PAS 7 - Statement of Cashflow

• This statement provides information about the sources and utilization of cash and equivalent during the period

  Statement of cashflow
• What PAS prescribes the requirements in the presentation of cash flows?

  PAS 7
• Only debt instrument acquired within 3 months or less before their maturity date can classify as a cash equivalent
• Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash.
• Statement of cashflow provide users with the ff. information:

  1. the ability of the entity to generate cash and cash equivalents
  2. timing and certainty of the generation of cashflows; and
  3. needs of the entity to utilize those cashflow
• three classifications of cashflows according to the activities

  1. Operating activities
  2. Investing activities
  3. Financing activities
• Operating Activities

  1. derived from the revenue operating activities
  2. cashflows on income and expenses
  3. those that enter into the determination of profit or loss
• Special items included in the Operating activities

  1. Buying and selling of held for trading securities - similar to inventory
  2. buying of PPE for lease and later on selling it - inventory
  3. Loan transactions of financial institution
• Cashflows from the acquisition and disposal of non current assets and other investment are classified into what activities?

  Investing activities
• Those activities that affect the entity's equity capital and borrowing structure are classified as?

  Financing Activities
• Summary

  1. Operating - income and expenses
  2. Investing - non current asset
  3. Financing - equity and liability
• Cashflows on trades payable, accrued expenses and other operating liabilities are classified as operating activities and not financing activities. Only non-operating or non trade activities are classified as financing activities.
• cashflow excluded from the activities sections;

  1. cashflows on movement between cash and cash equivalents are not presented separately
  2. Bank overdrafts that cannot be offset to cash are presented as financing activities, those that can be offset, forms part of cash and cash equivalent and is presented separately in the activities sections
  3. The effect of exchange rate differences is reported in the statement of cashflow to reconcile cash and cash equivalent at the beginning and the end of the period. The amount of the reconciliation is reported separately
• classification

  
• cashflows from operating activities may be presented during their;

  1. Direct Method - show gross of cash receipt and cash payment
  2. Indirect Method - profit or loss is adjusted for the effects of non cash items and changes in operating assets and liabilities
• What method of preparing operating activities does PAS 7 requires?

  PAS 7 does not require any particular method. However, PAS 7 encourages the use of direct method.
• Changes in ownership interest in subsidiaries

  1. cashflows resulting to loss or obtaining of control - investing activities
  2. those that do not result from loss or obtaining of control - financing activities
• PAS 7 requires the following disclosures

  1. components of cash and cash equivalents and the reconciliation of amounts in the statement of cashflows with the equivalent items in the SOFP
  2. significant cash and cash equivalent held by the entity that are not available for use by the group, together with a management commentary