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Week 5 Measuring and Reporting Cash Flows ACCY111 2013 FOR BLACKBOARD

Purchase of property plant and equipment(10 10(20 net

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Unformatted text preview: Purchase of property, plant and equipment (10 + 10) (20) Net cash used in investing activities (20) Cash flows from financing activities Proceeds from issue of share capital 15 Proceeds from long-term borrowings 5 Dividends paid (15) Net cash provided by financing activities 5 Net decrease in cash and cash equivalents held (7) Cash and cash equivalents at the beginning of the financial year 12 Cash and cash equivalents at the end of the financial year 5 Reconciling Cash Flow From Operations With Operating Profit • NZ IAS 7 requires a note that reconciles the net profit or loss after tax (per the Income Statement) with the cash flows from operating activities (per the Cash Flow Statement) • Purpose of reconciliation is to allow users of financial reports to understand the differences between the net profit or loss and the cash flows from operating activities • The starting point is the profit after tax • We then add back the depreciation charged in arriving at that profit and adjust this total by movements in non-cash current asset and current liability accounts to arrive at cash flow from operations Reconciling Cash From Operations With Operating Profit Refer Example 5.1 for data Reconciliation would be as follows: $m Operating profit after tax 10 Depreciation 5 Increase in inventory (8) Increase in accounts receivable (5) Increase in accounts payable 5 Increase in tax payable 1 Net cash flow provided by operating activities 8 What Does the Cash Flow Statement Tell Us? • The cash flow statement tells us how the business has generated cash during the period and where that cash has gone • It tracks the sources and uses of cash over time, which is indicative of trends and useful for predicting future opportunities and patterns of cash flow • It provides an insight into working capital management • It identifies non-operating cash flows What Does the Cash Flow Statement Tell Us? • It indicates the entity’s ability to pay dividends and meet its financial commitments as they fall due • It enables comparison of how current period cash flows compare to prior periods • The differences between net profit and net cash flow from operating activities essentially assist a “Quality ” check on Earnings Limitations of cash flow statements • Cash flows can be manipulated . • Cash flow information is historical information and cannot necessarily assist predictions of the future. • Much of the detailed information is in the notes , and careful review of the notes must occur....
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Week 5 Measuring and Reporting Cash Flows ACCY111 2013 FOR BLACKBOARD

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