IAS 7 IAS-7

STATEMENT OF CASH FLOWS

FEDERAL RESERVE NOTE
THE UNITED STATES OF AMERICA THE UNITED STATES OF AMERICA
THISNOTE ISLEGAL TENDER
A
L70744629F
12
12 12
12
L70744629F
ONE DOLLAR
ONE DOLLAR
WASHINGTON, D.C.
FOR ALL DEBTS, PUBLIC AND PRIVATE
SERIES
1985
H 293
ONE DOLLAR
ONE DOLLAR
h hi i ( i BySantoshGhimire(CA,DipIFR)
Presentation Outline PresentationOutline
Introduction and Scope IntroductionandScope
DefinitionsofKeyTerms
Cashandcashequivalents
PresentationandFormatofCashFlow
DirectVsIndirectMethod
DisclosuresRequirements
IntroductionandScope
Applicability
An entity shall prepare a cash flow statement in accordance with the requirements of Anentityshallprepareacashflowstatementinaccordancewiththerequirementsof
thisStandardandshallpresentitasanintegralpartofitsfinancialstatementsforeach
periodforwhichfinancialstatementsarepresented.
Applies to all entities regardless of their size ownership Structure Industry etc Appliestoallentitiesregardlessoftheirsize,ownership,Structure,Industryetc.
ImportanceandScope
Entities need cash for (i) Operation of business (ii) Pay obligation; and (iii)Provide Entitiesneedcashfor(i)Operationofbusiness(ii)Payobligation;and(iii)Provide
returnstoinvestors.
Preparationofcashflowisimportant;(i)Toshowthatprofitsarebeingrealized(ii)To
pay dividends; and (iii) To finance further investment paydividends;and(iii)Tofinancefurtherinvestment
Profitsisnotthesameascash.andprofitabilitydoesnotmeanliquidity.Even
profitablecompanycrash
Definitions of Key Terms DefinitionsofKeyTerms
Cashcomprisescashonhandanddemanddeposits.
Cashequivalents areshortterm,highlyliquidinvestmentsthatarereadily
convertibletoknownamountsofcash,andwhicharesubjecttoan
insignificantriskofchangesinvalue.
Cashflows areinflowsandoutflowsofcash(andcashequivalents).
O ti ti iti th i i l d i ti iti f th Operatingactivities aretheprincipalrevenueproducingactivitiesofthe
undertakingotherthaninvestingorfinancingactivities.
Investingactivities aretheacquisition,anddisposal,oflongtermassetsthat g q p g
arenotincludedincashequivalents.
Financingactivities areactivitiesthatresultinchangesinthesize(and
composition) of the equity capital and borrowings of the undertaking composition)oftheequitycapital,andborrowings,oftheundertaking.
Cashandcashequivalents..explanation
Cashequivalentsareheldforthepurposeofmeetingshorttermcash
commitments,ratherthanforinvestment.
Foraninvestmenttoqualifyasacashequivalent,itmustbereadilyconvertibleto
aknownamountofcash,andbesubjecttoaninsignificantriskofchangesin
value.
Aninvestmentnormallyqualifiesasacashequivalentonlywhenithasamaturity
ofthreemonths(orless), fromthedateofacquisition.
Equity investments are excluded from cash equivalents unless they are in Equityinvestmentsareexcludedfromcashequivalents,unlesstheyare,in
substance,cashequivalents,forexampleinthecaseofpreferredsharesacquired
withinashortperiodoftheirmaturity(andwithaspecifiedredemptiondate).
EXAMPLE Preferredsharesacquiredwithinashortperiodoftheirmaturity
Bankborrowingsaregenerallyconsideredtobefinancingactivities.However,in
somecountries,bankoverdrafts(whicharerepayableondemand)forman
integralpartofanundertaking'scashmanagement.
PresentationandFormat
CashflowsfromOperatingactivities:XXX
CashflowsfromInvestingactivities:XXX
CashflowsfromFinancingactivities:XXX
Netincrease(decrease)inCash XXX
Cashandequivalents, beginningofyearXXX q g g y
Cashandequivalents, endofyear XXX
CashflowsfromOperatingActivities
Theamountofcashflowsarisingfromoperatingactivitiesisakey
indicatoroftheextenttowhichtheoperationshavegeneratedsufficient
cashflowstorepayloans,maintaintheoperatingcapabilityofthe
d ki di id d ( d k i ) i h undertaking,paydividends(andmakenewinvestments)withoutrecourse
toexternalsourcesoffinancing.
Examples Examples
Cashreceiptfromsaleofgoodsandrenderingofservices,royalty
commissionandotherrevenue
C h t t li f d d i Cashpaymenttosuppliersforgoodsandservices
Cashpaidtoandonbehalfoftheemployees
ForInsuranceCompany:receiptandpaymentofclaimandotherpolicy
benefits
IncomeTaxreceiptandpayments
Cashadvanceandloansmadebythefinancialinstitutions
OperatingActivities:AReview
IncurEmployee
Cash
transactions
SellProducts
SalariesandWages
relatedwith
acquiringand
andServices
q g
selling
productsand p
services
Make Inventory
IncurUtilityand
otherOperating
MakeInventory
Purchases
Costs
CashflowsfromInvestingActivities
Theseparatedisclosureofcashflowsarisingfrominvestingactivities
representstheextenttowhichexpenditureshavebeenmadefor
resourcesintendedtogeneratefutureincomeandcashflows.
Examples Examples
Payments/receiptstoacquire/fromsalesofproperty,plantandequipment,
intangiblesandotherlongtermassets.
paymentstoacquiresharesordebtinstrumentsofotherundertakings,and
interestsinjointventures(otherthanforinstrumentsthatarecashequivalents,or
heldfordealing(ortradingpurposes));
receiptsfromsalesofshares(ordebt)instrumentsofotherundertakingsand
interestsinjointventures(otherthanforinstrumentsthatarecashequivalents,or
heldfortradingpurposes);and
Payments/receiptforfuturescontracts,forwardcontracts,optioncontractsand
swapcontracts(exceptwhenthecontractsareheldfordealingortrading
purposes,orthepaymentsareclassifiedasfinancingactivities);
InvestingActivities:AReview
Purchase/Sell
g
Cashtransactions
related with
Longterm
Investments
relatedwith
acquiringand
disposing of long disposingoflong
termassets
Buy/Sell
Property Plant Property,Plant
&Equipment
Purchase/SellIntangibleAssets
(i.e.Patents,trademarks,etc.)
CashflowsfromFinancingActivities
Theseparatedisclosureofcashflowsarisingfromfinancingactivitiesis
neededtopredictclaimsoncashflowsbyprovidersofcapitaltothe
undertaking.
Examples
proceeds from issuing shares or other equity instruments; proceedsfromissuingshares,orotherequityinstruments;
paymentstoownerstoacquire,orredeemtheundertaking'sshares;
proceedsfromissuingdebentures,loans,notes,bonds,mortgagesand
othershortorlongtermborrowings;
t f t b d d repaymentsofamountsborrowed;and
paymentsbyalesseeforthereductionoftheoutstandingliability
relating to a finance lease. relatingtoafinancelease.
FinancingActivities:AReview
Sell/Repurchase
Borrow/
g
Cash
transactions
Sell/Repurchase
CapitalStock
Borrow/
RepayLoans
relatedwith
internaland
A
FEDERAL RESERVE NOTE
THE UNITED STATES OF AMERICA THE UNITED STATES OF AMERICA
L70744629F
12 12
WASHINGTON, D.C.
THISNOTE ISLEGAL TENDER
FORALL DEBTS, PUBLICANDPRIVATE
H293
external
financingof
12 12
L70744629F
ONE DOLLAR ONE DOLLAR
SERIES
1985
thebusiness
Issue/Retire
LT Bonds Pay Dividends L TBonds PayDividends
DirectVs.IndirectMethod
Thechoiceofdirectmethodvs indirectmethodisonlyforthecash
flowfromoperatingactivities.Thereisnodifferenceincashflowfrom
InvestingActivitiesandFinancingActivitiesinanymethod.
IFRSencouragestheuseofdirectmethodbutentityprefersindirect
method.
a) TheDirectMethod:Themajorclassesofgrosscashreceiptsand
grosspaymentsaredisclosed;and
b) TheIndirectMethod:Theprofitorlossisadjustedfortheeffectsof
transactionsofanoncashnature,anydeferralsoraccrualsofpastor
futureoperatingcashreceiptsorpayments,anditemsofincomeor
expenseassociatedwithinvestingorfinancingcashflows.
DirectMethodofCashFlowStatement
+

DirectMethodofCashFlowStatement
DirectMethod OperatingActivities irect Method Operating Activities
Example:
Accountsreceivable,1/1/10 90,000
p
Creditsalesduringyear 900,000
Less:Accts.receivable,12/31/10 (80,000)
Cashcollections $910,000
DirectMethod OperatingActivities irect Method Operating Activities
Example:
Salariespayable,1/1/10 18,000
Example:
Add:salaries&wageexpense 160,000
Less: Salaries payable 12/31/10 ( 14 000) Less:Salariespayable,12/31/10 (14,000)
Cashpaymentsforsalaries 164,000
Indirect Method of Cash Flow Statement IndirectMethodofCashFlowStatement
+
+

+
AdjustmentforchangesinWorkingCapital(CACL)
+

Note:CashfromInvestingandCashflowfromfinancingActivitiesaresameas
directmethod.
IndirectMethod:
AdjustmentstoNetIncome
Accrualbasisincludesnoncashexpensesandrevenues
Keyadjustments:
Deduct non cash expenses (e g Depreciation Bond Deductnoncashexpenses (e.g.,Depreciation,Bond
DiscountAmortization)
DeductGains (e.g.,PP&EDisposals,BondRetirements)*
AddbackLosses (e.g.,PP&EDisposals,BondRetirements)*
* Entire cash proceeds from LT asset disposals are shown as Investing Entirecashproceeds fromLTassetdisposalsareshownasInvesting
activityandfromLTdebtretirementasFinancingactivity.
Adjustment for Changes in Balance Sheet AdjustmentforChangesinBalanceSheet
SomeUsefulTips
InterestandDividends
Cashflowsarisingfrominterestanddividendsreceivedandpaid(including g p ( g
capitalized)shalleachbedisclosedseparately.
Cashflowsfrominterestanddividendsreceivedandpaidshalleachbe
classifiedinaconsistentmannerfromperiodtoperiodunderappropriate
activityheads.
T I TaxesonIncome
Cashflowsarisingfromtaxesonincomeshallbeseparatelydisclosed.
C h fl i i f t i h ll b l ifi d h fl Cashflowsarisingfromtaxesonincomeshallbeclassifiedascashflows
fromoperatingactivitiesunlesstheycanbespecificallyidentifiedwith
financingandinvestingactivities.
Disclosure Requirements DisclosureRequirements
ComponentsofCashandCashequivalents
Areconciliationoftheamountsforcashandcashequivalentsinits
statementofcashflowswiththeequivalentitemsreportedinthe
statementoffinancialposition.
Thepolicythatitadoptsindeterminingthecompositionofcashandcash
equivalents
Theeffectofanychangeinthepolicyfordeterminingthecompositionsof
cashandcashequivalents.
Theamountofsignificantcashandcashequivalentbalancesheldbythe g q y
entitythatarenotavailableforusebythegroup,withmanagement
comments.
Any other voluntary disclosures Anyothervoluntarydisclosures.
Thank You ThankYou