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FRS 107 Statement of Cash Flow

Learning Outcomes : Understand the rationale and principles of CFS Able to deal with the procedures of preparing CFS Know the disclosures requirements by the standard. FRS 107 Statement of Cash Flow. FRS 107 Requires companies to present cash flow statement Provide Information on:

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FRS 107 Statement of Cash Flow

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  1. Learning Outcomes: Understand the rationale and principles of CFS Able to deal with the procedures of preparing CFS Know the disclosures requirements by the standard FRS 107 Statement of Cash Flow

  2. FRS 107 Requires companies to present cash flow statement Provide Information on: Cash inflow, and Cash outflow ** Summary of company’s cash book Information about the changes in cash and cash equivalents during a fiscal year: Introduction

  3. Cash -- Cash in hand/at the bank Cash equivalents -- Short term & highly liquid investments that can be converted into cash at anytime and do not change significantly in value --e.g. short-term fixed deposits, treasury bills, marketable securities (bankers’ acceptances, negotiable certificate of deposit), bank overdrafts. Cont.

  4. Rationale of CFS A user wants to assess the ability of a company in managing its cash for daily operation. Another user wants to know how much cash has been received from investments and how much cash spent for paying back loan during the year. Which financial statement provides such information? Can the income statement & balance sheet provide enough information? Cont.

  5. Presentation of CFS Shows an entity’s cash and cash equivalents, inflows (all cash receipts) & outflows (payments) from three categories of activities; Operating Investing Financing Cont.

  6. Operating Activities: Refers to any cash receipts & payments derived from the principal revenue-generating activities include revenues, expenses, gains & losses transactions. Examples: cash receipts from customers from the sales of goods, cash payment to employees. Indicator of the extent to which the operations of the enterprise have generated sufficient cash flows to repay loans, maintain the operating capability of the enterprise, pay dividends and make new investments without recourse to external sources of financing. Cont.

  7. Investing Activities: Refers to any cash receipts & payments derived from the assets & resources that are used to generate future income and cash inflow. Cash transactions involving the acquisition & disposal of non-current assets. Also related to investment in other entities & short term investment (not cash equivalent) Examples: cash payment to acquire PPE, cash receipts from disposal of those PPE. Indicate how far the enterprise is expanding and the implication on future cash flow or income. Cont.

  8. Financing Activities: Refers to any cash receipts & payments obtained from or paid to investors and creditors – the providers of capital Examples: cash proceeds & payments to/from issuing shares or other equity instruments (debentures) Cont.

  9. Other Items: Interest & Dividend Interest paid & dividend paid may be classified as operating or financing activities. Argument: determining net income or cost of obtaining capital resources Interest received & dividend received may be classified as operating or investing activities. Argument: determining net income or return from investment made by entity Cont.

  10. Reporting CF from Operating Activities: An entity should report cash flows from operating activities using either: direct method: whereby major classes of gross cash receipts and gross cash payments are disclosed; or indirect method: whereby net profit or loss (before tax) 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. Cont.

  11. Presentation of Statement of Cash Flow ABC Berhad Statement of Cash Flow for the year ended 31 December 20x1 Cash Flows From Operating Activities: ………. XXX ………. XXX ………. (XXX) Net cash from / (used) in operating activities XXX Cash Flows From Investing Activities: ………. XXX ………. XXX ………. (XXX) Net cash from / (used) in investing activities (XX) Cash Flows From Financing Activities: ………. XXX ………. (XXX) Net cash from / (used) in financing activities (XX) Net INCREASE / (DECREASE) in cash and cash equivalents XXX Cash and Cash equivalent at beginning of the period XXX Cash and cash equivalent at end of the period XXX

  12. Direct Method RM Cash from Operating Activities Cash Receipts from Customers XXX Cash Paid to Suppliers and Employees (XXX) Cash Generated from Operations XXX Interest Paid (Can also be in financing) (XXX) Interest Received (Can also be in investing) XXX Dividend Paid (Can also be in financing) (XXX) Dividend Received (Can also be in investing) XXX Income taxes Paid (XXX) Net cash flow from operating activities XXX

  13. Indirect Method Cash flow from Operating Activities RM RM Net Profit Before Taxation: XXX Adjustment: Depreciation XXX Interest Expense XXX Investment Income (XXX) Disposal of Asset (XXX) Operating profit before working capital changes XXX Increase/Decrease in Receivables (XXX)/XXX Increase/Decrease in Inventories (XXX)/XXX Increase/Decrease in Payables XXX/(XXX) Cash generated from Operations XXX Interest Paid (XXX) Income Tax Paid (XXX) Dividend Paid (XXX) Net Cash from Operating Activities XXX

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