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200400: COMPANY ACCOUNTING

TOPIC 2: STATEMENT OF CASH
FLOWS
Chapter 11: Additional Accounting Standards
and Disclosures (pp.288-304)
NOTE:

This topic is revision from the prerequisite unit

200396 Introductory Accounting. Refer to Chapter
of Hoggett et al Financial Accounting (covered
in
Introductory Accounting) for additional reading.

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AASB 101

AASB101 prescribes the format and content of

financial statements and contains the broad
principles for presentation of financial statements.
Under AASB 101 a complete set of financial
statements comprises:
Statement of Financial Position
Statement of Comprehensive Income
Statement of Changes in Equity
Statement of Cash Flows
Notes
Comparative Information.

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Fair Presentation

Under AASB 101 financial statements shall present

fairly the financial position, financial performance
and cash flows of an entity.
Fair presentation requires:
faithful presentation in accordance with the
definitions and recognition criteria set out in the
AASB Framework
the application of IFRSs with additional disclosure
where necessary.

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Content of Financial Statements

General:
Name
Whether individual or group statements
Reporting date
Presentation currency
Level of rounding of statement amounts.

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AASB 107 Statement of Cash

Flows

The rationale for provision of cash flow

information includes:
Accrual based profit is not necessarily equal to cash
flow
Provides information on cash returns investors could
expect
Positive cash flow essential for entitys financial viability
and survival
Provides information on entitys ability to command
resources
Provides information on managerial accountability.

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Requirements of AASB 107

AASB 107 requires a statement of cash flows to be

included in financial statements.
This statement must reconcile opening and closing
cash balances.
Requires identification of cash flows for the period,
according to operating, investing and financing
activities.

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Definitions

Cash flows: inflows and outflows of cash and

cash equivalents.
Cash: cash on hand and demand deposits.
Cash equivalents: short term, highly liquid
investments that are readily convertible to known
amounts of cash and which are subject to
insignificant risk of changes in value.

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Classification of cash flows

Cash flows must be classified according to

whether they relate to:
operating activities the principal revenueproducing activities of the entity
investing activities the acquisition and disposal of
long term assets and other investments not
included in cash equivalents
financing activities activities that result in
changes in size and composition of contributed
capital and borrowings.

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Operating cash flows

Operating cash flows include:

sale of goods and rendering of services
royalties, fees, commissions and other revenue
payments to suppliers for goods and services
payments to employees
payment of income taxes.
Note: there is some choice allowed regarding
classification of certain items (for example, dividend
revenue)

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Direct v Indirect method

When reporting cash flows from operating

activities an entity can adopt:
direct method disclosing major classes of cash
receipts and payments
indirect method whereby profit or loss is adjusted
for effect of non-cash transactions.
Note: If direct method is used a reconciliation of
cash flows from operating activities to profit or loss is
required.
Note: we will always use the direct method in this unit

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Investing activities

Major examples include:

acquisition of non-current assets
proceeds of sale of non-current assets
acquisition, or sale, of equity or debt instruments of
other entities
loans or advances made to other parties

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Financing activities

Major examples include:

proceeds from share issues
payment of dividends to shareholders
redemption of shares
issue of debentures, loans, notes bonds,
mortgages
repayments of borrowings

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