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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section bb_built=”1″ 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″ custom_padding_tablet=”0px||0px|” custom_padding_last_edited=”on|desktop” prev_background_color=”#ffffff” next_background_color=”#000000″][et_pb_row][et_pb_column type=”4_4″][et_pb_toggle admin_label=”Index” _builder_version=”3.0.106″ title=”Index” open=”off”]Contents
7.1.1 Extract from FRS102: Section 7.1.
7.1.2.2 Entities exempt from the requirements to provide cash flow statements.
7.2.1 Extract from FRS102: Section 7.2.
7.2.2.2 The criteria for recognition as cash and cash equivalents.
7.3 Information to be presented in the statement of cash flows.
7.3.1 Extract from FRS102: Section 7.3 and Section 7.10A-7.10E.
7.3.2.1 Categories of Cash Flows.
7.3.2.2 Cash flows permitted if reported on a net basis.
7.4.1 Extract from FRS102: Section 7.4 and Section 7.7-7.9.
7.4.2.1 Operating activities -defined.
7.4.2.1.1 Assessing whether an item is an operating or investing activity cash flow.
7.4.2.2 Examples of cash flows from operating activities.
7.4.2.3 Presenting cash flows from operating activities.
7.4.2.3.2.1 Illustration of the indirect method.
7.4.2.3.1.3.1 Illustration of the requirements of the Direct Method.
7.5.1 Extract from FRS102: Section 7.5 and Section 7.10.
7.5.2.1 Investing Activities Defined.
7.5.2.2 Example of cash flow items classified as investing activities.
7.5.2.3 Identifying the actual cash paid for the cash flow Investing Activities.
7.5.2.3.1 Need to show only cash paid in the cash flow- fixed assets on finance lease.
7.5.2.3.2 Fixed Asset not paid at year end.
7.5.2.4 Cash flow permitted to be reported on a net basis.
7.6.1 Extract from FRS102: Section 7.6 and Section 7.10.
7.6.2.1 Financing activities defined.
7.6.2.2 Examples of cash flow items classified as financing activities.
7.6.2.3 Cash flow permitted to be reported on a net basis.
7.7.1 Extract from FRS102: Section 7.14-7.16.
7.7.2.1 Treatment of interest cost capitalised.
7.8.1 Extract from FRS102: Section 7.17.
7.8.2.2 Treatment of Capital Gains Tax.
7.8.2.3 Sales and Purchase Taxes.
7.9 Non-controlling interests-consolidated financial statements.
7.9.1.1 Dividends paid to non-controlling interests.
7.9.1.2 Cash flow for purchase or sale of part of subsidiary where control is not lost.
7.10 Acquisition and disposal of subsidiary.
7.10.1.2 Examples illustrating treatment of acquisitions.
7.10.1.2.1 Cash received as part of acquisition.
7.10.1.2.2 Acquisition part funded by cash and shares.
7.10.1.2.3 Loans assumed as part of acquisition.
7.11 Foreign currency cash flows.
7.11.1 Extract from FRS102: Section 7.11-7.13.
7.11.2.1 Realised foreign exchange gains/losses explained.
7.11.2.1.1 Individual financial statements –settled transactions.
7.11.2.2. Unrealised foreign exchange gains/losses.
7.11.2.2.1.1 Unrealised gain-non-operating.
7.11.2.2.2 Unrealised foreign exchange on cash and cash equivalents.
2.11.2.2.3 Consolidated financial statements.
7.12 Components of cash and cash equivalents.
7.12.1 Extract from FRS102: Section 7.20-7.20A.
7.13.1 Extract from FRS102: Section 7.18-7.19.
7.13.2.2 Examples of non-cash transactions.
7.13.2.3 Non-cash items sample disclosure.
7.14 Sample of Cash Flow Statement.
7.15 Other disclosures – Cash and cash equivalents not available for use.
7.15.1 Extract from FRS102: Section 7.21.
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7.11 Foreign currency cash flows
7.11.1 Extract from FRS102: Section 7.11-7.13
7.11 An entity shall record cash flows arising from transactions in a foreign currency in the entity’s functional currency by applying to the foreign currency amount the exchange rate between the functional currency and the foreign currency at the date of the cash flow or an exchange rate that approximates the actual rate (for example, a weighted average exchange rate for the period).
7.12 An entity shall translate cash flows of a foreign subsidiary at the exchange rate between the entity’s functional currency and the foreign currency at the date of the cash flow or at an exchange rate that approximates the actual rate (for example, a weighted average exchange rate for the period).
7.13 Unrealised gains and losses arising from changes in foreign currency exchange rates are not cash flows. However, to reconcile cash and cash equivalents at the beginning and the end of the period, the effect of exchange rate changes on cash and cash equivalents held or due in a foreign currency must be presented in the statement of cash flows. Therefore, the entity shall remeasure cash and cash equivalents held during the reporting period (such as amounts of foreign currency held and foreign currency bank accounts) at period-end exchange rates. The entity shall present the resulting unrealised gain or loss separately from cash flows from operating, investing and financing activities.
7.11.2 OmniPro comment
7.11.2.1 Realised foreign exchange gains/losses explained
Where items are purchased in foreign currency there is usually a foreign exchange difference to reflect the fact that the rate at which an invoice was booked differs to the rate on the date of payment, as stated in section 7.12 of FRS102 hence a realised foreign exchange gain/loss is posted to the profit and loss. Section 7.11 of FRS102 makes it clear that the foreign currency should be retranslated to the functional currency at the actual rate that approximates to that.
7.11.2.1.1 Individual financial statements –settled transactions
7.11.2.1.1.1 Direct Method
Where the direct method for presenting cash flow statements is utilised there will be no issues with regard to foreign exchange gains/loss as the cash flows will show the actual amount settled in the functional currency.
7.11.2.1.1.2 Indirect Method
Where the indirect method is used, any realised foreign exchange gains/losses will be posted to the profit and loss and where these arise from transactions on operating activities no adjustment is required. However where the foreign exchange gain/loss does not relate to operating activities (e.g. on interest received on a loan provided or received/dividend income which would not be considered operating etc.) that element of the realised foreign exchange gain/loss should be deducted/added back in the reconciliation of net profit to cash flow from operating activities and deducted/added to the cost of the related asset in the financing or investing section whichever is applicable.
Example 12: 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.
7.11.2.2. Unrealised foreign exchange gains/losses
7.11.2.2.1 Analysis
Any unrealised exchanges gains/loss on monetary assets which do not relate to operating activities where they have been booked at one rate and retranslated to year end rate are deducted/added back in the reconciliation of net profit to cash flow from operating activities. These are then added onto/deducted from the related movement in the financing or investing section of the cash flow statement. There would also be an adjustment for the movement on foreign cash balance.
7.11.2.2.1.1 Unrealised gain-non-operating
Example 13: 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)
7.11.2.2.2 Unrealised foreign exchange on cash and cash equivalents
Section 7.13 of FRS102 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 14: 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 loss |
| 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 as requested by Section 7.13 of FRS102 Therefore this is added back in the reconciliation of profit to net cash flows from operating activities.
7.11.2.2.3 Consolidated financial statements
Section 30 of FRS 102 provides guidance on translating from a subsidiaries functional currency to a presentational currency for consolidation purposes. The year-end balance sheet is retranslated at the year-end rate and the profit and loss at the average rate with the foreign exchange difference posted to other comprehensive income. See 30.6.2 for further details However in the consolidated cash flow statement the foreign exchange movement in the cash balances should be shown on the face of the cash flow statement.
In reality it is easier if the subsidiary prepares its cash flow in its functional currency first, then it can be consolidated with the parents.
Example 15: 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.
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Examples:
Example 1: Cash and cash equivalents.
Example 2: Cash and cash equivalents.
Example 3: Cash flows from operating activities – Indirect Method.
Example 4: Cash flows from operating activities – Direct Method.
Example 5: Need to show only cash paid in the cash flow – fixed assets on finance lease.
Example 6: Fixed asset not paid at year end.
Example 7: Fixed asset not paid at year end.
Example 8: Cash received as part of the acquisition.
Example 9: Cash received as part of the acquisition.
Example 10: Subsidiary acquired partly by way of cash and partly by issuance of shares.
Example 11: Loans assured as part of the acquisition.
Example 12: Settled foreign exchange gain/loss.
Example 13: Unrealised gain-non-operating.
Example 14: Unrealised foreign exchange on cash and cash equivalents.
Example 15: Foreign subsidiaries.
Example 16: Analysis of cash and cash equivalent and net debt.
Example 17: Effective interest rate adjustments.
Example 18: Non-cash items example disclosure.
Example 19: Cash flow statement – see below.
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