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Components of cash and cash equivalents
Extract from FRS102: Section 7.20-7.20A
7.20 An entity shall present the components of cash and cash equivalents and shall present a reconciliation of the amounts presented in the statement of cash flows to the equivalent items presented in the statement of financial position. However, an entity is not required to present this reconciliation if the amount of cash and cash equivalents presented in the statement of cash flows is identical to the amount similarly described in the statement of financial position.
7.20A Entities applying Part 1 General Rules and Formats of Schedule 2 to the Regulations should include as cash, only cash and balances at central banks and loans and advances to banks repayable on demand.
OmniPro comment
Where the movement on the cash balance between the current year and the prior year cannot be determined by reviewing the cash balance stated on the face of balance sheet a reconciliation of a cash and cash equivalent should be provided so as to allow greater clarity for readers of the financial statements. Although an analysis of net debt is not required it would be good practice to include, particularly where there are non-cash items. See an example of such a reconciliation below.
Example 12A: Analysis of cash and cash equivalent and net debt
|
Analysis of cash and cash equivalent and net debt |
At 1 January 2015 |
At 1 January 2015 |
Net Cash flow |
Other non-cash changes |
At 31 December 2015 |
|
|
CU |
CU |
CU |
CU |
CU |
|
Cash at bank and in hand |
XXX |
XXX |
XXX |
XXX |
XXX |
|
Bank overdraft |
(XXX) |
(XXX) |
(XXX) |
(XXX) |
(XXX) |
|
Cash and cash equivalents |
(XXX) |
(XXX) |
XXX |
XXX |
(XXX) |
(i) Other non-cash changes relate to foreign exchange translation adjustments, new finance leases raised, effective interest rate adjustments including debt issue costs. It also includes shares issued to XX Limited in return for the shares in XX Limited. See further detail at note X.
Non-cash transactions
Extract from FRS102: Section 7.18-7.19
7.18 An entity shall exclude from the statement of cash flows investing and financing transactions that do not require the use of cash or cash equivalents. An entity shall disclose such transactions elsewhere in the financial statements in a way that provides all the relevant information about those investing and financing activities.
7.19 Many investing and financing activities do not have a direct impact on current cash flows even though they affect the capital and asset structure of an entity. The exclusion of non-cash transactions from the statement of cash flows is consistent with the objective of a statement of cash flows because these items do not involve cash flows in the current period. Examples of non-cash transactions are:
(a) the acquisition of assets either by assuming directly related liabilities or by means of a finance lease;
(b) the acquisition of an entity by means of an equity issue; and
(c) the conversion of debt to equity.
OmniPro comment
Section 7 requires the notes to the financial statements to provide background on non-cash transactions however they do not form part of the cash flow statement. Any equity issued share capital provided as part of an acquisition should not be reported in the cash flow statement as no cash was paid. Instead this should be shown as a non-cash item in the analysis of net debt and a note provided for the material non-cash items. Examples include
- Acquisition of assets by way of finance leases
- Acquisition of entities by way of a share issue
- Conversion of debt to equity
- Effective interest rate adjustments so as to show loans at market rates
Example 13: Effective interest rate adjustments
Company A received a loan of CU10,000 at non-market rates from its director which is repayable in 5 years. In this case, the fair value of the loan at a market rate of interest would be CU7,000. The difference of CU3,000 would be posted as a credit to the profit and loss under Section 11. This is a non-cash item and would not be included in the cash flow statement, instead, it would be deducted in the reconciliation of profit to operating activities as part of the interest income and then disclosed as a non-cash transaction in the notes to the cash flow, which would usually be in the analysis of changes in of net cash/debt.
- Release of loan costs under the effective interest method. This would be a similar adjustment to the above.
Example 14: Non-cash items example disclosure
(1) During the year the company acquired Company B in exchange for CU100,000. In addition to CU50,000 paid in cash, the following non-cash transactions were used to settle the remaining portion of the acquisition:
|
Assumption of Liabilities |
CU20,000 |
|
Issue of Ordinary Shares |
CU30,000 |
(2) During the year the company acquired CUXXXX of property, plant and equipment under finance and hire purchase agreement.
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