Acca f3 Financial Accounting (int) Study Text

396

23: Statements of cash flows    Part F  Preparing basic financial statements 

Solution

Step 1

Set out the proforma statement of cash flows with the headings required by IAS 7. You 

should leave plenty of space. Ideally, use three or more sheets of paper, one for the main 

statement, one for the notes and one for your workings. It is obviously essential to know the 

formats very well. 

Step 2

Begin with the 

reconciliation of profit before tax to net cash from operating activities as

far as possible. When preparing the statement from statements of financial position, you 

will usually have to calculate such items as depreciation, loss on sale of non-current assets, 

profit for the year and tax paid (see Step 4). Note that you may not be given the tax charge 

in the income statement. You will then have to assume that the tax paid in the year is last 

year's year-end provision and calculate the charge as the balancing figure. 

Step 3

Calculate the cash flow figures for 

dividends paid, purchase or sale of non-current assets, 

issue of shares and repayment of loans if these are not already given to you (as they may be).

Step 4

If you are not given the profit figure, open up a 

working for the trading, income and 

expense account. Using the opening and closing balances, the taxation charge and 

dividends paid and proposed, you will be able to calculate profit for the year as the 

balancing figure to put in the net profit to net cash flow from operating activities section. 

Step 5

You will now be able to 

complete the statement by slotting in the figures given or calculated. 

COLBY CO 

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 20X2 

$'000

$'000

Net cash flow from operating activities

Profit before tax

392

Depreciation charges

 118

Loss on sale of property, plant and equipment

 18

Interest expense

28

Increase in inventories

 (4)

Increase in receivables

 (18)

Increase in payables

    6

Cash generated from operations

 540

Interest paid

(28)

Dividends paid 

(66)

Tax paid (86 + 124 – 102)

(108)

Net cash flow from operating activities

338

Cash flows from investing activities

Payments to acquire property, plant and equipment

(90)

Receipts from sales property, plant and equipment

12

Net cash outflow from investing activities

(78)

Cash flows from financing activities

Issues of share capital (360 + 36   340   24)

32

Long-term loans repaid (500   200)

(300)

Net cash flows from financing

(268)

Decrease in cash and cash equivalents

   (8)

Cash and cash equivalents at 1.1.X2

  56

Cash and cash equivalents at 31.12.X2

  48

Working: property, plant and equipment 

COST

$'000

$'000

At 1.1.X2

1,560

At 31.12.X2

1,596

Purchases

    90

Disposals (balance)

     54

1,650

1,650

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Part F  Preparing basic financial statements 

  23:  Statements of cash flows

397

ACCUMULATED DEPRECIATION 

$'000

$'000

At 31.1.X2

318

At 1.1.X2

224

Depreciation on disposals 

Charge for year

118

 (balance)

 24   

342

342

NBV of disposals

30

Net loss reported

(18)

Proceeds of disposals

12

Question

Statement of cash flows

Set out below are the financial statements of Shabnum Co. You are the financial controller, faced with the 

task of implementing IAS 7 Statement of cash flows.

SHABNUM CO 

INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 20X2 

$'000

Revenue

2,553

Cost of sales

(1,814)

Gross profit

739

Distribution costs

 (125)

Administrative expenses

(264)

350

Interest received

25

Interest paid

   (75)

Profit before taxation

300

Taxation

 (140)

Profit for the period

 160

SHABNUM CO 

STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 

20X2

20X1

$'000

$'000

Assets

Non-current assets

Property, plant and equipment

380

305

   Intangible assets

250

200

   Investments

        –

  25

Current assets

   Inventories

150

102

   Receivables

390

315

   Short-term investments

50

–

   Cash in hand

        2

    1

Total assets

1,222

948

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398

23: Statements of cash flows    Part F  Preparing basic financial statements 

20X2

20X1

$'000

$'000

Equity and liabilities

Equity

   Share capital ($1 ordinary shares)

200

150

   Share premium account

160

150

   Revaluation reserve

100

91

   Retained earnings

   260

180

Non-current liabilities

   Loan

170

50

Current liabilities

   Trade payables

127

119

   Bank overdraft

85

98

   Taxation

   120

110

Total equity and liabilities

1,222

948

The following information is available. 

(a) 

The proceeds of the sale of non-current asset investments amounted to $30,000. 

(b) 

Fixtures and fittings, with an original cost of $85,000 and a net book value of $45,000, were sold 

for $32,000 during the year. 

(c) 

The following information relates to property, plant and equipment 

        31.12.20X2 

31.12.20X1 

$'000

$'000

Cost

720

595

Accumulated depreciation

340

290

Net book value

380

305

(d) 

50,000 $1 ordinary shares were issued during the year at a premium of 20c per share. 

(e) 

Dividends totalling $80,000 were paid during the year. 

Required

Prepare a statement of cash flows for the year to 31 December 20X2 using the format laid out in IAS 7. 

Answer

SHABNUM CO

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 20X2 

 $'000 

$'000

Net cash flows from operating activities

Profit before tax 

 300 

Depreciation charge (W1) 

 90 

Interest expense 

50

Loss on sale of property, plant and equipment (45 – 32) 

 13 

Profit on sale of non-current asset investments 

 (5) 

(Increase)/decrease in inventories 

 (48) 

(Increase)/decrease in receivables 

 (75) 

Increase/(decrease) in payables 

    8

Cash generated from operating activities 333 

Interest received 

25

Interest paid 

(75)

Dividends paid 

(80)

Tax paid (110 + 140 – 120) 

(130)

Net cash flow from operating activities 

 73 

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