Lesson 7

• What is the main focus of Week 7 in the accounting course?

  How to read the Statement of Cash Flows
• What does the Statement of Cash Flows summarize?

  Cash flows into and out of the business
• What are the classifications of cash flows by activity?

  Operating, financing, and investing activities
• What are the two methods used to prepare Cash Flows from Operating Activities?

  Direct method and indirect method
• How are interest and dividends classified under IFRS?

  They are classified as cash flows from operating and financing activities
• What are the benefits and drawbacks of the Statement of Cash Flows?

  Benefits:

  • Assesses liquidity and solvency
  • Highlights financial adaptability
  • Provides insight into future cash flows

  
  

  Drawbacks:

  • Uses historic cash flows
  • No interpretation provided
  • Non-cash transactions are not highlighted
• Why is cash considered more reliable than profit?

  Cash is objective and essential for business survival
• What does the Statement of Cash Flows summarize regarding cash and cash equivalents?

  Inflows and outflows of cash and cash equivalents over a period
• What qualifies as cash equivalents?

  Short-term, highly liquid investments readily convertible into cash
• What is meant by cash under IAS 7?

  Notes and coins, deposits in banks accessible on demand
• What are the components of cash equivalents?

  Highly liquid investments with insignificant changes in value
• What is the maturity period for cash under IAS 7?

  3 months or less
• What are the cash flows from operating activities?

  • Cash received from customers
  • Cash paid to suppliers and employees
  • Tax paid on trading operations
• What are the cash flows from investing activities?

  • Cash received from disposal of non-current assets
  • Cash spent on buying non-current assets
• What are the cash flows from financing activities?

  • Cash received from issuing bonds or borrowing
  • Interest payment and principal repayment of loans
  • Equity raised from rights issues and private placements
  • Dividend payments to owners
• What are the two methods for presenting cash flows from operating activities?

  Direct method and indirect method
• What does the indirect method start with?

  Profit from the Income Statement
• What adjustments are made in the indirect method?

  Adjust for changes in non-cash working capital and non-cash charges
• What is the rationale for using the indirect method?

  To adjust operating profits for non-cash items and changes in working capital
• What are the components of cash flows from operating activities using the indirect method?

  • Start with PBIT or PAT
  • Subtract investment income and gains on disposals
  • Add back non-cash charges
  • Adjust for changes in non-cash working capital
• How do increases in non-cash current assets affect cash inflows?

  They reduce net cash inflows
• How do increases in non-cash current liabilities affect cash inflows?

  They increase net cash inflows
• What is the formula for calculating operational items in working capital?

  Non-cash current assets - Non-cash current liabilities
• What is the impact of increases in non-cash working capital on cash inflows?

  They reduce net cash inflows
• What is the value of inventory for Olive Corp in 2023?

  €97 million
• What is the value of trade receivables for Olive Corp in 2023?

  €296 million
• What is the value of unearned income for Olive Corp in 2023?

  €65 million
• What is the value of bank overdraft for Olive Corp in 2023?

  €90 million
• What is the value of tax payable for Olive Corp in 2023?

  €29 million
• What is the value of current assets for Olive Corp in 2023?

  €443 million
• What is the value of total liabilities and equity for Olive Corp in 2023?

  €2,023 million
• What is the value of total assets for Olive Corp in 2022?

  €1,877 million
• What is the value of current assets for Olive Corp in 2022?

  €337 million
• What is the value of current liabilities for Olive Corp in 2022?

  €187 million
• What is the value of cash for Olive Corp in 2022?

  €9 million
• What is the value of inventory for Olive Corp in 2022?

  €81 million
• What is the value of trade receivables for Olive Corp in 2022?

  €247 million
• What is the value of unearned income for Olive Corp in 2022?

  €54 million
• What is the value of tax payable for Olive Corp in 2022?

  €23 million
• What is the value of bank overdraft for Olive Corp in 2022?

  €110 million