Group Cash Flow Statement Guide

1
chapter 20
group cash flow statements
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Chapter 20 Group Cash Flow Statements from A students guide to group accounts by Tom
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The second edition of my book A students guide to group accounts published by
Kaplan, has nineteen chapters that set out how to prepare the group statement of
financial position and how to prepare the group statement of total comprehensive
income.
This brand new chapter which is only available on line - is all about the preparation
of the group cash flow statement.
In order to prepare a statement of group cash flows you will need know two things.
1. The format of the cash flow statement.
2. How to calculate a cash flow and where in the cash flow statement that cash
in or out flow is reported.
1. The format of the cash flow statement
In principle the format of the cash flow statement is quite simple as IAS7 Statement
of Cash Flows (IAS7) proscribes only three headings. These are Operating Activities,
Investing Activities and Financing Activities. The exact order of the items shown
underneath these three headings is not formally proscribed.
In preparing a statement of cash flows you are going to have remember the format
as it will not be given in the question. When preparing group cash flows we are only
given the opening and closing group statement of financial positions and the group
statement of total comprehensive income.
There are two alternative formats to the cash flow.
a) The direct method.
b) The indirect method
a) The direct method format

Group cash flow format - Direct method
1. Operating Activities
Cash received from customers
Cash paid to and on behalf of staff
Cash paid to suppliers
Cash paid for other operating expenses
Cash generated
Interest paid
Taxation paid
Pension contribution paid to defined benefit scheme
X
(X)
(X)
(X)
X
(X)
(X)
(X)
2. Investing Activities
Payments to buy PPE / Intangibles / Investments
Proceeds from sale of PPE / Intangibles / Investments
(X)
X
Cash paid to buy investments in new subsidiary / associate / JV

Cash / overdraft taken over in new subsidiary
(X)
X / (X)
Sale proceeds from disposal of shares in subsidiary / associate /JV

Cash / overdraft passed away on disposal of a subsidiary
X
(X) / X
Dividends received from investments (inc. from associates and JV)

Capital government grants received
X
X
(X)
3. Financing Activities
Proceeds from an equity share issue
Dividends paid
Dividends paid to the NCI
Control to control cash proceeds when NCI increases
Control to control cash paid when NCI decreases
X
(X)
(X)
X
(X)
Proceeds from the issue of new debt / debentures / loan stock

Repayment of debt / redemption of debentures / loan stock
Capital element of repayment of finance lease obligations
X
(X)
(X)
Change in cash and cash equivalents

Opening cash and cash equivalents
Closing cash and cash equivalents
X/(X)
X/(X)
X/(X)
X/(X)
Explanation of the direct method

Unsurprisingly cash inflows are reported as positive numbers whilst cash out flows
are reported as negative numbers, and so in brackets. I make this point because
when I am marking scripts I know that too many candidates make this error. To
quote from a recent ACCA P2 examiners report Consolidated statement of cash
flows questions - candidates often place the wrong sign on the correct figure. For
example, a deduction is made in the statement rather than an addition. If this is a
simple subtraction of two figures and the candidate puts the wrong sign on the
resultant figure then it is difficult to award marks.
Operating Activities (direct method)
The cash flows reported in Operating Activities are the sort of cash flows that you
would expect, in that they relate to the day to day operating activities of the group.
Cash is received from customers and then paid to suppliers, staff and for other
expenses. It is all very logical. It is worth noting that included in Operating Activities
section is the taxation paid and interest paid.
At this stage I think it worth pointing out that the taxation paid will not be the same
figure as the taxation charged in the profit or loss. On the same basis the interest
paid may not be the same as the finance cost charged in the statement of profit or
loss. The basic reason for this is simple. The cash flow statement is reporting cash
flows. The amount of cash paid. Whereas the statement of profit or loss is reporting
the expense of the period which takes into account the accruals concept. For
example the tax charge to profit or loss will include an adjustment for deferred
taxation which is not a cash item.
Investing Activities
The cash flows reported in Operating Activities are cash flows that relate to noncurrent assets. After all when we talk about investing in the business it means buying
these type of assets! So it is natural to include the cash spent buying or constructing
property plant and equipment and intangible assets as well as buying investments in
subsidiaries, associates and joint ventures as cash outflows in Investing Activities.
Of course if any of these non-current assets are sold for cash or generate a cash
return (e.g. dividends received) then these cash inflows are also reported in
Investing Activities.
Financing Activities
As you may know from your financial management studies there are two ways of
financing the long term capital of a business, debt and equity.
The financing activities therefore includes those cash flows with equity i.e. the
shareholders. These are primarily to do with the issue of shares for cash and the
payment of dividends but also include the cash flows when there are control to
control transactions that increase or decrease the NCI.
The financing activities also include the cash flows with debt e.g. those who have
lent money to the business. These include the cash received following the issue of
debentures and the cash paid back to redeem those loans. As finance leases are in
substance a loan so the loan repayments on finance lease obligations are also
reported as a cash out flow under financing activities.
Cash and cash equivalents.
The cash flow statement reconciles to the changes in cash and cash equivalents.
These comprise cash on hand and demand deposits, together with short-term, highly
liquid investments that are readily convertible to a known amount of cash, and that
are subject to an insignificant risk of changes in value.
IAS 7 does not define short term but does state an investment normally qualifies as
a cash equivalent only when it has a short maturity of, say, three months or less from
the date of acquisition.
Consequently, equity or other investments which do not have a maturity date are
excluded from cash equivalents unless they are, in substance, cash equivalents.
This three-month time limit is somewhat arbitrary but is consistent with the concept
of insignificant risk of changes in value and a purpose of meeting short-term cash
commitments.
b) The indirect format

The other cash flow statement format is known as the indirect method. This only
differs from the direct method in the initial part of the Operating Activities section.
Group cash flow format - Indirect method
1. Operating Activities
Profit before tax
Less investment income
Less income from associate / joint venture
Plus finance cost
Depreciation
Less capital government grant released
Amortisation
Impairment loss (charged in profit or loss) e.g. goodwill
Loss on disposal of assets (profit)
Increase in provisions included in profit before tax (decrease)
Foreign exchange loss (gain) at the individual company stage
Current service cost / Past service cost / Settlement & curtailments
Share based payments
Change in working capital
Increase / decrease in inventory
Increase / decrease in receivables and prepayments
Increase / decrease in trade payables and accruals
Cash generated
Interest paid
Taxation paid
Pension contribution paid to defined benefit scheme
X
(X)
(X)
X
X
(X)
X
X
X / (X)
X / (X)
X / (X)
X
X
(X) / X
(X) / X
X / (X)
X
(X)
(X)
(X)
2. Investing Activities
Payments to buy PPE / Intangibles / Investments
Proceeds from sale of PPE / Intangibles / Investments
(X)
X
Cash paid to buy investments in new subsidiary / associate / JV

Cash / overdraft taken over in new subsidiary
(X)
X / (X)
Sale proceeds from disposal of shares in subsidiary / associate /JV

Cash / overdraft passed away on disposal of a subsidiary
X
(X) / X
Dividends received from investments (inc. from associates and JV)

Capital government grants received
X
X
(X)
3. Financing Activities
Proceeds from an equity share issue
Dividends paid
Dividends paid to the NCI
Control to control cash proceeds when NCI increases
Control to control cash paid when NCI decreases
X
(X)
(X)
X
(X)
Proceeds from the issue of new debt / debentures / loan stock

Repayment of debt / redemption of debentures / loan stock
Capital element of repayment of finance lease obligations
X
(X)
(X)
Change in cash and cash equivalents

X/(X)
X/(X)
X/(X)
X/(X)
Explanation of the indirect method

In what initially seems a little bizarre for something called a cash flow statement, the
indirect method opens up, not with a cash at all but rather Profit Before Tax. The
Profit Before Tax is then reconciled to the cash generated by adjusting for non-cash
items. From interest paid the rest of the cash flow statement is the same.
In the reconciliation of Profit Before Tax to cash generated (the reconciliation) noncash expenses charged against profit before tax are added back. Take for example
depreciation as the classic non-cash expense. This has clearly reduced profit but
has not resulted in a cash outflow. So when we are trying to reconcile profit to the
cash generated it is necessary to add back depreciation. Other non-cash expenses
that have been charged in arriving in profit are also added back for example losses
on disposal on non-current assets, finance costs and increases in provisions.
On the same basis items of income which boost profit but are not cash flows are
deducted in the reconciliation. Examples of income that are deducted include profit
on the disposal of non-current assets or decreases in provisions.
Also included in the reconciliation part of the indirect method operating activities are
the changes in working capital. For example if the business buys inventory then this
transaction on its own has no impact on profit but can result in a reduction in cash
thus an increase in inventory year on year is bad for cash flow and the difference is
a negative in the reconciliation. On the same logic receiving cash from a receivable
also has no impact on the profit but is good for cash as it results in a cash inflow
and so for any decrease in receivables year on year the difference is a positive in the
reconciliation. Finally paying a trade creditor has no impact on profit but results in a
reduction in cash so any decrease in trade payables year on year is bad for cash
and the difference is a negative in the reconciliation.
10
2. How to calculate a cash flow and where in the cash flow statement that cash
in or out flow is reported
Now that we have looked at the format of cash flows we can now turn our attention
as to how to calculate cash flows. Basically cash flows are derived as missing
figures. Ascertaining cash flows at its simplest do not deserve a complicated
working.
For example if the finance cost charged in profit is $100 but at the year-end there is
an accrual for interest owing of $5 then it seems natural to conclude that the interest
actually paid and an operating cash outflow is only $95 (being $100 - $5) as all of the
expense has been paid.
Where the cash flow needs a proper working because it is not just involving two
figures then it is necessary to reconcile the opening balance of an item to its closing
balance showing all the reasons why the item has either increased or decreased. In
this process of making the opening and closing balances reconcile the cash flow will
be revealed as the missing / balancing figure.
To quote from a recent ACCA P2 examiners report - Consolidated statement of
cash flows questions - It is important as always to show all workings. For example,
very few candidates correctly calculated the income taxes paid figure but there were
several marks for this calculation, which were often awarded in the workings in the
scripts. Many of the figures in the statement do not need workings but where they
do, it is important to show them.
11
Cash Flow Exercise to show the basic technique

Calculate the cash flows given the following extracts from statements of financial
position drawn up at the year ended 31 December 20X0 and 20X1.
Non-Current Assets
Property Plant & Equipment (PPE)
20X1
$
300
20X0
$
100
During the year depreciation charged was $20, a revaluation surplus of $60 was
recorded, PPE with a CV of $15 were disposed of and PPE acquired subject to
finance leases had a CV of $30.
Required: How much cash was spent on PPE in the period?
Answer to cash flow exercise
Well we know that the cash spent on PPE will be an outflow and an investing activity.
The working showing the reconciliation is as follows.
PPE
Opening balance
Depreciation
Surplus
Disposal
Finance lease
100
(20)
60
(15)
30
155
Cash - balancing figure 145
Closing balance
300
Explanation
From the opening s of fp
Depreciation reduces the carrying value
The revaluation gain increases carrying value
The carrying value of the asset being sold reduces
A new finance lease means there is more PPE
From the closing s of fp
The explanations are provide for your benefit and it would be unnecessary to include
in an examination answer.
Incidentally in terms of exam technique never show your workings like this
100-20+60-15+30-300 = 145
This row format of numbers does not lend itself to any form of reference or
annotation as to the source of the numbers so is difficult to mark.
The working can be shown as a T account. T accounts are perhaps a little old
fashioned and can lead to errors unless you are already very proficient with double
entry. This working is shown as a T account in the double entry section.
12
Group cash flow issues

Let me take you through four cash flow issues that specific to group accounts.
1. Dividends paid to the NCI.
In a group cash flow statement intercompany cash flows are not reported. The whole
basis of preparing group accounts is to show the group as if it were a single entity.
Thus any dividends paid by the subsidiary that are received by the parent are neither
a cash out flow or inflow of the group. However the dividend that the subsidiary pays
out to the NCI is a cash out flow and is reported in Financing Activities as it is a cash
transaction with equity. If the group statement of changes in equity is not given in the
question then the dividends paid to the NCI can be ascertained as a balancing figure
of the NCI.
Cash Flow Exercise dividend paid to the NCI
Calculate the cash flow given the following extracts from statements of financial
Equity
Non-controlling interest
20X1
$
840
20X0
$
440
In the group statement of comprehensive income, the total comprehensive income

attributable to the NCI was $500. During the year the parent acquired more shares in
the subsidiary and this changed the NCI by $60.
Required: How much was the cash dividend paid to the non-controlling
interest?
Answer dividend paid to the NCI
The dividend paid to the NCI is cash out flow and a financing activity.
The working is as follows.
Explanation
NCI
Opening balance
440 From the opening s of fp
Profit attributable to the NCI 500 Profit increases equity / NCI
Reduction in the NCI
(60) Parent buys out the NCI (control to control)
880
Cash - balancing figure
40
Closing balance
840 From the closing s of fp
13
2 Dividends received from equity accounted investments (Associates and

Joint Ventures)
The application of equity accounting means that in the group statement of
comprehensive income and the group statement of financial position the share of
profit has been recognised. In the group statement of cash flows we want to have
reported the cash flow received as a return on such investments! The cash that the
group will receive will be in the form of dividends. This is a cash inflow and as return
on an investment will be reported in investing activities.
The dividend received from the associate (or joint venture) will be ascertained as a
balancing figure when reconciling the opening and closing balances of the carrying
value of the equity accounted investment in the group accounts.
Cash Flow Exercise dividend received from an associate
Non-Current Asset
Investment in associate undertaking
20X1
$
500
20X0
$
200
The group statement of profit or loss reported Income from Associate Undertakings
of $750.
Required: How much was the cash dividend received by the group?
Cash in and an investing activity.
Answer dividend received from an associate
The dividend received from an associate is a cash inflow and an investing activity.
Explanation
Investment in the associate
Opening balance
Plus the % of profit
750 Profit increases the asset
950
450
Closing balance
14
3 Acquisition or disposal of a subsidiary.

When a parent buys shares in an entity such that the parent gains control then a
subsidiary has been acquired and the cash element of the consideration paid is a
cash outflow and reported in investing activities. In addition the cash and cash
equivalents held by the new subsidiary that has been taken over will flow into the
group and also be reported in investing activities.
When a parent sells part or all of an investment that results in control being lost this
means the parent has disposed of an investment and the cash element of the
consideration received, a cash inflow and reported in investing activities. In addition
the cash and cash equivalents held by the old subsidiary will flow out of the group
and also be reported in investing activities.
However there is an all pervading complication when there has been an acquisition
of a subsidiary as the business combination will mean that the group has more
goodwill, more NCI, and more of each asset and each liability. This means that when
we are reconciling any opening or closing balance to ascertain the cash flow as the
balancing figure we will have to add the impact of the acquisition of the subsidiary on
that item.
Now the same all pervading complication also arises when there has been a
disposal of a subsidiary as the disposal results in the group having less goodwill,
NCI, assets and liabilities. This means that when we are reconciling any opening or
closing balance to ascertain the cash flow as the balancing figure we will have to
deduct the impact of the disposal of the subsidiary on that item.
,
Cash Flow Exercise including the impact of an acquisition and disposal of a
subsidiary in the period
20X1
20X0
Non-Current Assets
$
$
Property Plant & Equipment
600
450
During the year depreciation charged was $200, and the group acquired one
subsidiary with PPE of $300, and disposed of another with PPE of $10.
15
Answer Cash Flow Exercise including the impact of an acquisition and

disposal of a subsidiary in the period
The payment to buy PPE is a cash outflow and an investing activity.
PPE
Opening balance
Depreciation
(200) Depreciation reduces the asset
PPE acquired in the new sub 300 The new sub results in more PPE
PPE lost on disposal of sub
(10) The disposal of the sub results in less PPE
540
60
Closing balance
600 From the closing s of fp
16
4 Foreign exchange differences

Now I hope you saying to yourself hang on but foreign exchange differences are
not cash flows! Well you are correct! Foreign exchange differences, whether they
arise at the individual or group stage, are like depreciation in that they are not cash
flows themselves but are necessary to be included in reconciliations when we are
ascertaining cash flows.
You know how when the group acquires a subsidiary during the accounting period it
means that in the group statement of comprehensive income there is the need to
make adjustments all over the place for time apportioning, well it is like that in a
group cash flow where there is an overseas subsidiary! Here a lot of exchange
differences are thrown up, not only on assets and liabilities but also on goodwill and
NCI, so whenever any of these are being reconciled to ascertain the cash flow as a
balancing figure their exchange difference will also have to be taken into account.
Foreign exchange gains increase assets but decrease liabilities. Foreign exchange
losses decrease assets and increase liabilities.
When the indirect method for operating activities is used and there has been a
foreign exchange loss (gain) at the individual company stage correctly recognised in
profit or loss then this has to added back (deducted) just like depreciation as they are
both non-cash expenses.
Cash Flow Exercise including the impact of a foreign exchange difference
Non-current liability
Loan
20X1
$
1,000
20X0
$
3,500
The loan is denominated in a foreign currency, and a loss of $500 has been
recorded on the retranslation.
Required: How much cash was spent repaying the loan?
Answer to Cash Flow Exercise including the impact of a foreign exchange
difference
Explanation
Loan
Opening balance
3,500 From the opening s of fp
Foreign currency exchange loss 500 The loss will increase the liability
4,000
3,000
Closing balance
1,000 From the closing s of fp
17
Mind Map
Format
Indirect
method
(reconciliation
PBT)
Operating
Activities
Direct
method
NCA
payments to
buy (out)
Investing
Activities
NCA
sale
proceeds
or returns
(in)
Debt
borrow (in) or
repay (out)
Financing
Activities
Equity
Dividends
paid (out)
proceeds
from
share
issue (in)
control to
control
(in or out)
Cash and cash

equivalents
18
Double entry
All the reconciliation workings to ascertain cash flow as a balancing figure can of
course be explained in double entry terms indeed they are really old fashioned T
accounts just turned into a vertical column. I guess if you really love double entry you
would realised that a long time ago. Let us re-examine the original exercise.
Cash Flow Exercise to show the technique
Calculate the cash flows given the following extracts from statements of financial
20X1
$
300
Non-Current Assets
Property Plant & Equipment (PPE)
20X0
$
100
During the year depreciation charged was $20, a revaluation surplus of $60 was
recorded, PPE with a CV of $15 were disposed of and PPE acquired subject to
finance leases had a CV of $30.
PPE (carrying value) account
Opening balance
Revaluation surplus
Finance lease
Cash balancing figure
$
100
60
30
145
335
$
20
15
Depreciation
Disposal
Closing balance
300
335
The opening balance of $100 is a debit because PPE is an asset and assets are
debit balances
Depreciation is an expense that is charged to profit (debit) and reduces the carrying
value of the asset (credit).
The revaluation surplus is a gain that is recognised in equity and other
comprehensive income (credit) and increases the asset (debit).
The disposal reduces the carrying value of the asset (credit) and is transferred to a
disposal account (debit).
New finance leases represent new assets (debit) and new liabilities (credit).
The closing balance is a credit as it has to be a debit when is brought down to be the
opening balance of next year.
19
Technical corner
Usefulness of cash flow statements
On the one hand you need to know how to prepare a group cash flow statement but
let us also consider how useful they are.
A statement of cash flows provides information that is not available from statements
of financial position and statements of comprehensive income.
Cash flow statements can be the basis of a business valuation. Analysts and other
users of financial information often, formally or informally, develop models to assess
and compare the present value of the future cash flow of entities.
Cash flow statements can give an indication of the relationship between profitability
and cash generating ability, and thus of the quality of the profit earned. A business
that year on year reports a profit but never generates cash is said to how low quality
profits. The profit may be generated through the manipulation of estimates and
polices.
Cash flow is free from judgement of value and the subjective allocation of the
accruals concept. It cannot easily be manipulated and is not affected by accounting
policies. It is reliable.
A statement of cash flow in conjunction with a statement of financial position
provides information on liquidity, solvency and adaptability. The statement of
financial position is often used to obtain information on liquidity, but the information is
incomplete for this purpose as the statement of financial position is drawn up at a
particular point in time.
Limitations of the statement of cash flows
Of course nothing is perfect and we can also consider the limitations of cash flow
statements.
Statements of cash flows are based on historical information and therefore do not
provide complete information for assessing future cash flows. Users are much more
interested in future cash flows.
There is some scope for manipulation of cash flows. For example, a business may
delay paying suppliers until after the year-end, or it may structure transactions so
that the cash balance is favourably affected e.g. a sale and lease back, or a raising
finance by issuing zero coupon bonds which are redeemable at a large premium.
Deliberate manipulation is possible e.g. assets may be sold and then immediately
repurchased or proceeds from raising funds or selling PPE classifies in operating
activities. The application of the substance over form principle and an understanding
of the format should alert users of the financial statements to the true nature of such
arrangements.
20
Exercise - Operating Activities direct & indirect

Extracts from the financial statements are as follows.
$
Operating profit
80,000
Investment income
12,000
Finance costs
(10,000)
Profit before tax
82,000
Tax
(32,000)
Profit for the year
50,000
Other comprehensive income
Revaluation gain
40,000
Total comprehensive income
90,000
Current assets
Inventory
Receivables
Current liabilities
Trade payables
Closing balance
Opening balance
30,000
20,000
25,000
26,000
14,000
11,000
Additional information
During the year depreciation of $25,000 was charged, an impairment loss of $40,000
recognised on an asset that had not been revalued. Employment costs charged
included $20,000 for a current service cost on the defined benefit pension scheme
and $15,000 in respect of an equity settled share based scheme. In arriving at
operating profit negative goodwill of $6,000 and a foreign currency exchange gain of
$4,000 have been recognised.
Receipts from customers, combined with cash sales, were $800,000, payments to
suppliers of raw materials $400,000, other operating cash payments were $100,000
and cash paid on behalf and to employees was $126,000.
Required
a) Using the indirect method determine the cash generated from operating
activities
b) Using the direct method determine the cash generated from operating
activities
21
Question Weller
Set out below is a summary of the accounts of Weller for the year ended 31
December 20X7.
Consolidated statement of total comprehensive income for the year ended 31
December 20X7.
Revenue
Cost of sales and other expenses
Income from associates
Finance cost (note 3)
Profit before tax
Income tax
Profit for the period
Other comprehensive income: items that may be reclassified to
profit or loss in future periods
Group exchange difference on retranslation of foreign subsidiary
(note 5)
Profit for the year attributable to:
Attributable to owners of the parent
Attributable to Non-controlling interests
Profit for the period
Attributable to owners of the parent

Attributable to Non-controlling interests
$000
44,754
(39,613)
30
(305)
-----------4,866
(2,038)
------------2,828
302
-----------3,130
-----------2,805
23
-----------2,828
-----------3,107
23
------3,130
-------
22
Statement of Changes in Group Equity
Opening balance
Comprehensive income
Dividends paid
Acquisition of a subsidiary
Closing balance
Shares
OCE
Retained Earnings
$000
7,000
$000
805
302
$000
6,359
2,805
(445)
-------7,000
---------
------1,107
-------
---------8,719
----------
NCI
Total
$000 $000
17 14,181
23
3,130
(20) (465)
150
150
----- --------170 16,996
-----------
Consolidated statements of financial position at 31 December

Note
Non-current assets
Intangible asset goodwill
Tangible assets
Investment in associate
$000
(4&5)
(1)
Current assets
Inventories
Receivables
Investments (30 day bonds)
Cash at bank and in hand
Total equity
Non-current liabilities:
Loans
Provision for deferred tax
Pension deficit
(3)
Current liabilities
(2)
$000
500
11,157
300
----------11,957
9,749
5,354
1,543
1,013
-------------
Equity and liabilities

Equity share capital
OCE
Retained earnings
NCI
20X7
$000
17,659
---------29,616
----------
20X6
$000
85
8,900
280
----------9,265
7,624
4,420
741
394
----------
13,179
----------22,444
----------
7,000
1,107
8,719
170
----------16,996
7,000
805
6,359
17
---------14,181
2,102
555
735
1,682
689
246
9,228
---------29,616
-----------
5,646
---------22,444
----------
23
Notes to the accounts

(1) Tangible assets
Non-current asset movements included the following:
$000
305
854
907
Disposals at carrying amount

Proceeds from asset sales
Depreciations provided for the year
(2) Current liabilities
20X7
$000
1,228
4,278
3,722
--------9,228
---------
Bank overdraft
Trade payables
Tax
20X6
$000
91
2,989
2,566
-------5,646
--------
(3) Pension fund deficit

The company has a defined benefit pension fund and the
reconciliation of its deficit is as follows.
At 31 December 20X6
Net finance cost
Current service cost
Cash contribution
At 31 December 20X7
$000
246
29
560
(100)
--------735
---------
(4) Hannah
During the year, the company acquired 82% of the issued equity capital of
Hannah for a cash consideration of $1,268,000. The non-controlling interest is
valued using the proportion of net assets method
$000
Non-current assets
208
Inventories
612
Trade receivables
500
Cash in hand
232
Trade payables
(407)
Debenture loans
(312)
--------833
-------
24
(5) Group Exchange gains

Exchange gains on translating the financial statements of a wholly-owned
subsidiary have been taken to equity and comprise differences on the
retranslation of the following:
$000
Goodwill
9
Non-current assets PPE
100
Inventories
116
Trade receivables
286
Trade payables
(209)
--------302
------Required:
Prepare the statement of cash flows for the Weller group for the year ended 31
December 20X7 using the indirect method.
25
Answer Chapter 20 group cash flow

Answer Exercise - Operating Activities direct & indirect
Indirect method
Operating activities
Profit before tax
Investment income
Finance cost
Depreciation
Impairment loss
Current service cost
Share based payments
Negative goodwill
Exchange gain individual company stage
Increase in inventory
Decrease in receivables
Increase in payables
Cash generated
$
82,000
(12,000)
10,000
25,000
40,000
20,000
15,000
(6,000)
(4,000)
(5,000)
6,000
3,000
174,000
Direct method
Cash received from customers
Cash paid to suppliers
Cash paid to staff
Other operating payments
Cash generated
800,000
(400,000)
(100,000)
(126,000)
174,000
26
Answer - Weller
Group cash flow Weller
Operating activities
Profit before tax
Add back finance costs
Less income from associate
Depreciation
Less profit on disposal (854 305)
(W1) Impairment loss on goodwill
Current service costs
Changes in working capital
(W2) Increase inventory
Increase receivables
Increase payables
Cash generated
Pension contribution paid
Interest paid (305 pension unwinding 29)
(W3) Taxation paid
$000
4,866
305
(30)
907
(549)
179
560
(1,397)
(148)
673
----------5,366
(100)
(276)
(1,016)
------------
$000
3,974
Investing Activities
Proceeds disposal NCA
Acquisition of subsidiary
Cash taken over new subsidiary
(W4) Payment to buy NCA
(W5) Dividends received from associate
Financing Activities
Dividends paid
Dividends paid to NCI
(W6) New loans
Thus increase in cash and cash equivalents

(394 + 741 91)
(1,013 + 1,543 1,228)
854
(1,268)
232
(3,161)
10
-----------
(3,333)
(445)
(20)
108
----------(357)
---------284
1,044
---------1,328
----------
27
Workings
(W1) Goodwill
Opening balance
Acquire subsidiary
Exchange gain
Impairment loss - balancing figure
85
585
9
(179)
--------500
---------
c/bal
FV of P investment
NCI as a proportion of NA (18% x 833)
FV NA
Goodwill on the acquisition
1,268
150
(833)
-------585
--------
(W2) Working capital changes

Opening balance
Acq subsidiary
Exchange difference
Increase - balancing figures
Closing balance
Inventory
7,624
612
116
Receivables
4,420
500
286
Payables
2,989
407
209
1,397
------------9,749
-------------
148
------------5,354
-------------
673
----------4,278
----------
(W3) Taxation paid

Opening balance CL
Opening balance NCL - deferred tax
Tax charge
Thus cash paid balancing figure
Closing balances (3,722 + 555)
Liability
2,566
689
2,038
(1,016)
------------4,277
------------
28
(W4) Non-current assets

o/bal
Disposal
Depreciation
Acq subsidiary
Exchange gain
Cash paid - balancing figure
c/bal
8,900
(305)
(907)
208
100
7,996
3,161
------------11,157
--------------
(W5) Investment in associate

o/bal
Income from associate
Cash received - balancing figure
c/bal
280
30
--------310
(10)
---------300
----------
(W6) Loans new

o/bal
Acq subsidiary
Cash received - balancing figure
c/bal
1,682
312
---------1,994
108
----------2,102
-----------

Group Cash Flow Statement Guide

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1

Anyone who lives within their means

tom clendon lecturer

If you find this free chapter useful

a) The direct method format

Cash paid to buy investments in new subsidiary / associate / JV

Sale proceeds from disposal of shares in subsidiary / associate /JV

Dividends received from investments (inc. from associates and JV)

Proceeds from the issue of new debt / debentures / loan stock

Change in cash and cash equivalents

Explanation of the direct method

b) The indirect format

Cash paid to buy investments in new subsidiary / associate / JV

Sale proceeds from disposal of shares in subsidiary / associate /JV

Dividends received from investments (inc. from associates and JV)

Proceeds from the issue of new debt / debentures / loan stock

Change in cash and cash equivalents

Explanation of the indirect method

Cash Flow Exercise to show the basic technique

Group cash flow issues

In the group statement of comprehensive income, the total comprehensive income

2 Dividends received from equity accounted investments (Associates and

3 Acquisition or disposal of a subsidiary.

Answer Cash Flow Exercise including the impact of an acquisition and

4 Foreign exchange differences

Cash and cash

Exercise - Operating Activities direct & indirect

Attributable to owners of the parent

Statement of Changes in Group Equity

Consolidated statements of financial position at 31 December

Equity and liabilities

Notes to the accounts

Disposals at carrying amount

(3) Pension fund deficit

(5) Group Exchange gains

Answer Chapter 20 group cash flow

Thus increase in cash and cash equivalents

(W2) Working capital changes

(W3) Taxation paid

(W4) Non-current assets

(W5) Investment in associate

(W6) Loans new

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