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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off”][et_pb_row admin_label=”Row”][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://www.frs102.com/members/premium-toolkit/” type=”big” color=”red”] Return to Main Index[/button] [/et_pb_text][/et_pb_column][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”https://uk.frs102.com/members/premium-toolkit/section-7/” type=”big” color=”red”] Return to Section 7 Home[/button] [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_text admin_label=”Main Body Text” background_layout=”light” text_orientation=”justified” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]Example 1: Cash and cash equivalents
Company A entered into a 3 month short term deposit account. Funds can be withdrawn early without penalty.
In this case this would be considered a cash equivalent.
Example 1a: Cash and cash equivalents
Company A entered into a 6 month deposit account on 1 September. The year end is 31 December. This deposit cannot be classed as cash equivalent as at inception the term of the deposit was 6 months. It is irrelevant that there is only two months left at the year end.
Example 2: Cash flows from operating activities – Direct Method
|
Cash flows from operating activities |
|
2015 |
2014 |
|
|
|
CU |
CU |
|
|
|
|
|
|
Receipts from customers |
|
XXX |
XXX |
|
Payments to suppliers and employees |
|
(XXX) |
(XXX) |
|
Interest received |
|
XXX |
XXX |
|
Dividends received |
|
(XXX) |
(XXX) |
|
Finance costs paid |
|
XXX |
XXX |
|
Income taxes paid/refunded |
|
(XXX) |
XXX |
|
Net cash inflow from operating activities |
|
XXX |
XXX |
Example 2a: Cash flows from operating activities – Indirect Method
|
Reconciliation of profit to net cash inflow from operating activities |
2015 |
2014 |
|
|
CU |
CU |
|
|
|
|
|
Profit after taxation |
XXX |
XXX |
|
Adjustments for: |
|
|
|
Taxation expense/(income) |
XXX |
(XXX) |
|
Finance expense |
XXX |
XXX |
|
Interest income |
(XXX) |
(XXX) |
|
Operating profit |
XXX |
XXX |
|
Depreciation on property, plant and equipment |
XXX |
XXX |
|
Amortisation of capital grant |
(XXX) |
(XXX) |
|
Decrease in debtors |
XXX |
XXX |
|
Decrease in creditors |
(XXX) |
(XXX) |
|
Loss on disposal of subsidiary |
XXX |
– |
|
Decrease in inventory |
XXX |
XXX |
|
(Profit)/loss on disposal of fixed assets |
(XXX) |
XXX |
|
Amortisation of goodwill and intangibles |
XXX |
(XXX) |
|
Loss/(profit) on disposal of investments |
XXX |
(XXX) |
|
Provision of impairment on property, plant and equipment |
XXX |
XXX |
|
Reversal of prior year impairment on investments |
(XXX) |
(XXX) |
|
(Increase)/decrease in fair value of investment property |
(XXX) |
XXX |
|
Unrealised foreign exchange (gain)/loss on non-operating activities |
(XXX) |
XXX |
|
Non-controlling interest |
(XXX) |
(XXX) |
|
Pension contributions (less than)/more than amount charged |
(XXX) |
XXX |
|
Undistributed profits of associates |
(XXX) |
(XXX) |
|
Gain on pension scheme – non cash item |
(XXX) |
(XXX) |
|
Net cash inflow from operating activities |
XXX |
XXX |
Example 3: Need to show only cash paid in the cash flow
Company A has purchased CU50,000 of fixed asset on finance lease. In this case the cash flow should show nil cash payments for fixed assets instead, this cash outflow should be netted against the movement on finance leases and hire purchase on the face of the cash flow.
Example 4: Fixed asset not paid at year end
Company A purchased CU50,000 of property, plant and equipment on credit which was included in creditors at year end. In the cash flow the actual amount to be shown as fixed asset additions is nil and the movement in trade creditors should be decreased by the CU50,000 in the reconciliation of profit to net cash inflow from operating activities.
Example 5: Fixed asset not paid at year end
If we take example 4 and assume in the prior year a fixed asset was purchased for CU40,000 but was not paid for at the end of that year. In this years cash flow statement it should show the CU40,000 in the line ‘purchases of property, plant and equipment’ and movement in creditors should be reduced by the net CU10,000 (i.e. CU50,000-CU40,000 being the movement in accruals year on year).
Example 6: Cash received as part of the acquisition
Company A acquired company B for CU100,000 and acquired cash of CU60,000 as part of the subsidiary. The net investment to be shown in investing activities in the cash flow statement of CU40,000.
Example 6a: Cash received as part of the acquisition
Company A acquired company B for CU50,000 and acquired cash of CU60,000 as part of the subsidiary. The net investment to be shown in investing activities in the cash flow statement of CU10,000 being the net CU10,000 received.
Example 7: Subsidiary acquired partly by way of cash and partly by issuance of shares
Company A acquired 100% of Company B for CU100,000 and a further 10,000 shares were issued in Company A to the shareholders in Company B. The cash flow statement should only show the outflow of CU100,000.
Example 8: Cash received as part of the acquisition
Company A acquired company B and as part of the purchase it took on the loan liabilities of Company B of CU100,000. The CU100,000 would be shown as an investing activity on the face of the cash flow.
Example 9: Settled foreign exchange gain/loss
Company A uses the indirect method in presenting its cash flow statement. During the year it provided a loan for FC100,000 which was booked in the accounts at CU120,000 on that date. One month later the loan was repaid and CU130,000 was received based on the rate on that date. The difference of CU10,000 being posted to the profit and loss account as an FX gain.
In the reconciliation of net profit to net cash from operating activities the CU10,000 would be deducted and it would then be added to in the investing activities.
Example 10: Unrealised gain-non operating
Company A provided a loan of FC100,000 to Company B during the year which was retranslated to the functional currency as CU125,000. At the year end this FC100,000 was retranslated to CU135,000 with the difference/gain of CU10,000 recognised as a foreign exchange gain in the profit and loss. Assume a profit of CU50,000 was made in the year.
In the cash flow statement the below would be included
|
Profit After Taxation |
CU50,000 |
|
Unrealised Gain on Loan |
(CU10,000) |
|
Net Cash Inflow from Operating Activities |
CU40,000 |
Extract from cash flow statement:
Financing activities
| Advance made to third party | CU125,000 (i.e. CU135,000-CU10,000 gain) |
Section 7.13 makes it clear that differences that arise on translation of foreign currency cash and cash-equivalent balances are not cash flows. They should be disclosed on the cash flow statement to show the exchange difference. See details below.
Example 11: Unrealised foreign exchange on cash and cash equivalents
Company A had FC100,000 and FC150,000 in cash at 31 December 2014 and 2015 respectively. This was retranslated at a rate of CU1=FC0.80 and CU1=0.85 at each year end respectively. The average rate during the year 2015 is CU1-FC0.82. The FX rate to be shown on the face of the balance sheet is
|
(FC100,000/0.80)-(FC100,000/0.85) |
CU 7,353 loss |
|
(FC50,000/0.85)-(FC50,000/0.82) |
CU2,151 gain |
|
Foreign Exchange Difference |
CU9,504 loss |
This CU9,504 is shown on the face of the cash flow statement as part of the reconciliation of opening to closing cash equivalents. Therefore this is added back in the reconciliation of profit to net cash flows from operating activities.
Example 12: Foreign subsidiaries
Parent A owns a sterling subsidiary, Company B. Parent A’s functional currency is euro. On retranslating the subsidiary a foreign change difference of CU100,000 was posted to other comprehensive income and the exchange rate reserve. Company B had FC100,000 and FC150,000 in cash at 31 December 2013 and 2014 respectively. This was retranslated into the parent functional currency at a rate of CU1=FC0.80p and CU1=FC0.85p at each year end respectively. The average rate for the year used in the translation was CU1=FC0.82p.
|
Opening Balance = (FC100,000/0.80)-(FC100,000/0.85) |
CU 7,353 loss |
|
Increase (FC50,000/0.85)-(FC50,000/0.82) |
CU2,151 loss |
|
Foreign Exchange Difference on Cash to be Reclassified |
CU9,504 loss |
This CU9,504 is shown on the face of the cash flow statement as part of the reconciliation of opening to closing cash equivalents.
Example 12A: Analysis of cash and cash equivalent and net debt
|
Analysis of cash and cash equivalent and net debt |
At 1 January 2015 |
At 1 January 2015 |
Net Cash flow |
Other non cash changes |
At 31 December 2015 |
|
|
CU |
CU |
CU |
CU |
CU |
|
Cash at bank and in hand |
XXX |
XXX |
XXX |
XXX |
XXX |
|
Bank overdraft |
(XXX) |
(XXX) |
(XXX) |
(XXX) |
(XXX) |
|
Cash and cash equivalents |
(XXX) |
(XXX) |
XXX |
XXX |
(XXX) |
(i) Other non-cash changes relate to foreign exchange translation adjustments, new finance leases raised, effective interest rate adjustments including debt issue costs. It also includes shares issued to XX Limited in return for the shares in XX Limited. See further detail at note X.
Example 13: Effective interest rate adjustments
Company A received a loan of CU10,000 at non-market rates from its director which is repayable in 5 years. In this case, the fair value of the loan at a market rate of interest would be CU7,000. The difference of CU3,000 would be posted as a credit to the profit and loss under Section 11. This is a non-cash item and would not be included in the cash flow statement, instead, it would be deducted in the reconciliation of profit to operating activities as part of the interest income and then disclosed as a non-cash transaction in the notes to the cash flow, which would usually be in the analysis of changes in of net cash/debt.
Example 14: Non-cash items example disclosure
1) During the year the company acquired Company B in exchange for CU100,000. In addition to CU50,000 paid in cash, the following non-cash transactions were used to settle the remaining portion of the acquisition:
|
Assumption of Liabilities |
CU20,000 |
|
Issue of Ordinary Shares |
CU30,000 |
2) During the year the company acquired CUXXXX of property, plant and equipment under finance and hire purchase agreement.
Example 15: Cash flow statement – see below
|
Statement of Cashflows |
||||
|
For the Year ended 31 December 2015 |
||||
|
|
|
31-Dec |
|
31-Dec |
|
|
|
2015 |
|
2014 |
|
|
Notes |
CU |
|
CU |
|
Cash flows from operating activities |
|
|
|
|
|
Cash generated from operations |
|
XXXXX |
|
XXXXX |
|
Taxation (paid)/refunded |
|
(XXXXX) |
|
XXXX |
|
Net cash generated from operating activities |
|
XXXX |
|
XXXX |
|
Cash flows from investing activities |
|
|
|
|
|
Purchase of property, plant and equipment |
|
(XXX) |
|
(XXX) |
|
Purchase of intangible fixed assets |
|
(XXX) |
|
(XXX) |
|
Acquisition of subsidiary undertakings (net of cash acquired) |
|
(XXX) |
|
– |
|
Interest received |
|
XXX |
|
– |
|
Dividend received from associates |
|
XXX |
|
– |
|
Dividends received |
|
XXX |
|
– |
|
Payment of contingent acquisition consideration |
|
XXX |
|
– |
|
Sale of subsidiary undertakings (net of cash disposed) |
|
XXX |
|
– |
|
Purchase of investments |
|
(XXX) |
|
(XXX) |
|
Cash acquired on acquisition of the trade |
|
XXX |
|
– |
|
Proceeds from disposal of investment properties |
|
XXX |
|
XXX |
|
Proceeds from disposal of investments |
|
XXX |
|
XXX |
|
Net cash generated/(used in) investing activities |
|
XXX |
|
(XXX) |
|
Cash flows from financing activities |
|
|
|
|
|
Interest received |
|
XXX |
|
XXX |
|
Interest paid |
|
(XXX) |
|
(XXX) |
|
Issue cost of long term loans |
|
(XXX) |
|
(XXX) |
|
Dividend paid to equity shareholders |
|
(XXX) |
|
(XXX) |
|
Proceeds received from issue of ordinary shares net of costs |
|
(XXX) |
|
(XXX) |
|
Repayment of capital element on finance lease |
|
(XXX) |
|
(XXX) |
|
Purchase of own shares |
|
(XXX) |
|
(XXX) |
|
Repayment of loans |
|
(XXX) |
|
(XXX) |
|
Preference dividends paid |
|
(XXX) |
|
(XXX) |
|
|
|
(XXX) |
|
(XXX) |
|
Net cash generated/(used in) financing activities |
|
XXXX |
|
(XXXX) |
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
XXX |
|
(XXX) |
|
Translation adjustment |
|
XXX |
|
XXX |
|
Cash and cash equivalents at beginning of year |
|
XXX |
|
XXX |
|
Cash and cash equivalents at end of year |
|
XXX |
|
XXX |
Example 16: Restricted funds disclosure
The company holds CUXXX in an escrow bank account for future funds to be paid on the purchase of XXXX. These funds may be payable to the previous owner if certain financial targets are archived in the next two years which were agreed at the time of the purchase.
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