Illustrative Examples

These illustrative examples accompany, but are not part of, IAS 7.

A Statement of cash flows for an entity other than a financial institution

Adjustments for unrealised foreign exchange losses (gains) Example MonetaryDuration, Debit IAS 7.20 b Common practice 520000
Cash flows from (used in) operations Example MonetaryDuration IAS 7.20 Example 510000, 520000
Cash flows from (used in) operations before changes in working capital Example MonetaryDuration IAS 7.20 Common practice 800300
Increase through new leases, liabilities arising from financing activities Example MonetaryDuration, Credit IAS 7.44B Example 851100

1

The examples show only current period amounts. Corresponding amounts for the preceding period are required to be presented in accordance with IAS 1 Presentation of Financial Statements.

2

Information from the statement of comprehensive income and statement of financial position is provided to show how the statements of cash flows under the direct method and indirect method have been derived. Neither the statement of comprehensive income nor the statement of financial position is presented in conformity with the disclosure and presentation requirements of other Standards.

3

The following additional information is also relevant for the preparation of the statements of cash flows: 

  • all of the shares of a subsidiary were acquired for 590. The fair values of assets acquired and liabilities assumed were as follows:

  Inventories 100
  Accounts receivable 100
  Cash 40
  Property, plant and equipment 650
  Trade payables 100
  Long-term debt 200

  • 250 was raised from the issue of share capital and a further 250 was raised from long‑term borrowings.

  • interest expense was 400, of which 170 was paid during the period. Also, 100 relating to interest expense of the prior period was paid during the period.

  • dividends paid were 1,200.

  • the liability for tax at the beginning and end of the period was 1,000 and 400 respectively. During the period, a further 200 tax was provided for. Withholding tax on dividends received amounted to 100.

  • during the period, the group acquired property, plant and equipment and right‑of‑use assets relating to property, plant and equipment with an aggregate cost of 1,250, of which 900 related to right‑of‑use assets. Cash payments of 350 were made to purchase property, plant and equipment.

  • plant with original cost of 80 and accumulated depreciation of 60 was sold for 20.

  • accounts receivable as at the end of 20X2 include 100 of interest receivable.

Consolidated statement of comprehensive income for the period ended 20X2(a)
Sales 30,650
Cost of sales (26,000)
Gross profit 4,650
Depreciation (450)
Administrative and selling expenses (910)
Interest expense (400)
Investment income 500
Foreign exchange loss (40)
Profit before taxation 3,350
Taxes on income (300)
Profit 3,050
(a)

The entity did not recognise any components of other comprehensive income in the period ended 20X2
Consolidated statement of financial position as at end of 20X2
      20X2       20X1
Assets              
Cash and cash equivalents     230       160
Accounts receivable     1,900       1,200
Inventory     1,000       1,950
Portfolio investments     2,500       2,500
Property, plant and equipment at cost 3,730       1,910    
Accumulated depreciation (1,450)       (1,060)    
Property, plant and equipment net     2,280       850
Total assets     7,910       6,660
       
Liabilities              
Trade payables     250       1,890
Interest payable     230       100
Income taxes payable     400       1,000
Long-term debt     2,300       1,040
Total liabilities     3,180       4,030
       
Shareholders’ equity              
Share capital     1,500       1,250
Retained earnings     3,230       1,380
Total shareholders’ equity     4,730       2,630
Total liabilities and shareholders’ equity     7,910       6,660
Direct method statement of cash flows (paragraph 18(a))
      20X2

Cash flows from operating activities

[Refer:paragraph 10]
      
Cash receipts from customers [Refer:paragraph 14]  30,150    

Cash paid to suppliers and employees

[Refer:paragraph 14]
 (27,600)    
Cash generated from operations  2,550    
Interest paid [Refer:paragraphs 31⁠–⁠33] (270)    
Income taxes paid [Refer:paragraphs 35 and 36] (900)    
   
Net cash from operating activities     1,380
   

Cash flows from investing activities

[Refer:paragraph 10]
      
Acquisition of subsidiary X, net of cash acquired (Note A) [Refer:paragraphs 39 and 42] (550)    
Purchase of property, plant and equipment (Note B) [Refer:paragraph 21] (350)    
Proceeds from sale of equipment [Refer:paragraph 21] 20    
Interest received [Refer:paragraphs 31 and 33] 200    
Dividends received [Refer:paragraphs 31 and 33] 200    
   
Net cash used in investing activities     (480)
   

Cash flows from financing activities

[Refer:paragraph 10]
      

Proceeds from issue of share capital

[Refer:paragraph 21]
 250    

Proceeds from long-term borrowings

[Refer:paragraph 21]
 250    
Payment of lease liabilities [Refer:paragraph 21] (90)    
Dividends paid(a) [Refer:paragraphs 31 and 34] (1,200)    
   
Net cash used in financing activities     (790)
       
Net increase in cash and cash equivalents     110
Cash and cash equivalents at beginning of period (Note C)     120
Cash and cash equivalents at end of period (Note C)     230
(a)

This could also be shown as an operating cash flow.
Indirect method statement of cash flows (paragraph 18(b))
        20X2

Cash flows from operating activities

[Refer:paragraph 10]
      
Profit before taxation [Refer:paragraph 20] 3,350    
Adjustments for:      
  Depreciation [Refer:paragraph 20(b)] 450    
  Foreign exchange loss [Refer:paragraph 20(b) and (c)] 40    
  Investment income [Refer:paragraph 20(c)] (500)    
  Interest expense  400    
    3,740    
 

Increase in trade and other receivables

[Refer:paragraph 20(a)]
 (500)    
  Decrease in inventories [Refer:paragraph 20(a)] 1,050    
  Decrease in trade payables [Refer:paragraph 20(a)] (1,740)    
Cash generated from operations [Refer:paragraph 20] 2,550    
Interest paid [Refer:paragraphs 31⁠–⁠33] (270)    
Income taxes paid [Refer:paragraphs 35 and 36] (900)    
Net cash from operating activities     1,380
   
Cash flows from investing activities [Refer:paragraph 10]      
Acquisition of subsidiary X net of cash acquired (Note A) [Refer:paragraphs 39 and 42] (550)    
Purchase of property, plant and equipment (Note B) [Refer:paragraph 21] (350)    
Proceeds from sale of equipment [Refer:paragraph 21] 20    
Interest received [Refer:paragraphs 31 and 33] 200    
Dividends received [Refer:paragraphs 31 and 33] 200    
Net cash used in investing activities     (480)
   

Cash flows from financing activities

[Refer:paragraph 10]
      

Proceeds from issue of share capital

[Refer:paragraph 21]
 250    

Proceeds from long-term borrowings

[Refer:paragraph 21]
 250    
Payment of lease liabilities [Refer:paragraph 21] (90)    
Dividends paid(a) [Refer:paragraphs 31 and 34] (1,200)    
Net cash used in financing activities     (790)
   
Net increase in cash and cash equivalents     110
Cash and cash equivalents at beginning of period (Note C)     120
Cash and cash equivalents at end of period (Note C)     230
(a)

This could also be shown as an operating cash flow.

Notes to the statement of cash flows (direct method andindirect method)

A. Obtaining control of subsidiary

During the period the Group obtained control of subsidiary X. The fair values of assets acquired and liabilities assumed were as follows [Refer:paragraph 40]:

Cash 40
Inventories 100
Accounts receivable 100
Property, plant and equipment 650
Trade payables (100)
Long-term debt (200)
Total purchase price paid in cash 590
Less: Cash of subsidiary X acquired (40)
Cash paid to obtain control net of cash acquired 550

B. Property, plant and equipment

During the period, the Group acquired property, plant and equipment and right‑of‑use assets relating to property, plant and equipment with an aggregate cost of 1,250, of which 900 related to right‑of‑use assets. Cash payments of 350 were made to purchase property, plant and equipment [Refer:paragraphs 43 and 44].

C. Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and balances with banks, and investments in money market instruments. Cash and cash equivalents included in the statement of cash flows comprise the following amounts in the statement of financial position [Refer:paragraphs 45⁠–⁠47]:

  20X2   20X1
Cash on hand and balances with banks 40   25
Short-term investments 190   135
Cash and cash equivalents as previously reported 230   160
Effect of exchange rate changes –   (40)
Cash and cash equivalents as restated 230   120

Cash and cash equivalents at the end of the period include deposits with banks of 100 held by a subsidiary which are not freely remissible to the holding company because of currency exchange restrictions. [Refer:paragraph 48]

The Group has undrawn borrowing facilities of 2,000 of which 700 may be used only for future expansion. [Refer:paragraphs 48 and 50(a)]

D. Segment information

[Refer:paragraphs 50(d) and 52]
    Segment A Segment B Total
Cash flows from:            
  Operating activities   1,520   (140)   1,380
  Investing activities   (640)   160   (480)
  Financing activities   (570)   (220)   (790)
      310   (200)   110

E. Reconciliation of liabilities arising from financing activities

[Refer:paragraphs 44A and 44B]
  20X1   Cash flows   Non-cash changes   20X2
          Acquisition   New leases    
Long-term borrowings 1,040   250   200   –   1,490
Lease liabilities –   (90)   –   900   810
Long-term debt 1,040   160   200   900   2,300
                   

Alternative presentation (indirect method)

[Refer:paragraph 20]

As an alternative, in an indirect method statement of cash flows, operating profit before working capital changes is sometimes presented as follows:

Revenues excluding investment income 30,650    
Operating expense excluding depreciation (26,910)    
       
Operating profit before working capital changes     3,740

B Statement of cash flows for a financial institution

Recoveries on loans previously written off Example MonetaryDuration, Debit 510000

1

The example shows only current period amounts. Comparative amounts for the preceding period are required to be presented in accordance with IAS 1 Presentation of Financial Statements.

2

The example is presented using the direct method. 

      20X2

Cash flows from operating activities

[Refer:paragraph 10]
    
Interest and commission receipts [Refer:paragraph 33] 28,447  
Interest payments [Refer:paragraph 33] (23,463)  

Recoveries on loans previously written off

[Refer:paragraph 14]
 237  

Cash payments to employees and suppliers

[Refer:paragraph 14]
 (997)  
  4,224  
 
(Increase) decrease in operating assets:    
Short-term funds [Refer:paragraphs 15 and 24] (650)  
Deposits held for regulatory or monetary control purposes [Refer:paragraphs 15 and 24] 234  
Funds advanced to customers [Refer:paragraphs 15 and 24] (288)  

Net increase in credit card receivables

[Refer:paragraphs 15 and 24]
 (360)  

Other short-term negotiable securities

[Refer:paragraphs 15 and 24]
 (120)  
 
Increase (decrease) in operating liabilities:    
Deposits from customers [Refer:paragraphs 15 and 24] 600    
Negotiable certificates of deposit [Refer:paragraphs 15 and 24] (200)    
Net cash from operating activities before income tax 3,440    
Income taxes paid [Refer:paragraphs 35 and 36] (100)    
Net cash from operating activities     3,340
   

Cash flows from investing activities

[Refer:paragraph 10]
      
Disposal of subsidiary Y [Refer:paragraphs 39⁠–⁠42B] 50    
Dividends received [Refer:paragraphs 31 and 33] 200    
Interest received [Refer:paragraphs 31 and 33] 300    

Proceeds from sales of non-dealing securities

[Refer:paragraph 21]
 1,200    
Purchase of non-dealing securities [Refer:paragraph 21] (600)    

Purchase of property, plant and equipment

[Refer:paragraph 21]
 (500)    
Net cash from investing activities     650
 

Cash flows from financing activities

[Refer:paragraph 10]
    
Issue of loan capital [Refer:paragraph 21] 1,000  
Issue of preference shares by subsidiary undertaking [Refer:paragraph 21] 800  

Repayment of long-term borrowings

[Refer:paragraph 21]
 (200)  
Net decrease in other borrowings [Refer:paragraph 21] (1,000)  
Dividends paid [Refer:paragraphs 31 and 34] (400)  
Net cash from financing activities     200
Effects of exchange rate changes on cash and cash equivalents [Refer:paragraph 28]     600
Net increase in cash and cash equivalents     4,790
Cash and cash equivalents at beginning of period     4,050
Cash and cash equivalents at end of period     8,840

C Reconciliation of liabilities arising from financing activities

Assets held to hedge liabilities arising from financing activities [member] Example IAS 7.44C Example 851100
Lease liabilities [member] Example IAS 7.44C Example 851100
Long-term borrowings [member] Example IAS 7.44C Example 851100
Short-term borrowings [member] Example IAS 7.44C Example 851100
[Refer:paragraphs 44A and 44B]

1

This example illustrates one possible way of providing the disclosures required by paragraphs 44A⁠–⁠44E.

2

The example shows only current period amounts. Corresponding amounts for the preceding period are required to be presented in accordance with IAS 1 Presentation of Financial Statements.

  20X1   Cash flows   Non-cash changes   20X2
          Acquisition   Foreign exchange movement   Fair value changes    
Long-term borrowings 22,000   (1,000)   –   –   –   21,000
Short-term borrowings 10,000   (500)   –   200   –   9,700
Lease liabilities 4,000   (800)   300   –   –   3,500
Assets held to hedge long-term borrowings (675)   150   –   –   (25)   (550)
Total liabilities from financing activities 35,325   (2,150)   300   200   (25)   33,650