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13 ED Disclosure initiative: Proposed amendments to IAS 7

13 ED Disclosure initiative: Proposed amendments to IAS 7

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The reconciliation should include:

(a)

(b)

(c)



Opening balances in the statement of financial position

Movements in the period

Closing balances in the statement of financial position



The proposed amendments also include an illustrative example.

These proposals were a response to requests from investors for a requirement to be added to IAS 7 that

entities should present a net debt reconciliation. Although some of the required information is already

available elsewhere in the financial statements, the impact of foreign exchange movements, non-cash

items, and business combinations is not always disclosed separately.



2.13.2 Improved disclosures about the liquidity of an entity

The ED proposes to extend the disclosures by requiring disclosure of restrictions that affect the decisions of an

entity to use cash and cash equivalents, including tax liabilities that would arise on the repatriation of foreign cash

and cash equivalent balances.



2.13.3 Changes to the IFRS Taxonomy

There ED also proposes changes to the IFRS Taxonomy that would reflect the above amendments.



2.14 Section summary

FAST FORWARD



Remember the step-by-step preparation procedure and use it for all the questions you practise.

Remember the steps involved in preparation of a statement of cash flows.



Step 1

Step 2

Step 3



Set out the proforma leaving plenty of space.

Complete the reconciliation of operating profit to net cash from operating activities, as far as

possible.

Calculate the following where appropriate.













486



Tax paid

Dividends paid

Purchase and sale of non-current assets

Issues of shares

Repayment of loans



Step 4



Work out the profit if not already given using: opening and closing balances, tax charge and

dividends.



Step 5



Complete the note of gross cash flows. Alternatively the information may go straight into

the statement.



Step 6



Slot the figures into the statement and any notes required.



17: Group statements of cash flows  Part C Group financial statements



Question



Single company



Kane Co's statement of profit or loss and other comprehensive income for the year ended 31 December

20X8 and statements of financial position at 31 December 20X7 and 31 December 20X8 were as follows.

KANE CO

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED

31 DECEMBER 20X8

$'000

$'000

Sales

720

Raw materials consumed

70

Staff costs

94

Depreciation

118

Loss on disposal of long-term asset

18

300

420

Interest payable

28

Profit before tax

392

Income tax expense

124

Profit for the year

268

KANE CO

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER

Assets

Property, plant and equipment

Cost

Depreciation



20X8

$'000

$'000



20X7

$'000

$'000



1,596

318



1,560

224

1,278



Current assets

Inventory

Trade receivables

Bank

Total assets

Equity and liabilities

Equity

Share capital

Share premium

Retained earnings

Non-current liabilities

Long-term loans

Current liabilities

Trade payables

Taxation



24

76

48



1,336

20

58

56



148

1,426



360

36

686



134

1,470



340

24

490

1,082



854



200



500



42

102



30

86

144

1,426



116

1,470



During the year, the company paid $90,000 for a new piece of machinery.

Required

Prepare a statement of cash flows for Kane Co for the year ended 31 December 20X8 in accordance with

the requirements of IAS 7, using the indirect method.



Part C Group financial statements  17: Group statements of cash flows



487



Answer

KANE CO

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 20X8

Net cash flow from operating activities

Operating profit

Depreciation charges

Loss on sale of property, plant and equipment

Increase in inventories (W4)

Increase in receivables (W4)

Increase in payables(W4)

Cash generated from operations

Interest paid

Dividends paid (W2)

Tax paid (W3)

Net cash flow from operating activities



$'000

420

118

18

(4)

(18)

12

546

(28)

(72)

(108)



338

$'000



Cash flows from investing activities

Payments to acquire tangible non-current assets

Receipts from sales of tangible non-current assets (W1)

Net cash outflow from investing activities



(78)



32

(300)

(268)

(8)

56

48



Assets

PPE

b/d

Depreciation (non-cash)

Disposals* (NBV)



$’000

1,336

(118)

(30)



Cash paid (given in question but working shown for clarity)

c/d



90 β

1,278



*Property, plant and equipment disposals



488



Non-current asset cost c/d

Purchases

Disposals (balancing figure)

Non-current asset cost c/d



$’000

1,560

90

(54)

1,596



Non-current asset depreciation b/d

Depreciation charge for year

Depreciation on disposals (balancing figure)

Non-current asset depreciation c/d



$’000

224

118

(24)

318



17: Group statements of cash flows  Part C Group financial statements



$'000



(90)

12



Cash flows from financing activities

Issues of share capital (W2)

Long-term loans repaid (W3)

Net cash flows from financing

Decrease in cash and cash equivalents

Cash and cash equivalents at 1.1.X8

Cash and cash equivalents at 31.12.X8

1



$'000



NBV of disposals (54 − 24)

Net loss reported

Proceeds of disposals

2



Equity



b/d (340 + 24)



30

(18)

12

Share capital

(incl premium)



Retained

earnings



$’000

364



$’000

490



Profit for the year

Acquisition of subsidiary

Cash received/(paid) β

c/d (360 + 36)

3



Liabilities



b/d

P/L

Cash (paid)/rec'd β

c/d

4



268

32

396



(72)

686



Long-term

borrowings



Tax payable



$’000

500



$’000

86



(300)

200



124

(108)

102



Working capital changes



b/d

 Increase

c/d



Inventories

$m

20



24



Trade receivables

$m

58

18 β

76



Trade payables

$m

30

12 β

42



3 Consolidated statements of cash flows

Pilot paper, 12/08, 12/10, 12/13

FAST FORWARD



Consolidated cash flows should not present a great problem if you understand how to deal with

acquisitions and disposals of subsidiaries, non-controlling interest and dividends.

Consolidated statements of cash flows follow the same principles as for single company statements, with

some additional complications.

Cash flows that are internal to the group should be eliminated in the preparation of a consolidated

statement of cash flows. Where a subsidiary undertaking joins or leaves a group during a financial year

the cash flows of the group should include the cash flows of the subsidiary undertaking concerned for the

same period as that for which the group's statement of profit or loss and other comprehensive income

includes the results of the subsidiary undertaking.



3.1 Acquisitions and disposals of subsidiaries and other business units

An entity should present separately the aggregate cash flows arising from acquisitions and from disposals

of subsidiaries or other business units and classify them as investing activities.



Part C Group financial statements  17: Group statements of cash flows



489



Disclosure is required of the following, in aggregate, in respect of both acquisitions and disposals of

subsidiaries or other business units during the period.





Total purchase/disposal consideration







Portion of purchase/disposal consideration discharged by means of cash/cash equivalents







Amount of cash/cash equivalents in the subsidiary or business unit disposed of







Amount of assets and liabilities other than cash/cash equivalents in the subsidiary or business unit

acquired or disposed of, summarised by major category



The amounts shown in the statements of cash flows for purchase or disposal of subsidiaries or business

units will be the amounts paid or received net of cash/cash equivalents acquired or disposed of.



3.2 Consolidation adjustments and non-controlling interest

The group statement of cash flows should only deal with flows of cash and cash equivalents external to

the group, so all intra-group cash flows should be eliminated. Dividends paid to non-controlling interest

should be included under the heading 'cash flow from financing' and disclosed separately.



3.3 Example: Non-controlling interest

The following are extracts of the consolidated results for Jarvis Co for the year ended 31 December 20X8.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (EXTRACT)



$'000

90

(30)

60



Group profit before tax

Income tax expense

Profit for the year

Profit attributable to:

Owners of the parent

Non-controlling interest

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (EXTRACT)



Non-controlling interest



45

15

60

20X7

$'000

300



20X8

$'000

306



Calculate the dividends paid to the non-controlling interest during the year



Solution

The non-controlling interest share of profit after tax represents retained profit plus dividends paid.

Dividends paid to non-controlling interests

$’000

b/d

TCI attributable to NCI

Dividends paid to NCI (balancing figure)

c/d



300

15

315

(9)

306



Points to note:



490



(a)



In this example, there is no ’other comprehensive income’ so the total comprehensive income (TCI)

here is equal to the profit for the year.



(b)



On the statement of financial position, the NCI balance includes the NCI share of retained earnings

(ie after deduction of dividends). Dividends are not deducted in the statement of profit or loss and



17: Group statements of cash flows  Part C Group financial statements



other comprehensive income so the NCI share of total comprehensive income is stated before

deduction of dividends. Therefore the balancing figure in this working must be the dividends paid

to the NCI.



3.4 Associates and joint ventures

An entity which that reports its interest in an associate or a joint venture using the equity method includes

in its statement of cash flows the cash flows in respect of its investments in the associate or joint venture,

and distributions and other payments or receipts between it and the associate or joint venture.

Dividends should be included in operating or investing cash flows.



3.5 Example: Associate

The following are extracts of the consolidated results of Pripon Co for the year ended 31 December 20X8.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (EXTRACT)



$'000

150

30

180

75

105



Group profit before tax

Share of associate's profit after tax (60 – 30)

Tax (group)

Profit after tax

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (EXTRACTS)



20X7

$'000

264



Investment in associate



20X8

$'000

276



Calculate the dividend received from the associate.



Solution

Investment in associate

b/d

Share of profit after tax (60 – 30)

Dividend received (β)

c/d



$’000

264

30

(18)

276



Note. In the statement of financial position, the investment in associate balance includes the group share

of the associate’s retained earnings (ie after deduction of dividends). Dividends are not deducted in the

statement of comprehensive income so the group share of the associate’s profit and other comprehensive

income (if any) is stated before deduction of dividends. Therefore the balancing figure in this working

must be the dividends received from the associate.



3.6 Finance lease transactions

When rentals under a finance lease are paid, the interest and capital elements are split out and included

under the net cash from operations (interest paid)' and 'financing activities’ headings respectively.



Exam focus

point



Various complications may arise in a consolidated statement of cash flows in the exam, the most

important of which are covered above. The question, given below, is comprehensive. You may also have a

written element. The Pilot Paper asked for the preparation of a consolidated statement of cash flows and a

report on the usefulness of group statements of cash flows, generally and specifically to the entity in the

question. In December 2010 students were asked whether it was acceptable for the proceeds of a loan to

be classified as operating cash flow.



Part C Group financial statements  17: Group statements of cash flows



491



3.7 Section summary

The preparation of consolidated statements of cash flows will, in many respects, be the same as those for

single companies, with the following additional complications.













Acquisitions and disposals of subsidiary undertaking

Cancellation of intra-group transactions

Non-controlling interest

Associates and joint ventures

Finance leases



Question



Consolidated cash flow 1



Topiary Co is a 40 year old company producing garden statues carved from marble. 22 years ago it

acquired a 100% interest in a marble importing company, Hardstuff Co. In 20W9 it acquired a 40%

interest in a competitor, Landscapes Co and on 1 January 20X7 it acquired a 75% interest in Garden

Furniture Designs. The draft consolidated accounts for the Topiary Group are as follows.

DRAFT CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 20X7

$'000

$'000

Operating profit

4,455

Share of profit after tax of associate

1,050

Income from long-term investment

465

Interest payable

(450)

Profit before taxation

5,520

Tax on profit

Income tax

1,173

Deferred taxation

312

(1,485)

Profit for the year

4,035

Attributable to:



owners of the parent

non-controlling interest



DRAFT CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER

20X6

$'000

$'000

Assets

Non-current assets

Tangible assets

Buildings at net book value

6,600

Machinery:

cost

4,200

aggregate depreciation

(3,300)

net book value

900

7,500

Goodwill



Investments in associates

3,000

Long-term investments

1,230

11,730

Current assets

Inventories

3,000

Receivables

3,825

Cash

5,460

12,285

24,015

492



17: Group statements of cash flows  Part C Group financial statements



3,735

300

4,035



20X7

$'000



$'000



6,225

9,000

(3,600)

5,400

11,625

300

3,300

1,230

16,455

5,925

5,550

13,545

25,020

41,475



20X6

$'000

$'000

Equity and liabilities

Equity

Share capital: 25c shares

Share premium account

Retained earnings



6,000

6,285

7,500

19,785





Non-controlling interest

Total equity c/f

Total equity b/f

Non-current liabilities

Obligations under finance leases

Loans

Deferred tax



20X7

$'000



11,820

8,649

10,335

30,804

345

19,785

19,785



510

1,500

39



31,149

31,149

2,130

4,380

90



2,049

Current liabilities

Trade payables

Obligations under finance leases

Income tax

Accrued interest and finance charges



$'000



840

600

651

90



6,600

1,500

720

1,386

120



2,181

24,015



3,726

41,475



Note

1



There had been no acquisitions or disposals of buildings during the year.

Machinery costing $1.5m was sold for $1.5m resulting in a profit of $300,000. New machinery was

acquired in 20X7 including additions of $2.55m acquired under finance leases.



2



Information relating to the acquisition of Garden Furniture Designs

Machinery

Inventories

Trade receivables

Cash

Trade payables

Income tax

Non-controlling interest

Goodwill



2,640,000 shares issued as part consideration

Balance of consideration paid in cash

3



$'000

495

96

84

336

(204)

(51)

756

(189)

567

300

867

825

42

867



Loans were issued at a discount in 20X7 and the carrying amount of the loans at 31 December

20X7 included $120,000 representing the finance cost attributable to the discount and allocated in

respect of the current reporting period.



Required

Prepare a consolidated statement of cash flows for the Topiary Group for the year ended 31 December

20X7 as required by IAS 7, using the indirect method. There is no need to provide notes to the statement

of cash flows.



Part C Group financial statements  17: Group statements of cash flows



493



Answer

TOPIARY CO

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 20X7



$'000



Cash flows from operating activities

Net profit before tax

Adjustments for:

Depreciation (W1)

Profit on sale of plant

Share of associate's profits

Investment income

Interest payable

Operating profit before working capital changes

Increase in trade and other receivables (W4)

Increase in inventories (W4)

Increase in trade payables (W4)

Cash generated from operations

Interest paid (W5)

Income taxes paid (W3)

Net cash from operating activities



$'000



5,520

975

(300)

(1,050)

(465)

450

5,130

(1,641)

(2,829)

456

1,116

(300)

(750)

66



Cash flows from investing activities

Purchase of subsidiary undertaking (W6)

Purchase of property, plant and equipment (W1)

Proceeds from sale of plant

Dividends from investment

Dividends from associate (W1)

Dividends paid to non-controlling interest (W2)

Net cash used in investing activities

Cash flows from financing activities

Issue of ordinary share capital (W2)

Issue of loan notes (W3)

Capital payments under finance leases (W3)

Dividends paid (W2)

Net cash flows from financing activities



294

(3,255)

1,500

465

750

(144)

(390)

7,359

2,760

(810)

(900)

8,409



Net increase in cash and cash equivalents

Cash and cash equivalents at 1.1.X7

Cash and cash equivalents at 31.12.X7



8,085

5,460

13,545



Workings

1



Assets



b/d

P/L

Dep'n*/ Amort'n/

Impairment

Acquisition of sub/assoc

Non-cash additions (W3)

Disposals

Cash paid/(rec'd) β

c/d

494



Buildings

$'000

6,600



Plant and

machinery

$'000

900



(375) β

6,225



(600)

495

2,550

(1,200)

3,255 β

5,400



Goodwill

$'000

-



Associate

$'000

3,000

1,050



Long-term

investment

$'000

1,230







17: Group statements of cash flows  Part C Group financial statements



300

300



(750) β

3,300



1,230



*Depreciation charges



$'000

3,300

(300)

600

3,600



Accumulated depreciation b/d

Depreciation on disposal (1,500 − 1,200*)

Depreciation charge (balancing figure)

Accumulated depreciation c/d

*Disposal

Proceeds

Net book value (balancing figure)

Profit on disposal



$'000

1,500

(1,200)

300



Freehold buildings ($6,600,000 – $6,225,000) = $375,000

Total depreciation charge: ($375,000 + $600,000) = $975,000

Note. The share of the associate’s profit, recognised in the consolidated statement of profit or loss

and other comprehensive income, is not a cash item so is added back on the face of the statement

of cash flows in the section that calculates the cash generated from operations. The dividend

received from the associate is the cash item and appears in the investing activities section.

2



Equity



b/d

P/L

Acquisition of subsidiary

Cash (paid)/rec'd β

c/d

3



Liabilities



Share capital

$'000

6,000



Share

premium

$'000

6,285



660

5160

11.820



165

2,199

8,649

Loans

$'000



b/d

P/L

New lease commitment (machinery)

Acquisition of subsidiary

Cash (paid)/rec'd β

c/d



1,500



(900)

10,335



NCI

$'000

300

189

(144)

345



Finance

lease

$'000



Tax payable

$'000



(600 + 510)



(651 + 39)



1,110



690

(1,173 + 312)



(W5)120



1,485

2,550



2,760

4,380



4



Retained

earnings

$'000

7,500

3,735



(810)



51

(750)



2,850



1,476



(720 + 2.130)



(1,386 + 90)



Receivables

$'000

3,825

84

3,909

1,641

5,550



Payables

$'000

840

204

1,044

456

1,500



Working capital changes



Balance b/d

Acquisition of subsidiary

Increase/(decrease) (balancing figure)

Balance c/d



Inventories

$'000

3,000

96

3,096

2,829

5,925



Part C Group financial statements  17: Group statements of cash flows



495



5



Interest



$'000

90

330



Balance b/d

SPLOCI (450 − 120) (excluding the discount credited to the

carrying value of loans)

Interest paid in cash (balancing figure)

Balance c/d

6



(300)

120



Purchase of subsidiary



$'000

336

(42)

294



Cash received on acquisition of subsidiary

Less cash consideration

Cash inflow



Note. Only the cash consideration is included in the figure reported in the statement of cash flows. The

shares issued as part of the consideration are reflected in the share capital working (W2) above.



Question



Consolidated cash flow 2



The following are extracts from the financial statements of Tastydesserts and one of its wholly owned

subsidiaries, Custardpowders, the shares in which were acquired on 31 October 20X2.

STATEMENTS OF FINANCIAL POSITION



Non-current assets

Property, plant & equipment

Goodwill

Investment in associates

Current assets

Inventories

Receivables

Bank balances and cash



Equity

Share capital

Share premium

Retained earnings

Non-current liabilities

Loans

Deferred tax

Current liabilities

Payables

Bank overdrafts

Current tax payable



496



17: Group statements of cash flows  Part C Group financial statements



Tastydesserts

and subsidiaries

31 December

31 December

20X2

20X1

$'000

$'000



Custardpowders

31 October

20X2

$'000



4,764

42

2,195

7,001



3,685



2,175

5,860



694





694



1,735

2,658

43

4,436



1,388

2,436

77

3,901



306

185

7

498



11,437



9,761



1,192



4,896

216

2,540

7,652



4,776



2,063

6,839



400



644

1,044



1,348

111

1,459



653

180

833



1,915

176

235

2,326



1,546

343

200

2,089



148





148



11,437



9,761



1,192















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