Chapter 22 HKAS 7 Statement of Cash Flows

Answer Exercise 1 Figures for the cash flow statement are derived from the differences between the opening and closing balance sheet figures, using information in the notes and in the income statement to make necessary calculations. One approach to developing the answer is to adopt a standard procedure. Here is a suggested procedure for the indirect method. Step 1: Set up the statement in outline main headings only!. "eave plenty of space to insert detail. # whole page will be needed. Step $: Study the additional information and mark with a cross those items affecting balance sheet amounts. Step %: &egin the cash flow statement by using the income statement to work down to operating profit before working capital changes. Step ': (roceed line by line through the balance sheets. )f an item is not marked with a cross, the difference may be entered direct to the statement* if it is marked, a working is re+uired. ,sing working ledger accounts to calculate missing figures. )nsert the opening and closing balances from the balance sheets with the working accounts, then add information from the notes to complete the ledger account. &alancing figures on the working accounts are then transferred to the cash flow statement. ABC Ltd Cash flow statement for the year ended 31 December 2008
-... Cash flows from o eratin! acti"ities #note 1$ -... /.%

Cash flows from investing activities

(ayments to ac+uired machinery 0$! 2eceipts from sales of machinery 0'! (urchase of fi3ed asset investments 4ividend received 5et cash used in investing activities 11.! 1'1 /.! $. /%!

#$$61

Cash flows from financing activities

2eceipts from rights issue )ssue of debentures )nterest payment of finance lease 9apital payment of finance lease 4ividend paid : 01! 5et cash inflow from financing )ncrease in cash and cash e+uivalents 9ash at 1 <anuary $..8 9ash at %1 4ecember $..8 '78 7. %.! 1$.! '.8! %. ;1. '' /1'

: =his could also be shown as an operating cash flow. %otes to the cash flow statement 1. 2econciliation of operating profit to net cash inflow from operating activities -... 1,%$; 78 1.! 1;. 1,;/% 1/.! %/8! ''! 771 %.! %;8! /.%

Operating profit #d>ustments for: 4epreciation 0%! (rofit on sale of plant #mortisation of intangible assets Operating profit before working capital changes )ncrease in stock )ncrease in debtors 4ecrease in creditors 9ash generated from operations )nterest paid )ncome ta3es paid 0;! 5et cash inflow from operating activities $. #nalysis of changes in financing during the year Share capital Share premium

1.? debentures

#$$6$

&alance at 1 <anuary 1771 9ash inflow from financing &alance at %1 4ecember 1771 %. @a>or non6cash transaction

-... $,/.. $/. $,8/.

-... '.. $%8 /%8

-... $.. 7. $7.

4uring the year, a machine was ac+uired for -;..,... under finance leases. &or'in!( 01 4ividend (ayable 4ividend (ayable 4ividend paid bal. fig.! &alance cAd -... '.8 $1. /18 0$ (lant and machinery (lant and @achinery &alance cAd Finance lease #dditions bal. fig.! -... 1,77. ;.. 11. $,'7. 0% #ccumulated depreciation #ccumulated 4epreciation 4isposal &alance cAd -... 8% /7% 11/ &alance bAd (B" C 4epreciation bal. fig.! -... /18 78 11/ 4isposal &alance cAd -... $$. $,''. $,'7. &alance bAd (B" C 4ividend -... 178 '$. /18

#$$6%

0'

4isposal of plant and machinery 4isposal of (lant and @achinery 9ost (rofit and loss account -... $$. 1. $%. #ccumulated depreciation 9ash bal. fig.! -... 8% 1'1 $%.

0;

=a3 paid =a3ation &alance cAd C ta3 payable &alance cAd C deferred ta3 =a3 paid bal. fig.! -... $$; %.. %;8 88% &alance bAd C ta3 payable &alance bAd C deferred ta3 (rofit and loss account -... %$% $1. %;. 88%

#$$6'