Cashflows Summary
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michelleCashflows Summary
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michelleDirect method Indirect method
Cash flow from operating activities Cash flow from operating activities
Cash receipts from customers C/B – credit losses – O/B + sales Profit before tax
– bad debts +/- adjustments for separately disclosable items
(Cash payments to suppliers) inventory purchases + creditors +/- adjustments for non-cash items
purchases – all non-cash costs – separately disclosed costs +/- working capital changes
Cash generated from operations
Interest received
Dividends received
(interest paid) lease if paid already + loans + borrowing costs
(Tax paid) OCI revaluation tax -/+ def tax movement +/- cur tax
+/- balances (↓ dt def tax – OCI; P/L balance)
(Dividends paid) O/B – C/B + declared
Net cash from operating activities
Cash flow from investment activities
Acquisition of plant:
(addition/expansion)
(Replacement)
Proceeds on disposal of vehicles
(Acquisition of shares/investment)
Direct costs for right of use asset lease
Net cash from investment activities
Cash flow from financing activities
(Redemption of debentures)
Proceeds from debenture issue
Proceeds from share issue
Proceeds from loan obtained
(Repayment of loan)
(Capital portion of lease payment) if paid already
Lease liability
Net cash from financing activities
Net cash flow
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Reconciliation between profit before tax and cash generated from operations
Profit before tax
+ Depreciation (right of use + PPE depreciation)
+ Credit losses
+ Increase in allowance for credit losses
+ Fair value adjustment
+ Interest expense – lease + loan (ST + LT – Capital repayment) repayment not at YE account for interest
accordingly
+ Leave pay provision
(Profit on sale of asset)
(Interest income)
Add/subtract movement in working capital
Decrease/increase in inventory = inflow cash
Decrease/increase in debtors = inflow cash (- credit losses)
Decrease/increase in creditors = outflow cash
Decrease/increase in prepaid expenses
Decrease/increase in accrued expenses
How to classify
PREFERENCE SHARES
1. Mandatory redeemable or holder’s option and cumulative dividend: LIABILITY INTEREST
2. Issuer’s option and dividend is not cumulative: EQUITY DIVIDEND
3. Not redeemable and div is not cumulative: EQUITY DIVIDEND
FINANCIAL INSTITUTION? Allowed to show net effect in cash flow stat.
-accepting and repaying deposits if it has fixed maturity rate.
Placing deposits with other financial institutions and withdrawing.
Providing cash advances and loans and then receiving it back.
BORROWING COST: must be shown separately: as a line item not as an asset together with
total interest paid. (Show the actual interest expense: not the asset that has been capitalized.)
LEASES: payment of capital = financing activity (liability we are lessee)
: Payment of interest = operating, or financing activities
: Receipt of capital = investment activities (asset we are lessor)
: Receipt of interest = show in line item interest received for the year.
LOW VALUE ASSET: or short term lease Lessee side: straight line method
In cash flow statement: can’t show straight lined amount -> show the actual amount under operating
activity
BANK OVERDRAFT: classify as cash and cash equivalent if:
1. Only include bank overdraft if the records show that we are in red then green, and so; on a
regular basis.
2. Bank should be able to at any given time demand a repayment of this facility.