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Contents
7.1.1 Extract from FRS102: Section 7.1.
7.1.2.2 Entities exempt from the requirements to provide cash flow statements.
7.2.1 Extract from FRS102: Section 7.2.
7.2.2.2 The criteria for recognition as cash and cash equivalents.
7.3 Information to be presented in the statement of cash flows.
7.3.1 Extract from FRS102: Section 7.3 and Section 7.10A-7.10E.
7.3.2.1 Categories of Cash Flows.
7.3.2.2 Cash flows permitted if reported on a net basis.
7.4.1 Extract from FRS102: Section 7.4 and Section 7.7-7.9.
7.4.2.1 Operating activities -defined.
7.4.2.1.1 Assessing whether an item is an operating or investing activity cash flow.
7.4.2.2 Examples of cash flows from operating activities.
7.4.2.3 Presenting cash flows from operating activities.
7.4.2.3.2.1 Illustration of the indirect method.
7.4.2.3.1.3.1 Illustration of the requirements of the Direct Method.
7.5.1 Extract from FRS102: Section 7.5 and Section 7.10.
7.5.2.1 Investing Activities Defined.
7.5.2.2 Example of cash flow items classified as investing activities.
7.5.2.3 Identifying the actual cash paid for the cash flow Investing Activities.
7.5.2.3.1 Need to show only cash paid in the cash flow- fixed assets on finance lease.
7.5.2.3.2 Fixed Asset not paid at year end.
7.5.2.4 Cash flow permitted to be reported on a net basis.
7.6.1 Extract from FRS102: Section 7.6 and Section 7.10.
7.6.2.1 Financing activities defined.
7.6.2.2 Examples of cash flow items classified as financing activities.
7.6.2.3 Cash flow permitted to be reported on a net basis.
7.7.1 Extract from FRS102: Section 7.14-7.16.
7.7.2.1 Treatment of interest cost capitalised.
7.8.1 Extract from FRS102: Section 7.17.
7.8.2.2 Treatment of Capital Gains Tax.
7.8.2.3 Sales and Purchase Taxes.
7.9 Non-controlling interests-consolidated financial statements.
7.9.1.1 Dividends paid to non-controlling interests.
7.9.1.2 Cash flow for purchase or sale of part of subsidiary where control is not lost.
7.10 Acquisition and disposal of subsidiary.
7.10.1.2 Examples illustrating treatment of acquisitions.
7.10.1.2.1 Cash received as part of acquisition.
7.10.1.2.2 Acquisition part funded by cash and shares.
7.10.1.2.3 Loans assumed as part of acquisition.
7.11 Foreign currency cash flows.
7.11.1 Extract from FRS102: Section 7.11-7.13.
7.11.2.1 Realised foreign exchange gains/losses explained.
7.11.2.1.1 Individual financial statements –settled transactions.
7.11.2.2. Unrealised foreign exchange gains/losses.
7.11.2.2.1.1 Unrealised gain-non-operating.
7.11.2.2.2 Unrealised foreign exchange on cash and cash equivalents.
2.11.2.2.3 Consolidated financial statements.
7.12 Components of cash and cash equivalents.
7.12.1 Extract from FRS102: Section 7.20-7.20A.
7.13.1 Extract from FRS102: Section 7.18-7.19.
7.13.2.2 Examples of non-cash transactions.
7.13.2.3 Non-cash items sample disclosure.
7.14 Sample of Cash Flow Statement.
7.15 Other disclosures – Cash and cash equivalents not available for use.
7.15.1 Extract from FRS102: Section 7.21.
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7.5 Investing activities
7.5.1 Extract from FRS102: Section 7.5 and Section 7.10
7.5 Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. Examples of cash flows arising from investing activities are:
(a) cash payments to acquire property, plant and equipment (including self-constructed property, plant and equipment), intangible assets and other long-term assets. These payments include those relating to capitalized development costs and self-constructed property, plant and equipment;
(b) cash receipts from sales of property, plant and equipment, intangibles and other long-term assets;
(c) cash payments to acquire equity or debt instruments of other entities and interests in joint ventures (other than payments for those instruments classified as cash equivalents or held for dealing or trading);
(d) cash receipts from sales of equity or debt instruments of other entities and interests in joint ventures (other than receipts for those instruments classified as cash equivalents or held for dealing or trading);
(e) cash advances and loans made to other parties (except those made by financial institutions – see paragraph 7.4(g));
(f) cash receipts from the repayment of advances and loans made to other parties;
(g) cash payments for futures contracts, forward contracts, option contracts and swap contracts, except when the contracts are held for dealing or trading, or the payments are classified as financing activities; and
(h) cash receipts from futures contracts, forward contracts, option contracts and swap contracts, except when the contracts are held for dealing or trading, or the receipts are classified as financing activities.
When a contract is accounted for as a hedge (see Section 12 Other Financial Instruments Issues), an entity shall classify the cash flows of the contract in the same manner as the cash flows of the item being hedged.
7.10 An entity shall present separately major classes of gross cash receipts and gross cash payments arising from investing and financing activities, except to the extent that net presentation is permitted by paragraphs 7.10A to 7.10E. The aggregate cash flows arising from acquisitions and from disposals of subsidiaries or other business units shall be presented separately and classified as investing activities.
7.5.2 OmniPro comment
7.5.2.1 Investing Activities Defined.
Section 7.5 of FRS102 defines investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents
When determining whether an item falls into operating or investing activities will depend on the business the entity is operating in. For example, purchase a land for a property developer who develops the land and sells houses, the purchase of this would fall into operating activities however if this was purchased by a frozen food company for its own use or to rent it for rental purposes as a one-off purchase it would be classed as an investing activity.
7.5.2.2 Example of cash flow items classified as investing activities
Some examples other than those provided in Section 7.5 of FRS102 would include:
- cash payments/proceeds arising from acquisition/disposal of subsidiaries and associates
- cash payments/proceeds on purchase/disposal of investments
- cash payments/proceeds on acquisition/disposal of fixed assets (excluding assets purchased on finance lease).
- Dividend received
- Interest received
An illustration of all the above is shown in a sample cash flow at 7.14
7.5.2.3 Identifying the actual cash paid for the cash flow Investing Activities
The cash flows with regard to investing activities should reflect the actual cash flows in the year. Therefore, for example additions in the fixed asset note may include fixed assets acquired under hire purchase/finance lease which did not result in a cash outflow, therefore the payments to acquire property, plant and equipment would be reduced to reflect the actual cash paid.
It may also be that some items have not been paid and the amount owed is therefore included in creditors, in this case the additions figure should only show the cash paid i.e. it should deduct any amount included in creditors at the end of the current year but addback the amount included in creditor for fixed assets in the prior year.
7.5.2.3.1 Need to show only cash paid in the cash flow- fixed assets on finance lease
Example 5: Need to show only cash paid in the cash flow – fixed assets on finance lease
Company A has purchased CU50,000 of fixed asset on finance lease. In this case the cash flow should show nil cash payments for fixed assets instead, this cash outflow should be netted against the movement on finance leases and hire purchase on the face of the cash flow.
7.5.2.3.2 Fixed Asset not paid at year end
Example 6: Fixed asset not paid at year end
Company A purchased CU50,000 of property, plant and equipment on credit which was included in creditors at year end. In the cash flow the actual amount to be shown as fixed asset additions is nil and the movement in trade creditors should be decreased by the CU50,000 in the reconciliation of profit to net cash inflow from operating activities.
Example 7: Fixed asset not paid at year end
If we take example 4 and assume in the prior year a fixed asset was purchased for CU40,000 but was not paid for at the end of that year. In this year’s cash flow statement, it should show the CU40,000 in the line ‘purchases of property, plant and equipment’ and movement in creditors should be reduced by the net CU10,000 (i.e. CU50,000-CU40,000 being the movement in accruals year on year).
7.5.2.4 Cash flow permitted to be reported on a net basis.
Section 7.10 of FRS102 makes it clear that no netting can occur unless it is included within the list in Section 7.10A to 7.10E of FRS102. Section 7.10 of FRS102 also requires disposals and acquisitions of subsidiaries to be shown separately (i.e. no netting)
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Examples:
Example 1: Cash and cash equivalents.
Example 2: Cash and cash equivalents.
Example 3: Cash flows from operating activities – Indirect Method.
Example 4: Cash flows from operating activities – Direct Method.
Example 5: Need to show only cash paid in the cash flow – fixed assets on finance lease.
Example 6: Fixed asset not paid at year end.
Example 7: Fixed asset not paid at year end.
Example 8: Cash received as part of the acquisition.
Example 9: Cash received as part of the acquisition.
Example 10: Subsidiary acquired partly by way of cash and partly by issuance of shares.
Example 11: Loans assured as part of the acquisition.
Example 12: Settled foreign exchange gain/loss.
Example 13: Unrealised gain-non-operating.
Example 14: Unrealised foreign exchange on cash and cash equivalents.
Example 15: Foreign subsidiaries.
Example 16: Analysis of cash and cash equivalent and net debt.
Example 17: Effective interest rate adjustments.
Example 18: Non-cash items example disclosure.
Example 19: Cash flow statement – see below.
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