Unit 9 - Cash Flows (Revised)

Unit 9 - Cash Flows (Revised) - Unit 9 Statement of Cash...

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HKAS 7 Cash Flow Statements 1 Unit 9 Statement of Cash Flows (HKAS 7)
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2 HKAS 7 - Statement of Cash Flows Cash Flows: inflows and outflows of cash and cash equivalents. e.g. collection from debtors (inflows), payment made to creditors (outflows) etc. The statement provides relevant information about an entity’s cash receipts and cash disbursements . Helps investors and creditors to assess future cash flows short-term liquidity long-term solvency
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HKAS 7 Cash Flow Statements 3 HKAS 7 - Statement of Cash Flows Objectives – The standard requires the provision of information about the historical changes in cash and cash equivalents of an entity by means of a cash flow statement which classifies cash flows during a period from operating, investing and financing activities. Scope – An entity shall prepare a cash flow statement in accordance with the requirements of the standard and should present it as an integral part of its financial statements for each period for which financial statements are presented.
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HKAS 7 Cash Flow Statements 4 Benefits of Cash Flow Information A cash flow statement, when used in conjunction with the rest of the financial statements, provides information that: enables users to evaluate the liquidity and viability of the entity, and its ability to affect the cash flows in order to adapt to changing circumstances and opportunities; is useful in assessing the ability of an entity to generate cash and cash equivalents;
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HKAS 7 Cash Flow Statements 5 Benefits of Cash Flow Information enables users to develop models to assess and compare to the future cash flows; enhances the comparability of the reporting of operating performance by different entities; is used as an indicator of the amount, timing and certainty of future cash flows; and is useful in examining the relationship between profitability and net cash flow.
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HKAS 7 Cash Flow Statements 6 Definitions Cash : comprises cash on hand and demand deposits. Cash equivalents : are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Held for the purpose of meeting short-term cash commitments e.g. term deposit, certificate of deposit etc. Short maturity, e.g. three months or less from the date of acquisition etc.
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HKAS 7 Cash Flow Statements 7 Definitions Equity investments are excluded from cash equivalent unless they are, in substance, cash equivalents, e.g. in the case of preferred shares acquired within a short period of their maturity and with a specified redemption date. Bank borrowings are generally considered to be financing activities. However, in some countries, bank overdrafts which are repayable on demand form an integral part of an entity’s cash management. In these circumstances, bank overdrafts are included as a component of cash and cash equivalents. A characteristic of such banking arrangements is that the bank balance often fluctuates from being positive to overdrawn.
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Unit 9 - Cash Flows (Revised) - Unit 9 Statement of Cash...

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