PAS 7 - IAS 7 IAS 7 CASH FLOW STATEMENTS MODULE OBJECTIVES...

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Unformatted text preview: IAS 7 IAS 7 CASH FLOW STATEMENTS MODULE OBJECTIVES MODULE OBJECTIVES • SIGNIFICANCE of the Cash Flow Statements • OBJECTIVE of the Cash Flow Statements • PRESENTATION of the Cash Flow Statements • Other matters SCOPE SCOPE • All entities are required to present cash flow statements. SIGNIFICANCE OF THE SIGNIFICANCE OF THE CASH FLOW STATEMENT Provides information for the better insight into the entity’s: • Financial capital structure • Liquidity and Solvency • Flexibility • major cash flow transactions occurred during the period OBJECTIVE OF THE CASH FLOW STATEMENT 12/31/07 1/1/07 e.g. ? e.g. ? IN FLOW S OUT FLOWS COMPANY Net IN/(OUT)flows during the year = Balance Sheet 12/31/07 12/31/06 Cash & CE XXX XXX CASH FLOW TRANSACTIONS CASH FLOW TRANSACTIONS These are inflows and outflows of cash and cash equivalents. Conversion from cash to cash equivalents and vice versa are not considered cash flow transactions and are not reported in the cash flow statement. PRESENTATION OF THE CASH FLOW STATEMENT PRESENTATION OF THE CASH FLOW STATEMENT Indirect Method Net cash from/(used in) OPERATING Activities Direct Method Net cash from/(used in) INVESTING Activities Net cash from/(used in) FINANCING Activities Net increase/(decrease) in Cash and cash equivalents Cash and cash equivalents, Beginning of the period Cash and cash equivalents, End of the period CLASSIFICATION OF CASH FLOW CLASSIFICATION OF CASH FLOW ACTIVITIES ► OPERATING ACTIVITIES ­ the principal revenue producing activities and other activities that are not investing or financing. ► INVESTING ACTIVITIES – the acquisition and disposal of long­term assets and other investments not included in cash equivalents. ► FINANCING ACTIVITIES – those that result in changes in size and composition of the equity capital and borrowings of the entity. CLASSIFICATION OF THE CASH FLOW ACTIVITIES CLASSIFICATION OF THE CASH FLOW ACTIVITIES Net Cash Provided by/ (Used in) OPERATING ACTIVITIES INCOME STATEMENT BALANCE SHEET CURRENT ASSETS CURRENT LIABILITIES NON-CURRENT ASSETS NON-CURRENT LIABILITIES EQUITY Net Cash Provided by/ (Used in) INVESTING ACTIVITIES Net Cash Provided by/ (Used in) FINANCING ACTIVITIE OPERATING ACTIVITIES OPERATING ACTIVITIES ► ► ► ► ► ► ► Cash receipts from the sale of goods and rendering of services Cash receipts from royalties, fees, commissions and other revenues Cash payments to suppliers for goods and services Cash payments to and on behalf of employees Cash receipts and cash payments of an insurance entity for premiums and claims, annuities and other policy benefits Cash payments or refunds of income taxes unless they can be specifically identified with financing and investing activities Cash receipts and payments from contracts held for dealing or trading purposes. METHODS OF PRESENTING OPERATING METHODS OF PRESENTING OPERATING ACTIVITIES ► DIRECT METHOD – presents actual sources and uses of cash ► INDIRECT METHOD – reconciles operating income with cash flow from (used in) operating activities. Direct Method Direct Method Operating Activities Collections from customers Px Payment to suppliers of goods (x) Salaries and wages paid (x) Payment for supplies (x) Collection of rent, other income x Cash flow from operations before interest and income tax Px Payment of interest (x) Payment of income tax (x) Net cash flow from operations Px Indirect Method Indirect Method Profit from operations before interest and income taxes Px Adjustments for Depreciation x Amortization of intangibles x Gains on sale of PPE (x) Loss on sale of AFS x Increase in trade receivables (x) Decrease in inventory x Increase in trade payables x Decrease in accrued expenses (x) Cash Flow from Operations before interest and income tax Px Payment of interest (x) Payment of income taxes (x) Net cash flow from Operating Activities Px TAXES ON INCOME TAXES ON INCOME ► Separately disclosed ► Classified as cash flow from operating activities, unless they can be specifically identified with financing and investing activities. INVESTING ACTIVITIES INVESTING ACTIVITIES ► ► ► ► ► Cash payments to acquire PPE, intangibles and other long­term assets Cash receipts from sale of PPE, intangibles and other long­ term assets Cash payments and cash receipts relating to equity and debt instruments of other entities, other than those classified as cash equivalents and instruments held for dealing or trading purposes Cash advances and loans and collections of advances and loans made to other parties (other than those advances of a financial institutions) Cash payments for and receipts from future contracts, forward contracts, option contracts and swap contracts except that when contracts are held for dealing or trading purposes FINANCING ACTIVITIES FINANCING ACTIVITIES ► ► ► Cash payments and receipts for shares and other equity instruments of the enterprise Cash receipts and payments from and for debentures, loans, notes, bonds, mortgages and other short­term or long­term borrowings Cash payments by a lessee for the reduction of the outstanding finance lease liability NON­CASH TRANSACTIONS NON­CASH TRANSACTIONS ► Investing and financing transactions that do not require cash are excluded from a cash flow statement and shall be disclosed elsewhere in the financial statements. FOREIGN CURRENCY CASH FLOWS FOREIGN CURRENCY CASH FLOWS ► ► ► Foreign currency transactions are measured and reported using the exchange rate at the date of the cash flows. Cash flows of foreign subsidiary are translated at the exchange rate at the dates of the cash flows. Unrealized gains and losses from foreign currency exchange rates are not cash flows. In the reconciliation of cash balance (final figure in the cash flow statement) with the cash balance shown on the balance sheet, the effect of the changes in exchange rates shall be presented separately from cash flows from operating, investing and financing activities. INTEREST AND DIVIDENDS RECEIVED AND INTEREST AND DIVIDENDS RECEIVED AND PAID ► ► ► Shall be presented separately on the cash flow statement. Interest and dividends received are presented either as Operating activities or Investing activities Interest and dividends paid are presented either as Financing activities or Operating activities REPORTING CASH FLOWS ON A NET REPORTING CASH FLOWS ON A NET BASIS ► ALLOWED FOR Cash receipts and payments on behalf of customers when the cash flows reflect the activities of the customer rather than those of the entity Cash receipts and payments for items in which the turnover is quick, the amounts are large and the maturities are short. REQUIRED DISCLOSURES REQUIRED DISCLOSURES ► Components of cash and cash equivalents and reconciliation of the amounts in the cash flow statement with the amounts in the balance sheet. ► The amount of significant cash and cash equivalent balances that are not available for use by the group MODULE OBJECTIVES MODULE OBJECTIVES • SIGNIFICANCE of the Cash Flow Statements • OBJECTIVE of the Cash Flow Statements • PRESENTATION of the Cash Flow Statements • Other matters ...
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This note was uploaded on 11/30/2011 for the course ECON 310 taught by Professor Johnsmith during the Spring '11 term at Kentucky.

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