Cash FLOW STATEMENT - ICAZ

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Anesu Daka CA (SA) - CAA

Cash FLOW STATEMENTS IAS 7

Anesu Daka CA (SA) - CAA

Objective • Presentation of information about the historical changes in cash and cash equivalents of an entity by means of a statement of cash flows, which classifies cash flows during the period according to operating, investing, and financing activities. CFS = to a reconciliation of the bank balance of an entity

Anesu Daka CA (SA) - CAA

Fundamental Principles • All entities that prepare financial statements in conformity with IFRSs are required to present a statement of cash flows. [IAS 7.1] • Cash & cash equivalents comprise (IAS 7.7-9): • cash on hand; and • demand deposits (bank), • together with short-term, highly liquid investments that are readily convertible to a known amount of cash, and that are subject to an insignificant risk of changes in value. Note: Guidance notes indicate that an investment normally meets the definition of a cash equivalent when it has a maturity of three months or less from the date of acquisition. Anesu Daka CA (SA) - CAA

Fundamental Principles • Equity investments are normally excluded, unless they are in substance a cash equivalent (e.g. preferred shares acquired within three months of their specified redemption date). • Bank overdrafts which are repayable on demand and which form an integral part of an entity's cash management are also included as a component of cash and cash equivalents. [IAS 7.7-8]

Anesu Daka CA (SA) - CAA

Format and structure of the cash flow statement Cash flows from operating activities + Cash flows from investing activities + Cash flows from financing activities

Net change in cash during period + Beginning cash balance Ending cash balance Anesu Daka CA (SA) - CAA

Presentation of the Statement of Cash Flows • Cash flows must be analysed between operating, investing and financing activities. [IAS 7.10] Elements of a Consolidated Statement of Cash Flows □ Cash flows from operating activities; □ Cash flows from investing activities;

□ Cash flows from financing activities; □ Net changes in cash and cash equivalents, representing the differences between cash and cash equivalents at the beginning and end of the reporting period.

Anesu Daka CA (SA) - CAA

Key Principles: • operating activities are the main revenue-producing activities of the entity that are not investing or financing activities, so operating cash flows include cash received from customers and cash paid to suppliers and employees [IAS7.14] • • • /"T 1

*

1

• • /T« •

• investing activities are the acquisition and disposal of longterm assets and other investments that are not considered to be cash equivalents [IAS 7.6] financing activities are activities that alter the equity capital and borrowing structure of the entity [IAS 7.6]

Anesu Daka CA (SA) - CAA

Key Principles: interest and dividends received and paid may be classified as operating, investing, or financing cash flows, PROVIDED THAT they are classified consistently from period to period [IAS 7.31]

cash flows arising from taxes on income are normally classified as operating, unless they can be specifically identified with financing or investing activities [IAS 7.35] Operating cash flows shall be reported using the: • direct method of presentation (most encouraged), or •indirect method is acceptable [IAS 7.18]

Anesu Daka CA (SA) - CAA

Presentation of the statement of Cash Flows from Operating Activities THE DIRECT METHOD The direct method shows each major class of gross cash receipts and gross cash payments, as follows:

Anesu Daka CA (SA) - CAA

Presentation of the statement of Cash Flows from Operating Activities

Anesu Daka CA (SA) - CAA

Comparison of Direct and Indirect

Anesu Daka CA (SA) - CAA

Presentation of the statement of Cash Flows INDIRECT METHOD The indirect method adjusts accrual basis net profit or loss for the effects of non-cash transactions: Profit before income taxes xxxxx +/- Non-cash income & expenses: - Depreciation expense - Profit on disposal of PPE, e.t.c xx,xxx +/- Changes in working capital: Increase in receivables xx,xxx Decrease in inventories xx,xxx Increase in trade payables xx,xxx +/- Items shown directly on CFS Interest paid xx,xxx Income taxes paid xx,xxx Net cash from operating activities xx,xxx Anesu Daka CA (SA) - CAA

Approach to Cashflows • Analyse the movements in balance sheet for the year i.e. Difference between prior and current year financial position, and isolate the following: • Part of the movements relating to the no cash transactions; • Part of the movements relating to cash transactions already entered else where on the in the statement of cash flows; and • Part of the movement attributable to cash transactions that are to be entered in the statement of cash-flows

• Note: • Reverse the accrual principle and apply the Cash principle identify cash in and outflows and record them appropriately. Anesu Daka CA (SA) - CAA

DIRECT METHOD • Applying the direct method

Anesu Daka CA (SA) - CAA

Operating Activities

Anesu Daka CA (SA) - CAA

Cash Receipts from customers Debtors Control Account Balance b/d Bad Debtors W/O Credit Sales New subsidiary

Sold Subsidiary

FCTR/forex exchange rates gain Bank (receipts from customers)

Balance c/d

Anesu Daka CA (SA) - CAA

Cash paid to suppliers and employees Direct Method- Method 1

Indirect Method- Method 2

Anesu Daka CA (SA) - CAA

Cash paid to suppliers and employees Method 1 Use the following when the components of the P/L are clear: Cost of sales xxxxx +Other expenses xxxxx Total expenses accrued xxxxx ADJUST FOR: +/- Non-cash items: - Depreciation expense xxxxx - impairment loss, e.t.c xx,xxx +/- Changes in working capital: Increase in receivables (not applicable in this formula) 0 Decrease in inventories xx,xxx Increase in trade payables xx,xxx +/- Items shown directly on CFS (if included in above items) Interest paid xx,xxx Cash paid to suppliers and employees & expenses xx,xxx Anesu Daka CA (SA) - CAA

Cash paid to suppliers and employees Method 2 Use the following when the components of the P/L is not given: Profit before income taxes xxxxx Less: Revenue (xxxxx) Total expenses accrued xxxx +/- Non-cash items: - Depreciation expense - Profit on disposal of PPE, e.t.c xx,xxx +/- Changes in working capital: Increase in receivables (not applicable in this formula) 0 Decrease in inventories xx,xxx Increase in trade payables xx,xxx +/- Items shown directly on CFS Interest paid Interest received xx,xxx Cash paid to suppliers and employees & expenses xx,xxx Anesu Daka CA (SA) - CAA

Non-cash items includes: • Depreciation and impairment of property, plant and equipment • Amortisation and impairment of intangible assets • Share-based payment transaction expense • Decrease in investment properties • Decrease in financial instruments • Gain on disposal of property, plant and equipment • Fair value adjustment of contingent consideration • Finance income 9.4 (1,635) (724) IAS 7.20(c) • Finance costs 9.3 3,305 1,561 IAS 7.20(c) • Other operating income • Share of net profit of associate 7 (83) (81) • Movements in provisions, pensions and government grants • Forexloss and gains • Employee benefits expenses on defined benefit plan Anesu Daka CA (SA) - CAA

Interest and Dividends • Classification: Basis of classification- entity’s accounting policy as either operating, investing or financing activities (IAS7.31)

• Interest and dividends received: IAS 7 allows companies to classify them as either operating or investing activities. • Interest paid: IAS 7 classifies it as either an operating activity or a financing activity; but it must be applied consistently. • Dividends paid: IAS 7 allows classification as either a financing activity or as an operating activity.

NB: always check the entity’s accounting policy on classification and presentation of interest and dividends in CFS

Anesu Daka CA (SA) - CAA

Items shown directly on the CFS • Investment income: • Show interest and dividends received - reconstruct the T - accounts for the receivable of these amounts. • Note the Share of profit from associate is a non-cash item • Interest Paid - disclose in CFS, both the: • Finance cost • Borrowing costs capitalised - IAS 23 • Tax and Dividend paid • Tax paid - use the tax payable account to determine tax paid • Dividend paid - use the dividend payable account to determine dividend paid • Note -deferred tax is not a cash item so exclude this on calculating tax paid. reduce tax expense with deferred tax expense. • Note - scrip shares allotted in the place of dividend are not a cash-flow item. • Note - dividends paid by subsidiary to non-controlling interest shall be also be included on the cash flow statement

Anesu Daka CA (SA) - CAA

Tax Paid Tax Paid Account Bal b/d - current tax Bal b/d - deferred tax Bank (payment to ZIMRA/SARS) New subsidiary

income tax expnse -P/L tax expense OCI tax effect directly in SCE Taxeffect on goodwill

Bal c/d - current tax Bal c/d - deferred tax

Balance b/d

Anesu Daka CA (SA) - CAA

Dividends Paid • Dividends Paid include: – Dividends Paid by parent – Dividends paid by subsidiary to NCI NB: these amounts are either given on the SCE or need to be calculated (see next slide for formulas)

Anesu Daka CA (SA) - CAA

Dividend Paid by Parent Dividend Paid by Parent Account Bal b/d - div payable Bank (payment to shareholders) dividend accrued directly in SCE/RE Non-cash dividend- scrip dividend

Bal c/d- Div Payable

Anesu Daka CA (SA) - CAA

Dividend Paid to NCI Non Controlling Interest Account Bal b/d Bank (payment to shareholders) New Subsidiary- IFRS3.19 Non-cash dividend- scrip dividend share of TCI (P&L + OCI)-IFRS10.B86 Sub Lost (Carrying amount)-IFRS10.B98

Chanfe in NCI-IFRS10.B96

Bal c/d

FCTR attributted to NCI

Anesu Daka CA (SA) - CAA

Dividends Received • Dividends Received include: – Dividends received from Associates and Joint Ventures (given or calculate) – Dividends on IFRS 9 Financial asset (0-20% investments)- (Always given)

Anesu Daka CA (SA) - CAA

Dividend Received from Assoc/JV Bal b/d

Investment in Assoc/JV Account Bal b/d

New Assoc- cost or FV of previously held IFRS9

Loss of sig influence (Carrying amount)- thru sale or to IFRS 3

Change in assoc without losing sig influence

Impairment loss

share of profit

Intra-group - unrealised proft-sale to assoc/JV

share of OCI

FCTR

Loss of sub- FV of retined interest as an assoc/JV

Dividend paid- Bank (payment from asso/JV) Bal c/d

Anesu Daka CA (SA) - CAA

Interest Paid Total finance cost as per P/L Total borrowing costs capitalised Less: Non-cash interest (effective interest or exchange gains and losses) Add: cash interest actually paid (coupon interest)

Complex calcs maybe required for effective interest

Anesu Daka CA (SA) - CAA

Interest Received Total finance income as per P/L Less: Non-cash interest (effective interest or exchange gains and losses) Add: cash interest actually received (coupon interest)

Complex calcs maybe required for effective interest Anesu Daka CA (SA) - CAA

Cash flows from investing activities • Proceeds from sale of property, plant and equipment IAS 7.16(b) • Purchase of property, plant and equipment IAS 7.16(a) • Replacement & additions

• Purchase of investment properties IAS 7.16(a) • Purchase of financial instruments IAS 7.16(c) • Proceeds from sale of financial instruments IAS 7.16(d) • Development expenditures IAS 7.16(a) • Acquisition of a subsidiary, net of cash acquired IAS 7.39 • Acquisition of investment in associates &JVs • Receipt of government grant • Proceeds from sale of subsidiary • Note - use T- Accounts to determine the cash items noted above Anesu Daka CA (SA) - CAA

Cash flows from financing activities • Proceeds from exercise of share options IAS 7.17(a) • Acquisition of non-controlling interest IAS 7.42A • Transaction costs of issue of shares IAS 7.17(a) • Payment of finance lease liabilities IAS 7.17(e) • Proceeds from borrowings IAS 7.17(c) • Repayment of borrowings IAS 7.17(d) • Interest paid IAS 7.31 • Dividends paid to equity holders of the parent IAS 7.31 • Dividends paid to non-controlling interests Change in NCI transaction- payment or receipt

• Note - use T- Accounts to determine the cash items noted above Anesu Daka CA (SA) - CAA

Reconciliation of cash and cashequivalents

Reconcile as follows: Net Change in cash and cash equivalents Cash and cash equivalents at the beginning of the yr +/-Forex rate changes for foreign cash (IAS 7.28) Closing balance Disclosures required: • Policy of determining cash and cash equivalents - IAS 7.47 • Show the components of cash and cash equivalents - IAS 7.47 • Disclose circumstances around availability of cash

Anesu Daka CA (SA) - CAA

XXXX XXX _XX XXXX

Specific CF Aspect

Anesu Daka CA (SA) - CAA

Foreign Currency Cash Flows Foreign currency transactions - use the spot rate at payment or receipt date [IAS 7.25] Cash flows of foreign subsidiaries - use exchange rates prevailing when the

cash flows took place [IAS 7.26] • Cash flows of associates where the equity method is used, the statement of cash flows should report only cash flows between the investor and the investee; • Cash flows of joint ventures- where proportionate consolidation is used, the

cash flow statement should include the venture's share of the cash flows of the investee [IAS 7.37-38] • aggregate cash flows relating to acquisitions and disposals of subsidiaries and other business units should be presented separately and classified as investing activities, with

specified additional disclosures. [IAS 7.39] • The aggregate cash paid or received as consideration should be reported net of

cash and cash equivalents acquired or disposed of [IAS 7.42] Anesu Daka CA (SA) - CAA

Acquisition and Disposal subsidiary Principle: • Where control is obtained or lost, include in the CFS under investing activities the following: □ the amount of cash paid less amount of cash and cash equivalents acquired on date of acquisition (purchase of a subsidiary) □ The amount of cash received as sales consideration on disposal date less amount of cash and cash equivalents sold (sale of a subsidiary)

Disclosure of the following may be required: • The total consideration paid or received; • The portion of consideration consisting of cash and cash equivalents; • The amount of cash or cash equivalents in the subsidiary over which control is obtained or lost; and • The amount of the other assets and liabilities in the subsidiary over which control is obtained or lost, summarized by each category (IAS 7.40) Anesu Daka CA (SA) - CAA

Example 1 (Disclosure investmentin sub) • H Ltd acquired 80% of equity of S Ltd for 1.6 m at date of acquisition and net assets acquired are as follows:

Land & buildings Plant (8ook-3ook) Mortgage bond Inventory Receivables Payables Bank NAV NCI Goodwill Cost of Investment (Bank) Less Cash and cash equivalents taken over # ACQUISITION OF SUBSIDIARY (1,600,000 LESS 30,000)

Anesu Daka CA (SA) - CAA

(1,200,000) (500,000) 500,000 (350,000) (550,000) 180,000 _(30,000) (1,950,00) 390,000 40,000 1,600,000 (30,000) 1,570,000

Example 2 (Disclosure a proceeds from sale) H Ltd sold its entire interest in S Ltd for $850,000 at 30 September Land & buildings Plant (800k-300k) Inventory Receivables Payables Bank NAV NCI Goodwill Cost of Investment (Bank) Less Bank-overdraft sold # PROCEEDS OF SUBSIDIARY

350,000 240,000 180,000 420,000 (120,000) (30,000) 1,040,000 (260,000) 70,000 850,000 30,000 880,000 Anesu Daka CA (SA) - CAA

Remember: • Take into account the non-cash mvt arising from acquisitions and disposals on calculation of cash movements: • Assets • Liabilities • ONLY IF AFFECTED BY THE ACQUISITION OR DISPOSAL, E.G. IF ASSET ACQUIRED DOES not have inventory there will not be an impact in the inventory account due to acquisition of subsidiary.

• Also now calculate profit or loss on sale of subsidiary and include in calculation of cash flows to suppliers and employees as well as the reconciliation of profit before tax to the cash flows from operations. • Profit from sale at date of sale is calculated as follows: Proceeds on sale 850,000 Less % of NAV sold (75%X $1040K (780,000) Profit/(Loss) on disposal of subsidiary 70,000

Anesu Daka CA (SA) - CAA

A non-cash or part cash transaction • No cash flow arises in this case, however, the following should be shown under investing activities. Cash and cash equivalents held by a sub at date of acq RXXXX

Acquision of a subsidiary for part cash. - show the cash paid less the cash and cash equivalents

Disclosure as shown in slide 25 above is still required whether cash is paid or not. Anesu Daka CA (SA) - CAA

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Cash FLOW STATEMENT - ICAZ

Anesu Daka CA (SA) - CAA Cash FLOW STATEMENTS IAS 7 Anesu Daka CA (SA) - CAA Objective • Presentation of information about the historical changes...

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