CHAPTER 11
STATEMENT OF CASH FLOWS (IAS –7)
Objective
The objective of cash flows of an entity is useful in providing users of financial
statements with the basis to assess the ability of the entity to generate cash and
cash equivalents and the needs of the entity to utilize those cash flows.
Scope
An entity shall prepare a statement of cash flows in accordance with the
requirements of this standard and shall present it as an integral part of its
financial statements for each period for which financial statements are
presented.
Benefits of cash flow information

A statement of cash flows when used along with other financial
statements enables users to evaluate changes in net assets of an entity,
its financial structure and its ability to affect the amounts and timing of
cash flows.

A statement of cash flows is useful in assessing the ability of the entity to
generate cash and cash equivalents and compare the present value of
the future cash flows of different entities.

It enhances the comparability of the reporting of operating performance
as it eliminates the effects of using different accounting treatments for the
same transactions and events.

It is also help full in assessing the accuracy of past assessments of future
cash flows.
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 change in value (investments having maturity date less than three months,
bank overdrafts etc.).
Cash flows are inflows and outflows of cash and cash equivalents
Operating activities are the principal revenue producing activities of the entity
and other activities that are not investing or financing activities
Investing activities are the acquisition and disposal of long-term assets and other
investments not included in cash equivalents
Financing activities are activities that result in changes in the size and
composition of the contributed equity and borrowings of the entity.
Presentation of statement of cash flows
The statement of cash flows should present cash flows during the period
classified by operating, investing and financing activities.
Cash Flows from Investing Activities
Investing activities include:
a)
Making and collecting loans
b)
Acquiring and disposing of debt or equity instruments; property, plant,
and equipment; and other productive assets (assets held for or used in
the production of goods or services by the enterprise other than items
that are part of the enterprise’s inventory).
Cash inflows from investing activities are:
a)
Receipts from collections of loans by the enterprise and sale of other
entities’ debt instruments (other than cash equivalents) that were
purchased by the enterprise.
b)
Receipts from sales of equity instruments of other enterprises and from
returns of investment in those instruments.
c)
Receipts from sales of property, plant, and equipment and other
productive assets
Cash outflows for investing activities are:
a)
Disbursements for loans made by the enterprise and payments to acquire
debt instruments of other entities (other than cash equivalents).
b)
Payments to acquire equity instruments of other enterprises
c)
Payments at the time of purchase, or soon before or after purchase, to
acquire property, plant, and equipment and other productive assets.
a. Generally, only advance payments, the down payment, or other
amounts paid at the time of purchase or soon before or after
purchase of property, plant, and equipment and other productive
assets are investing cash outflows.
b. Generally, principal payments on seller-financed debt directly related
to a purchase of property, plant, and equipment or other productive
assets are financing cash outflows.
Cash Flows from Financing Activities
Financing activities include:
a)
Obtaining resources from owners and providing them with a return on,
and a return of, their investment.
b)
Borrowing money and repaying amounts borrowed, or otherwise settling
the obligation.
c)
Obtaining and paying for other resources obtained from creditors on
long-term credit.
Cash inflows from financing activities are:
a)
Proceeds from issuing equity instruments (e.g., ordinary and preference
shares).
b)
Proceeds from issuing bonds, notes, and from other short or long-term
borrowing.
Cash outflows for financing activities are:
a)
Payments of dividends or other distributions to owners (alternatively may
be classified as operating cash flows)
b)
Repayments of amounts borrowed
c)
Other principal payments to creditors who have extended long-term
credit.
Cash Flows from Operating Activities
Operating activities generally involve producing and delivering goods and
providing services. Cash flows from operating activities are generally the cash
effects of transactions and other events that enter into the determination of net
income. However, certain items may be included in the net profit or loss for the
period which do not relate to operational cash flows, for example, the profit or
loss on the sale of a plant will be included in net profit or loss, but the cash flows
will be classed as investing.
Operating activities also include all transactions and other events that are not
defined as investing or financing activities.
Cash inflows from operating activities are:
a)
Cash receipts from sales of gods or services, including receipts from
collection of receivable balances and both short and long-term notes
receivable from customers arising from those sales.
b)
Cash receipts from returns on loans, other debt instruments other entities,
and equity securities – interest and dividends (alternatively may be
classified as investing cash flow).
c)
All other cash receipts that do not stem from transactions defined as
investing or financing activities.
Cash outflows for operating activities are:
a)
Cash payments to acquire materials for manufacture or goods for resale,
including principal payments on accounts and both short-and long-term
notes payable to suppliers for those materials or goods.
b)
Cash payments to other suppliers and employees for other goods or
services.
c)
Cash payments to governments for taxes should be classified as cash
flows from operating activities unless they can be specifically identified
with financing and investing activities. Taxation cash flows are often
difficult to match to the originating underlying transaction, so most of the
time and all tax cash flows are classified as arising from operating
activities.
d)
Cash payments to lenders and other creditors for interest (alternatively
these may be classified as financing cash flows).
e)
Al other cash payments that do not stem from transactions defined as
investing or financing activities.
CONTENTS AND FORM OF THE STATEMENT
A statement of cash flows should report:
a)
Net cash provided or used by operating, investing, and financing
activities
b)
The net effect of those flows on cash and cash equivalents during the
period in a manner that reconciles beginning and ending cash and cash
equivalents.
Reporting cash flows from operating activities
The standard offers a choice of method for this part of the statement of cash
flows.
a)
Direct method: disclose major classes of gross cash receipts and gross
cash payments.
b)
Indirect method: net profit or loss is adjusted for the effects of transactions
of a non-cash nature, any deferrals or accruals of past or future operating
cash receipts or payments, and items of income or expense associated
with investing or financing cash flows.
The direct method is the preferred method because it discloses information, not
available elsewhere in the financial statements, which could be of use in
estimating future cash flows.
Direct method – Under this method, enterprises are encouraged to report major
classes or gross cash receipts and gross cash payments and their arithmetic sumthe net cash flow from operating activities. At a minimum, the following classes
of operating cash receipts and payments should be separately reported:
a)
cash collected from customers;
b)
interest and dividends received;
c)
other operating cash receipts, if any;
d)
cash paid to employees and other suppliers of goods or services,
including suppliers of insurance, advertising, an the like;
e)
interest paid;
f)
income taxes paid;
g)
other operating cash payments, if any;
Enterprises are encouraged to provide further breakdown of operating
cash receipts and payments that they consider meaningful; for example,
a retailer or manufacturer might decide to further divide cash paid to
employees and suppliers into payments for costs of inventory and
payments for selling, general, and administrative expenses.
Indirect method-Net cash flow from operating activities may also be reported
under the indirect method by adjusting net income to reconcile it to net cash
flow from operating activities. This requires adjusting net income to remove the
effects of:
a)
all deferrals of past operating cash receipts and payments, such as
changes during the period in inventory and deferred income;
b)
all accruals of expected operating cash receipts and payments, such as
changes during the period in receivables and payables;
c)
items whose cash effects are investing cash flows, such as depreciation,
amortization of goodwill, and gains and losses on sales of property, plant,
and equipment and discontinued operations; and
d)
items whose cash effects are financing cash flows, such as gains and
losses on extinguishments of debt.
The reconciliation of net income to net cash flow from operating activities
should separately report all major classes of reconciling items. The
reconciliation may be either reported within the statement of cash flows
or provided in a ‘separate schedule, with the statement of cash flows
reporting only the net cash flow from operating activities. In addition, if
the indirect method is used, amounts of interest paid (net of amounts
capitalized) and income taxes paid during the period should be provided
in related disclosers.
It is important to understand why certain items are added and others
subtracted. Note the following points:
a)
Depreciation is not a cash expenses, but is deducted in arriving at the
profit figure in the statement of comprehensive income. I make sense,
therefore, to eliminate it by adding it back.
b)
By the same logic, a loss on a disposal of a non-current asset (arising
through under provision of depreciation) needs to be added back and a
profit deducted.
c)
An increase in inventories means less cash – you have spent cash on
buying inventory.
d)
An increase in receivables means the company’s debtors have not paid
as much, and therefore there is less cash.
e)
If we pay off payables, causing the figure to decrease, again we have
less cash.
Format of Statement Cash Flows
Cash Flow from Operating Activities
Profit before tax
Adjustments for: Depreciation
(Gain)/Loss on sale of fixed assets
Increase/(decrease) in provision for doubtful debts
Amortization of Government Grant
Amortization of deferred cost
Interest expense
Increase/(decrease) in provision for warranties
Operating profit before working capital changes
Adjustment for working capital changes
(Increase)/Decrease in current assets
(Increase)/Decrease in inventory
(Increase)/Decrease in debtors
(Increase)/Decrease in prepayments
Increase/(Decrease) in current liabilities
Increase/(Decrease) in creditors
Increase/(Decrease) in accrued expenses
Working capital changes
Cash generated from operations
Less:
Interest paid
Taxes paid
Dividend paid
Net cash inflow/(outflow) from operating activities –A
Cash flow from Investing Activities
Purchase of fixed assets
Sale proceeds from disposal of fixed assets
Dividend income
Interest income
Net cash inflow/(outflow) from investing activities –B
Cash Flow from Financing Activities
Issue of share capital
Issue/(payment) of long term loans (Debentures)
Lease liabilities raised /(paid)
Net cash inflow/(outflow) from financing activities –C
Net cash increase / (decrease) in cash and cash equivalents
(A+B+C)
2009
(Rupees)
2008
(Rupees)
x
x
(x)
(x)
x
x
x
xx
XX
x
(x)
(x)
(x)
x
x
(x)
xx
XX
x
(x)
x
x
x
(x)
X
X
x
(x)
x
XX
x
x
x
XX
(x)
(x)
(x)
(x)
(XXX)
(x)
(x)
(x)
(x)
XXX
(x)
x
x
x
XXX
(x)
x
x
x
(XXX)
x
(x)
x
XXX
XXX
x
x
(x)
XXX
(XXX)
Add: Opening balance of cash and cash equivalents
Closing balance of cash and cash equivalents
Direct Method
Receipts from customers
Payments to suppliers
Payments for expenses
(XX)
XXX
XX
(XXX)
x
(x)
(x)
XX
X
(x)
(x)
XX
CONSOLIDATION OF STATEMENT OF CASH FLOWS
Consolidated Statement of Cash Flows
There was no change in group
structure during the year
3 Additional Working Notes:

 Investment in associate

 Goodwill

Non-Controlling Interest
There was a change in group
structure during the year
(Disposal or Acquisition)
A new Subsidiary was
acquired during the year
An Existing Subsidiary was
disposed off during the year
Investment in Subsidiary – The outflow made to
acquire the subsidiary will be shown in Investing
Activities
Inflow from disposal – the consideration received for
the equity share given up
Will be shown in Investing Activities
Regarding the balances of assets, liabilities, & equity –
the balances of assets and liabilities appearing on the
date of acquisition of the subsidiary have been
incorporated into Group FS but these were purchased
by subsidiary at the time when that was not part of
group. So these are not group cash outflows.
Regarding the balances of assets, liabilities, & equity –
The subsidiary has been disposed off and the closing
balances of assets and liabilities of group do not
include subsidiary assets and liabilities but the opening
balances of group does include subsidiary disposed
off.
Additional Working Notes:

 Cost of Control

 Business Purchase Account
Additional Working Notes:

 Disposal Account

 Business Sale Account
Investment in associate
B/F
xxx
xxx
Cash
P&L
xxx
xxx
C/D
Share of profit in P&L
- Adjustment in cash flow
from operating activities
Non- Controlling Interest
Cash xxx
xxx
B/F
C/D
xxx
xxx
P&L
Dividend paid to NCI
- Outflow in cash flow
from financing activities
B/F
Dividend paid by associate
- Inflow in cash flow from
investing activities
Impairment charged in
P&L
– Adjustment in cash flow
from operating activities
Goodwill
xxx xxx P &
L
xxx
Investm
ent
P&L
Gain or loss booked in P&L
- Adjustment in cash flow
from operating activities
C/D
Disposal
xxx xxx Cash
xxx
xxx
P&L
Business Purchase and Sale accounts incorporate the effect of the purchase or
disposal:

OR
Dr. Business Sale
 Dr. Asset & Cr. Business Purchase Account
Account & Cr. Asset
With FV of asset on DOA

Dr. BPA & Cr. Liability
OR
Dr. Liability & Cr.

BSA
With FV of liability on DOA

The balancing figure will be the net assets of the subsidiary on the Date

Of Acquisition (DOA) and are to be allocated to NCI and CRE.
PRACTICE QUESTIONS
Question #1 Investment acquired during the year
Following is the information concerning the Investor Group for the year ended
December 31, 20X3
Consolidated Income statement
20X3
20X3
Rs.
Rs.
(000)
(000)
Profit from operations
Group
16,600
Associates
980
17,580
Income tax expense
Group
7,900
Associates
420 (8,320)
Profit after tax
9,260
Non controlling interest
(1550)
Group profit for the year
7,710
Consolidated statement of changes in equity
20X3
Rs.
(000)
Opening balance at 1-1-20X3
21,845
Profit for the year
7,710
Dividend paid
(2,100)
New shares issued
2,000
29,455
Consolidated balance sheet
20X3
20X3
20X2
20X2
Rs.
Rs.
Rs.
Rs.
(000)
(000)
(000)
(000)
Non-current assets
Investment in associates
6,200
5,700
Goodwill on acquisition
680
280
Property, plant and
21,200
28,080
16,900
22,880
equipment
Current assets
Inventories
16,600
12,200
Receivables
15,000
9,300
Cash
50
31,650
1,445
22,945
Capital and reserves
59,730
45,825
Issued capital
Share premium
Accumulated profits
Non controlling interest
Long term loans
Current liabilities
Trade payables
Taxation
Bank overdraft
14,000
2,645
12,810
7,700
9,100
3,620
29,455
8,200
1,655
20,420
59,730
13,000
1,645
7,200
5,800
4,900
1,400
21,845
6,600
5,280
12,100
45,825
Notes
1
On July 01, 20X3 the Investor Group acquired 80% of the issued share
capital of Vulnerable Limited, whose net assets at the date were as
follows:
Rs.
(000)
Property, plant and equipment
2,600
Inventories
900
Receivables
980
Cash
200
Trade payables
(1,380)
Tax
(300)
3,000
2
3
The purchase consideration was Rs.2.8 million in cash
Depreciation charged in the year amounted to Rs. 2,200,000. There were
no disposals of property, plant and equipment during the year.
Required: - Prepare Cash flow statement for the Investor Group
Question #2-Investment disposed off during the year
Following is the information concerning the JCN Group for the year ended
December 31, 20X0
Consolidated Income statement
20X0
Rs. (000)
Profit from operations
Group
20,000
Finance cost
(1,400)
Gain on disposal
700
Profit before tax
19,300
Tax expense
(6,500)
Profit after tax
12,800
Non controlling interest
(1,000)
Group profit for the year
11,800
Consolidated statement of changes in equity
20X0
Rs. (000)
Opening balance at 1-1-20X0
49,500
Profit for the year
11,800
Dividend paid
(3,000)
58,300
Non-current assets
Property, plant and
equipment
Current assets
Inventories
Receivables
Cash
Capital and reserves
Issued capital
Accumulated profits
Non controlling interest
Long term loans
Current liabilities
Trade payables
Taxation
Bank overdraft
Notes
1
Consolidated balance sheet
20X0
20X0
Rs. (000)
Rs. (000)
20W9
Rs. (000)
51,350
25,000
21,000
6,000
20,000
38,300
18,500
6,000
6,000
52,000
103,350
58,300
5,050
9,500
30,500
103,350
20W9
Rs. (000)
50,000
23,000
19,000
2,000
20,000
29,500
16,250
5,000
5,000
44,000
94,000
49,500
5,750
12,500
26,250
94,000
On June 30, 20X0 the JCN disposed off its investment in Pear a
subsidiary in which it had a shareholding of 80%. The proceeds were
Rs. 5.5 million. Details of disposal were as follows: Rs.
(000)
Property, plant and equipment
4,000
Inventories
2,000
Receivables
2,500
Trade payables
(1,500)
Bank overdraft
(200)
Tax
(300)
Long term loan
(500)
6,000
2
JCN had acquired its investment on June 30, 20V8 for Rs.1.9 million
when the net assets of Pear were Rs. 2 million. Goodwill was found to
be impaired several years ago and so was fully written off before the
start of current year.
3
Depreciation charged during the year in the consolidated income
statement amounted to Rs. 10.1 million. There were no disposal of
property, plant and equipment by the group other than those
effectively made upon disposal of the investment in the Pear.
Required: - Prepare Cash flow statement for the Investor Group
Answers to Examples
E-1
INVESTOR GROUP
CONSOLIDATED STATEMENT OF CASHFLOWS
FOT R THE YEAR ENDED DECEMBER 31, 20X3
Rs.
17,580
Cash flow from Operating Activities
Profit before tax
Adjustment for:
Profit from Associate
Depreciation
Operating profit before working capital charges
Working Capital Charges
Increase in inventory
Increase in Receivable
Increase in Payable
(980)
2,200
1,220
18,800
(3,500)
(4,720)
520
Cash generated from operations
Taxes paid
(7,700)
11,100
(4,000)
Net cash flow from operating activities
7,100
Cash flow from investing activities
Sub. Com. Acquisition (+200 – 2,800)
(2,600)
PPE – Acquired
(3,900)
6,440
Dividend – Associate (W-1)
60
Cash flow from financing activities
Dividend – paid
(2,100)
Long term loan (5,280 – 1,655)
(3,625)
Share capital (1,000 + 1,000)
2,000
Dividend – NCI
(550)
(4,275)
(3,615
Increase/(Decrease) in cash & cash equivalents
Opening cash & cash equivalents
Closing cash & cash equivalents
W-1
Investment in Associates
b/f
P&L
45
(3,570)
Rs.
5,700
980
Cash/dividend receipts
Tax
Rs.
60
420
W-2
Tax Expenses A/c.
Cash
c/d
W-3
NCI
Dividend
c/f
W-4
CRE
Dividend
c/d
W-5
Goodwill
b/f
COC
W-6
PPE
9,100
_____
13,100
550
8,200
8,700
2,100
12,810
_____
14,910
280
400
___
680
6,200
____
6,680
b/f
4,900
P&L
7,900
_____
13,100
b/f
6,600
B.P.
300
P&L
1,550
b/f
7,200
B.P.
P&L
1,600
8,700
7,710
_____
14,910
c/f
680
___
680
16,900
Dep.
2,200
Cash
3,900
23,400
c/d
21,200
23,400
c/d
16,600
16,600
Inventories
2,600
b/f
12,200
Cash
3,500
16,600
B.P.
W-8
4,000
c/d
b/f
B.P.
W-7
____
6,680
Receivables
900
b/f
9,300
Cash
4,720
15,000
B.P.
W-9
980
Cash & Cash equivalents
Cash
Bank O.D.
C/B
50
(3,620)
3,570
c/d
15,000
15,000
b/f
5,800
O/B
1,445
(1,400)
3,570
W-10 Trade Payables
7,700
____
7,700
B.P.
Cash
1,380
Payable
1,380
PPE
2.600
COCA
2,400
REC
980
c/f
W-11 Business Purchase Account
Tax
NCI
W-12 Cost of Control Account
Investment
300
600
____
4,680
2,800
____
2,800
E-2
JCN GROUP
CONSOLIDATED STATEMENT OF CASHFLOWS
FOR THE YEAR ENDED JUNE 30, 20X0
Cash flow from operating activities
Profit before tax
Adjustment for:
Gain on disposal
F. Cost
Depreciation
O. Profit before W.C. Changes
Rs. (000)
520
____
7,700
Inventory
900
Cash
200
____
4,680
Business Purchase
2,400
Goodwill
400
____
2,800
Rs.(000)
19,300
(700)
1,400
10,100
10,800
30,100
Working capital changes
Inventory
Receivable
Payable
(4,000)
(4,500)
3,750
(4,750)
25,350
Taxes paid
(5,200)
Cash flow generated from Operating activities
Cash flow from investing activities
Sub. Company disposal (5500 + 200)
P.P. E. Acquired
20,150
5,700
(15,450)
9,750
9,750
Cash flow from financial activities
F. Cost paid
(1,400)
Dividend paid
(3,000)
Dividend – NCI
(500)
L.T. Loans
(2,500)
7,400
Increase / (Decrease) in Cash & Cash equivalents
Opening Cash & Cash equivalents
Closing Cash & Cash equivalents
W-1
Disposal
Net Assets
P&L
W-2
Tax expenses
Banks
c/d
CRE
Dividend
c/d
W-4
6,000
NCI
Cash
700
NCI
300
b/f
____
6,700
Cash
W-3
Rs.
5,200
6,000
_____
11,500
3,000
38,300
40,300
3,000
(3,000)
-
P&L
Rs.
5,500\
1,200
____
6,700
5,000
6,500
_____
11,500
b/f
PAT
29,500
11,800
40,300
Disposal
1,200
c/d
5,050
6,750
Dividend
W-5
W-6
PPE
50,000
B.S.
Cash
Inventory
b/f
Receivables
b/f
Cash
W-8
Cash & Cash Equivalents
Cash
Bank O.D.
W-9
PAT
b/f
Cash dividend
W-7
500
b/f
L.T. Loan
B.S.
Cash
c/d
W-10 Trade payable
B.S.
c/d
5,750
1,000
____
6,750
4,000
15,450
65,450
Dep.
c/d
10,100
23,000
B.S.
2,000
51,350
65,450
4,000
27,000
c/d
25,000
27,000
19,000
B.S.
2,500
4,500
23,500
Closing
Balance.
6,000
(6,000)
--
c/d
21,000
23,500
Opening
Balances
2,000
(5,000)
(3,000
500
b/f
12,500
9,500
12,500
c/d
18,500
12,500
1,500
b/f/
16,250
2,500
18,500
20,000
Cash
3,750
20,000
W-11 B. Sale
PPE
4,000
Payable
REC
2,500
Tax
Inv.
2,000
____
8,500
N.OD
L.T.L.
Disposal
1,500
200
300
500
6,000
____
8,500
PAST PAPERS
Q-1
Following is the consolidated balance sheet of Iqbal Limited as at June 30, 2007:
2007
2006
Rupees in
million
ASSETS
Non-Current Assets
Tangible fixed assets
2,142
1,927
343
305
Goodwill
2,485
2,232
Current Assets
Cash and bank
808
700
Investments
982
560
Trade receivables
1,128
1,168
Inventory
1,850
1,715
4,768
4,143
7,253
6,375
TOTAL ASSETS
EQUITY AND LIABILITIES Equity
Ordinary shares of Rs. 10 each
8% preference shares of Rs. 10 each
Share premium
Revaluation reserves
Accumulated profits
Minority Interest
Liability against assets subject to finance lease
Deferred tax
Current Liabilities
Running finance
Trade payables
Income tax payable
Dividends payable
505
600
55
140
2,670
3,970
238
4,208
450
600
2,480
3,530
200
3,730
300
420
75
55
940
900
950
720
600
450
180
100
2,670
2,170
7,253
6,375
TOTAL EQUITY AND LIABILITIES
Following further information has been extracted from the records:
(i)
Iqbal Limited has two subsidiaries i.e. Faiz Limited and Badar Limited.
(ii) The factory buildings of Faiz Limited and Badar Limited were
revalued during the year and the surplus arising on the revaluation
was credited to a revaluation reserve account.
(iii) Certain plant and machineries belonging to Faiz Limited, acquired
under finance lease arrangement, were capitalized at Rs. 50 million.
(iv) On September 30, 2006, equipment costing Rs. 55 million carried in
the books of Iqbal Limited at Rs. 35 million as at June 30, 2006 was
completely destroyed by fire. Insurance proceed of Rs. 40 million was
received on November 17, 2006. There was no other disposal of
tangible fixed assets in any of the three companies.
(v) Total depreciation in the consolidated profit and loss account
amounted to Rs. 314 million which included depreciation on leased
assets amounting to Rs. 38 million.
(vi) 80% of the paid-up capital of Faiz Limited was acquired during the
year for Rs. 110 million. The payment was made by issuing 5.5 million
ordinary shares of Rs. 10 each at 100% premium. The net assets of
Faiz Limited at the date of acquisition were as follows:
Tangible fixed assets
Inventories
Trade receivables
Cash
Trade payables
vii)
Rs. in
million
60
20
25
10
(25)
90
Provision made during the year, for current and deferred tax
amounted to Rs. 200 million and Rs. 20 million respectively.
(viii) Profit allocated to minority shareholders amounted to Rs. 35 million.
(ix) The details relating to dividend paid by Iqbal Limited for the year are
as follows:
2007
2006
Declared on June 15, 2007
June 15, 2006
Paid on
August 31, 2007 August 31, 2006
Amount
Rs. 180 million
Rs. 100 million
Required:
Prepare the consolidated cash flow statement for the year ended June 30, 2007.
Show necessary workings.
Q-2
The following balances were extracted from the Consolidated Income
Statement and Consolidated Statement of Financial Position of Karachi Group
Limited for the year ended June 30, 2010.
2010
Rs. (m)
Operating profit
189
Share of profit from associate
5
Financial charges
(14)
Profit before tax
180
Taxation
(65)
Profit for the year
115
Attributable to: Owners of the parent
100
Non-controlling interest
15
115
Consolidated statement of financial position
Equity and liabilities
Equity
Share capital
Retained earnings
Non-controlling interest
Long term loans
Current liabilities
Current portion of long
term loans
Trade creditors and other
payables
Accrued
financial
charges
Taxation
Total equity and liabilities
i)
2010
Rs. (m)
200
320
520
28
548
125
20
262
8
60
350
1,023
2009
Rs. (m)
Assets
Non-current assets
200 Property,
plant
and
equipments
250
450 Investment in associates
10 Intangible assets
460
120
Current assets
-- Inventories
287 Trade debtors and other
receivables
5 Short term deposits
50 Cash and bank
342
922 Total assets
iii)
2009
Rs. (m)
510
500
12
30
552
10
25
535
261
200
180
162
10
--
20
471
1,023
25
387
922
One of KGL’s three subsidiaries, Auto Engineering Works Limited was
acquired on July 01, 2009 by purchase of 80% shareholding for Rs. 30
million. Fair value of the assets and liabilities were as follows: -
Rs. In Millions
20.50
10.00
8.00
6.00
(17.00)
27.50
It is KGL’s policy to value the non controlling interest at its proportionate
share of fair value of the subsidiaries net assets.
Book value of intangible assets on July 01, 2009 included trademark of Rs.
6 million. There was 50% impairment in the value of trademarks during the
year ended June 30, 2010.
The following information pertaining to property, plant and equipment is
available: 
Total depreciation charge for the year was Rs. 70 million

A machine costing Rs. 10 million and having book value of Rs. 6.5
million was traded in with another machine having fair value of Rs.
7 million with an additional cash payment of Rs. 1 million
Property, plant and equipments
Inventories
Trade debtors and other receivables
Cash and bank
Trade creditors and other payables
ii)
2010
Rs. (m)

Fully depreciated assets costing Rs. 10 million were scrapped
during the year.

Proceed of a long term loan amounting to Rs. 5 million were
specifically used for purchase of property, plant and equipment.
iv)
On August 5, 2010 the board of directors proposed a final dividend at
20% for the year ended June 30, 2010 (2009 15% dividend declared on
August 10, 2009)
Required:
Prepare a consolidated statement of cash flows under the indirect method for
the year ended June 30, 2010 including notes thereto as required by IAs 7.
Q-3
Alpha Pakistan Limited (APL) is a listed company and has 60% holding in Bravo
Limited (BL). The company is in the process of preparation of its consolidated
financial statements for the year ended 30 September 2011. Following are the
extracts from the information that has been gathered so far:
Consolidated Statement of Comprehensive Income (Draft) 2011
Rs. in
million
65,000
(59,110)
2,000
(3,000)
(890)
(1,200)
2,800
Sales
Cost of products sold
Other operating income
Operating expenses
Financial expenses
Income tax expense
Profit for the year
Profit attributable to
Owners of the holding company
Non-controlling interest
2,500
300
2,800
Consolidated Statement of Financial Position (Draft)
Equity and liabilities
Share capital (Rs. 10) each
Retained earnings
Non-controlling interest
Long term loans
Deferred tax
Trade and other payables
Accrued financial expenses
Provision for taxation
Short term borrowings
2011
2010
Rs. in million
550
500
5,950
3,600
440
210
4,688
145
10
3,970
235
35
120
30
Assets
Property, plant and
equipment
Goodwill
Long term
receivables
Stock in trade
Trade debts
Other receivables
Cash and bank
balances
2011
2010
Rs. in million
1,100
900
24
29
15
6,760
7,534
900
2,645
15
4,280
5,421
725
2,980
200
25
6,670
5,950
18,978
14,350
18,978
14,350
Following additional information is available:

During the year, BL sold goods amounting to Rs. 140 million to APL
at a margin of 25% of cost. 40% of the above amount remained





unpaid and 30% of the goods remained unsold as on 30
September 2011. No adjustments in this regard have been made in
the above statements.
Depreciation charge for the year was Rs. 75 million and Rs. 15
million for APL and BL respectively.
During the year APL acquired property, plant and equipment
amounting to Rs. 250 million against a long term loan.
The amount of long term receivables represents present value of
interest free loans to employees. The gross value of the loans is Rs.
27 million (2010: Rs. 33 million).
Operating expenses include bad debt expenses amounting to Rs.
44 million. During the year, trade debtors amounting to Rs. 30
million were written off.
Trade and other payables include APL’s unclaimed dividend
amounting to Rs. 8 million (2010:Rs. 10 million). At APL’s Board
meeting held on 30 November 2011, final cash dividend of Rs. 3.0
per share has been proposed (2010: Final cash dividend of Rs 2.0
per share and 10% bonus shares).
Required:
Prepare a consolidated statement of cash flows including all relevant notes for
Alpha Pakistan Limited for the year ended 30 September 2011 using the direct
method in accordance with International Financial Reporting Standards. (Ignore
corresponding figures.)
Q-4
Consolidated financial statements of Malik Group of companies (MGC) for the
year ended 31 December 2014 are presented below:
Consolidated statement of financial position as on 31 December 2014
2014
2013
Rs. in million
Equity
Ordinary shares (Rs.
10 each)
15,000
Retained earnings
17,550
Other reserves *
Non-controlling
interest
Non-current liabilities
Loans from banks
Deferred tax
Current liabilities
Trade and other
payables
Income tax
Accrued interest
7,500
40,050
15,000
Non-current assets
Good will
Property, plant and
10,850 equipment
Investment in
5,250 associate
31,100
3,100
3,200
5,000
1,500
3,000 Current assets
1,050 Inventories
Trade and other
receivables
Cash and bank
8,000
7,250
3,875
3,525
125
75
61,650 49,200
* Include revaluation reserve
2014
2013
Rs. in million
19,300
18,500
25,450
16,250
4,700
4,350
3,900
2,100
3,300
1,400
61,650
49,200
6,200
50,950
5,400
40,150
Consolidated statement of comprehensive income for the year ended 31
December 2014
Rs. in
million
Revenue
20,900
Operating expenses
(11,550)
Profit from operations
9,350
Gain on disposal of subsidiary
1,000
Finance cost
(350)
Income from associates
1,150
Profit before taxation
11,150
Income tax expense
(2,250)
Profit for the year
8,900
Other comprehensive income for the year
Re-measurement of post-employment benefits
2,000
Other comprehensive income from associates
500
Total comprehensive income
11,400
Profit attributable to:
 Parent shareholders
7,950
 Non-controlling interest
950
8,900
Total comprehensive income attributable to:
 Parent shareholders
10,200
Non-controlling interest
1,200
11,400
Additional information:
i.
During the year, MGC acquired 80% holding in Gomel Limited (GL)
against a cash consolidation of Rs. 15,000 million. On the date of
acquisition, the non-controlling interest’s holding was measured at its fair
value of Rs. 3,400 million. The fair value of net assets of GL at acquisition
comprised of the following:
ii.
Rs. in
million
Property, plant and equipment
12,800
Inventory
1,500
Trade and other receivables
2,400
Cash and bank
800
Loan from banks
(400)
Trade and other payables
(1,800)
Income tax
(400)
14,900
During the year, MGC also disposed of its 60% shareholdings in Stone
Limited (SL) and realized cash proceeds of Rs. 8,500 million. This subsidiary
had been acquired several years ago for Rs. 6,000 million. At acquisition,
the fair value of SL’s net assets and non-controlling interest was Rs. 7,300
million and Rs. 3,200 million respectively. On the date of disposal, the net
assets of SL had a carrying value in the consolidated statement of
financial position as follows:
Rs. in
million
Property, plant and equipment
Inventory
Trade and other receivables
Cash and bank
Loan from banks
Trade and other payables
iii.
iv.
7,250
1,650
1,500
500
(300)
(800)
9,800
Property, plant and equipment:
 Depreciation charge for the year is Rs. 3,850 million.
 A plant having carrying value of Rs. 2,500 million was sold for Rs. 2,750
million. Gain on disposal has been credited to operating expenses.
 On the basis of a professional valuation report, increase of Rs. 2,000
million has been recognized in the value of property, plant and
equipment.
During the year Rs. 1,250 million was paid as final dividend to ordinary
shareholders.
Required:
Prepare consolidated statement of cash flow of MGC for the year ended 31
December 2014, using the indirect method.
(22)
SOLITIONS TO PAST PAPERS
A-1
IQBAL LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE, 2007
Cash Flows From Operating Activities
Profit before tax
Adjustments for:
Preference
Dividend
Gain on Disposal
Depreciation
Profit before changes in working
capital
Increase / Decrease in
Assets:
Receivables (Decrease)
Increase in
Inventory
Increase / Decrease in
Liability:
Increase in
Payable
Cash generated from operations
Tax Paid
Net cash inflows from Operating
Activities
Cash Flows from Investing Activities:
Investment
Insurance
Proceed
Subsidiary Company
Acquired
Property, Plant & Eqipment
Net Cash Outflow from Investing Activities
Cash Floe from Financing Activities:
Preference Dividend Paid
Dividend Paid
Dividend - NCI
Financing Lease
Net Cash Outflow from Financing Activities
Increase / Decrease in Cash & Cash Equivalents
Opening Cash & Cash
quivalents
Rs.(M)
625
48
(5)
314
357
982
65
(115)
205
155
1,137
(50)
1,087
(422)
40
10
(314)
(686)
(48)
(100)
(15)
(170)
(333)
68
(200)
Closing Cash & Cash
Equivalents
(132)
Workings:
W.1:
Bal b/f
Revaluation
Reserve
Lease
Business Purchase
Cash
W.2:
Bal b/f
Cost of Control
A/c
Tangible Asset
Rs.
1927 Disposal
140 Depreciation
50
60
314
314
Bal c/d
2142
2491
2491
Rs.
305
38
343
Goodwill
Bal c/d
W.3:
Cash & Cash Equivalents:
Opening Bal.
Cash & Bank
Running Finance
W.4:
Cash
Bal c/d
W.5:
Bal b/f
Business Purchase
Rs.
35
Rs.
343
343
Closing
Bal.
700
(900)
808
(940)
(200)
(132)
Finance Lease
Rs.
170 Bal b/d
Tangible Asset
300
470
Trade Receivables
Rs.
1168 Decrease in Asset
25
Bal c/d
Rs.
420
50
470
Rs.
65
1128
W.6:
Bal b/f
Increase in Asset
Business Purchase
W.7:
Profit before Tax:
PBT
Tax
Profit After Tax
NCI
Parent Co
Dividend
Retained- Group
Bal b /f
1193
Inventory A/c
Rs.
1715
115
20
Bal c/d
1850
Rs.
Bal c/d
W.9:
Cash
Bal c/d
W.10:
Bal c/d
Rs.
1850
1850
625
(220)
405
(35)
370
(180)
190
2480
2,670
W.8:
Cash
1193
NCI
15 Bal b/f
Business Purchase
P&L
238
253
Tax Payable
Rs.
50 Bal b/f
P&L
620
670
Trade Payable
Rs.
Bal b/f
Increase in Liability
Business Purchase
950
950
Rs.
200
18
35
253
Rs.
450
220
670
Rs.
720
205
25
950
W.11:
Rs.
Dividend
Rs.
Cash
100 Bal b/f
Retained Earning
100
180
Bal c/d
180
280
280
W.12:
Tangible Asset
P&L
W.13:
Share Premium
Share Capital
W.14:
Payable
Cost of Control
A/c
NCI
Disposal A/c
Rs.
Rs.
35 Cash
5
40
40
40
Cost of Control A/c
Rs.
55 Business Purchase
55 Goodwill
110
Rs.
72
38
110
Business Purchase A/c
Rs.
85 Tangible Asset
Rs.
60
72 Inventories
18 Receivables
Cash
20
25
10
175
A-2
Karachi Group Limited
Consolidated Statement of
Cash Flows For the year ended June 30, 2010
Cash flows from operating activities
Profit before tax
115
Rs. in
million
180.00
Adjustments for :
Share of profit in associates
Depreciation
Trade mark impairment (6*50%) Loss on
exchange of machine (6.5+1)-7
Financial expenses
Increase in inventories (261-10-200)
Increase in trade debtors and other receivables (180-8-162)
Decrease in trade creditors and other payables (262-17-287)
Cash generated from operating activities
Financial expenses paid* (5+14-8)
Income taxes paid (50+65-60)
Net cash from operating activities
*This may also be shown under financing activities
Cash flows from investing activities
Acquisition of subsidiary-Auto Engineering Works Ltd.(30-6)
Note 1
Purchase of property, plant and equipment
W1
Dividend received from associates (10+5-12)
Cash flows from financing activities
Proceeds from long term borrowings (125+20-120-5)
Dividend paid to controlling interest* (200*15%)
Dividend paid to non-controlling interest* 28-(10+15+5.5)
*these may also be shown under operating cash flow
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Note 3
Cash and cash equivalents at end of the period
Note 3
W-1 Purchase of property, plant and equipment
Balance - June 30, 2009
Depreciation for the year
WDV of asset given up in trade-in
Balance - June 30, 2010
Total additions for the year
Less : Additions against loan
Fair value of subsidiary's assets acquired
New machine price adjusted against old machine (7-1)
Additions against cash payment
Notes to the statement of cash flows
Note 1: Acquisition of subsidiary - Auto Engineering Works Limited
(5.00)
70.00
3.00
0.50
14.00
262.50
(51.00)
(10.00)
(42.00)
159.50
(11.00)
(55.00)
93.50
(24.00)
(55.00)
3.00
(76.00)
(20.00)
(30.00)
(2.50)
(12.50)
5.00
25.00
30.00
500.00
(70.00)
(6.50)
423.50
(510.00)
(86.50)
5.00
20.50
6.00
(55.00)
The control of a subsidiary, Auto Engineering Works Limited was acquired during
the year. The details of consideration paid, value of assets acquired and
liabilities assumed are as follows:
Rs. in million
24.00
Consideration paid in cash net of cash acquired (30-6)
Fair value of assets and liabilities:
Property, plant and equipments
Inventories
Trade debtors and other receivables
Cash and bank balances
Trade creditors and other payables
20.50
10.00
8.00
6.00
(17.00)
27.50
Note 2: Property, plant and equipment
During the year, the group acquired property, plant and equipment with an
aggregate cost of Rs. 86.5 million as detailed below:
By acquisition of the subsidiary
Purchase against specific loan
Purchase against trade-in
Cash purchases
1)
(W-
Note 3: Cash and cash equivalents
Short term deposits
Cash and bank balances
A-3
20.50
5.00
6.00
55.00
86.50
2010 2009
10.00
20.00 25.00
30.00 25.00
Alpha Pakistan Limited
Consolidated statement of cash flows
For the year ended 30 September 2011
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and for operating expenses
Cash generated from operations
Financial charges paid {(30+890-35)+(33-29)-(27-24)
Income tax paid (10+25+1,200-210-200)
Recoveries from employees against long term receivables (33-27)
Net cash from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment(1,100+90-900-250)
2001
Rs. in
million
W1
W2
Note 1
62,759
(61,827)
932
(886)
(825)
6
(773)
(40)
Cash flows from financing activities
Dividend paid to controlling interest (10+100-8)
Dividend paid to non-controlling interest {120+300-235}
Proceeds from long term loans (440 – 145 – 250)
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the year (5,950-2,980)
Cash and cash equivalents at end of the year
Note 2
Note 1: Property, plant and equipment
During the year the group acquired property, plant and equipment with an
aggregate cost of Rs 290 million as detailed below:
Cash purchases
Purchase against loan
Note 2: Cash and cash equivalents
Cash and bank balances
Short term borrowings
Cash flow from operating activities
Profit before tax
Adjustments for: Finance cost
Gain on sale of subsidiary
Income from associate
Depreciation
Goodwill impairment
40
250
290
2,645
(6,670)
4,025
WORKINGS
W1: Cash receipts from customers
Sales for the year after elimination of inter-company sales (65,000-140)
Increase in trade debts (7,534-5,421)-(140x40%)+44
W2: Cash paid to suppliers and for operating expenses
Cost of products sold (59,110-140) +(140x30%x25/125)
Increase in closing stock in trade (6,760-4,280)-(140x30%x25/125)
Increase in trade and other payables excluding dividend
(4,688-3,970)-(140x40%)+(10-8)
Operating expenses
Depreciation (75+15)
Bad debts expense
Other operating income
Increase in other receivables (900-725)
Net decrease in cash and cash equivalents
A-4
MALIK GROUP OF COMPANIES
CONSOLIDATED STATEMETN OF CASHFLOWS
FOR THE YEAR ENDED DECEMBER 31, 2014
(102)
(185)
45
(242)
(1,055)
(2,970)
(4,025)
64,860
(2,101)
62,759
58,978
2,472
(664)
3,000
(90)
(44)
2,000
175
6,1827
Workings
Rs. (m)
11,150
1
350
(1,000)
(1,150)
3,850
800
Gain on disposal of PPE Rs. (2,750-2,500)
(250)
2,600
13,750
Operating profit before working capital changes
Working capital changes
Increase in inventory
Decrease in receivables
Decrease in payables
2
2
2
Cash generated from operations
Finance cost paid Rs. (75+35-125)
Income tax paid
Net cash generated from operations
3
Cash flows from investing activities
Acquisition of property, plant and equipment
Acquisition of subsidiary (1,500-80)
Proceeds from disposal of PPE
Proceeds from disposal of subsidiary (8,500-500)
Dividend received from associate
Net cash out flow from investing activities
4
5
Cash flows from financing activities
Increase in long term loan (3,000+400-300-5,000)
Dividend paid to parent share holders
Dividend paid to NCI
Net cash inflow from financing activities
6
Increase in cash and cash equivalents
Opening cash and cash equivalents
Closing cash and cash equivalents
W-2 Working capital changes
Openings balance as on January 01, 2014
Add: transferred in on acquisition of subsidiary
Less: transferred out on disposal of subsidiary
Less: closing balance as on December 31, 2014
Working capital changes
(8,000)
(14,200)
2,750
8,000
850
(10,600)
1,900
(1,250)
(500)
150
700
1,400
2,100
WORKINGS
W-1 Goodwill Impairment
Goodwill as on January 01, 2014
Add: goodwill of subsidiary acquired during the year
Less: goodwill of subsidiary disposed off during the year
Less: goodwill as on December 31, 2014
Impairment (balancing figure)
W1.1 Goodwill of acquired/disposed off subsidiaries
Cost of investment
NCI at fair value
FV of net assets
Goodwill at acquisition
(500)
300
(250)
(450)
13,300
(300)
(1,850)
11,150
Inventory
4,350
1,500
(1,650)
4,200
(4,700)
(500)
1.1
1.1
Gomel
15,000
3,400
(14,900)
3,500
Receivables
3,300
2,400
(1,500)
4,200
(3,900)
300
18,500
3,500
(1,900)
(19,300)
800
Stone
6,000
3,200
(7,300)
1,900
Payables
7,250
1,800
(800)
8,250
(8,000)
250
W-3 Income taxes paid
Current and deferred on January 01, 2014
Add: transferred on acquisition of subsidiary
Add: tax for the year
Less: current and deferred tax as on Dec 31, 2014
Income taxes paid during the year
W-4 acquisition of PPE
Opening balance on Jan 01, 2014
Add: transferred in on acquisition of subsidiary
Less: transferred out on disposal of subsidiary
Less: depreciation
Add: revaluation surplus
Less: disposal of plant
Less: closing balance
Acquisition during the year
W-5 dividend from associate
Opening balance
Add: income from associate
Less: closing balance
Dividend received
W-6 dividend to NCI
Opening balance
Add: total comprehensive income
Add: acquisition of Gomel
Less: disposal of Stone
Less: closing balance
Dividend paid
(3,525+1,050)
4,575
400
2,250
(5,375)
1,850
16,250
12,800
(7,250)
(3,850)
2,000
(2,500)
(25,450)
(8,000)
5,400
1,650
(6,200)
850
3,200
1,200
3,400
(4,200)
(3,100)
500