchange loss40
Investment income( 500)
Interest expense400
3,740
Increase in trade and other receivables( 500)
Decrease in inventories1,050
Decrease in trade payables( 1,740)
Cash generated from operations2,550
Interest paid( 270)
Income taxes paid( 900)
Net cash from operating activities1,380
Cash flows from investing activities
Acquisition of subsidiary X net of cash acquired( 550)
Purchase of property, plant and equipment( 350)
Proceeds from sale of equipment20
Interest received200
Dividends received200
Net cash used in investing activities( 480)
Cash flows from financing activities
Proceeds from issue of share capital250
Proceeds from long-term borrowings250
Payment of finance lease liabilities( 90)
Dividends paid [2]( 1,200)
[2] This could also be shown as an operating cash flow.
Net cash used in financing activities( 790)
Effect of exchange rate changes( 40)
Net increase in cash and cash equivalents70
Cash and cash equivalents at beginning of period160
Cash and cash equivalents at end of period230

Notes to the statement of cash flows (direct method and indirect method)

Segment information
Segment ASegment BTotal
Cash flows from:
Operating activities1,520( 140)1,380
Investing activities( 640)160( 480)
Financing activities( 570)( 220)( 790)
310( 200)110

IFRS The structure of the Cash Flow Statement

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