Chapter 5

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IAS 1
Presentation of Financial
Statements
Example: Statement of P/L
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Example : Statement of P / L
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Example: Statement of Profit / Loss and OCI
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Statement of changes in equity
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Example: Statement of Financial Position
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Example: Statement of Financial Position
(Cont’d…)
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Chapter - 5
Statement of cash flows
IAS 7
1. Objective
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 It provides information to users of financial

statements about the entity's ability to generate
cash and cash equivalents as well as indicating
the cash needs of the entity.
 It provides historical information about cash
and cash equivalents,
equivalents classifying cash flows
between operating, investing and financing
activities.
2. Scope
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 An entity shall prepare a SCF in accordance with the

requirements of this Standard and shall present it as an
integral part of its F/S for each period for which F/S
are presented.
 Users of an entity’s financial statements are interested
in how the entity generates and uses cash and cash
equivalents.
equivalents
 Entities need cash for essentially the same reasons
however different their principal revenue-producing
activities might be..
 This Standard requires all entities to present a SCF.
SCF
3. Definitions
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 Cash - comprises cash on hand and demand

deposits.
deposits
 Cash equivalents - are short-term, highly liquid
investments that are readily convertible to

known amounts of cash and which are subject
to an insignificant risk of changes in value.
 Cash flows are inflows and outflows of cash
and cash equivalents.

equivalents
3. Definitions
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 Operating activities - are the principal revenue-

producing activities of the entity and other activities
that are not investing or financing activities.
activities
 Investing activities - are the acquisition and disposal
of long-term assets and other investments not
included in cash equivalents.
equivalents
 Financing activities - are activities that result in
changes in the size and composition of the
contributed equity and borrowings of the entity.
4. Presentation of SCF
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 IAS 7 requires SCF to report cash flows during the

period classified by :
1. Operating activities
2. Investing activities
3. Financing activities.
 The manner of presentation of cash flows between
operating, investing and financing activities depends
on the nature of the entity.
4.1. Operating activities
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 Most of the components of cash flows from

operating activities will be those items which
determine the net profit or loss of the entity, i.e. they
relate to the main revenue-producing activities of
the entity.
 Examples: Cash flows from operating activities.
a) Cash receipts from the sale of goods & services;
b) Cash receipts from royalties, fees, commissions and
other revenue;
c) Cash payments to suppliers for goods and services;
d) Cash payments to expenses ;
4.2. Investing activities
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 It shows the extent of new investment in assets which will

generate future profit and cash flows.
 Examples : Cash flows arising from investing activities.
a) Cash payments to acquire property, plant and equipment,
intangibles and other non-current assets,
b) Cash receipts from sales of property, plant and equipment,
intangibles and other non-current assets.
c) Cash payments to acquire shares or debentures of other
entities.
d) Cash receipts from sales of shares or debentures of other
entities.
e) Cash advances and loans made to other parties.
f) Cash receipts from the repayment of advances and loans made
to other parties.
4.3. Financing activities
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 It shows the share of cash which the entity's capital

providers have claimed during the period.
 Examples : Cash flows from Financing activities.
a) Cash proceeds from issuing shares.
b) Cash payments to owners to acquire or redeem the
entity's shares.
c) Cash proceeds from issuing debentures, loans, notes,
bonds, mortgages and other short or long-term
borrowings.
d) Principal repayments of amounts borrowed under finance
leases.
5. Reporting cash flows from operating
activities
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 An entity shall report cash flows from operating

activities using either:
a) Direct method - whereby major classes of gross cash
receipts and gross cash payments are disclosed; or
b) Indirect method - whereby profit or loss 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.
Indirect Method (Cont’d…)
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Example of a SCF: Indirect Method
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5.2. Direct Method
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 It discloses major classes of gross cash

receipts and gross cash payments.
payments
 It is the preferred method because it
discloses information, not available

elsewhere in the financial statements but
IAS 7 does not require it.
Example of a SCF: Direct Method
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Thank You for Your Attention !
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 It provides information to users of financial

 An entity shall prepare a SCF in accordance with the

 Cash - comprises cash on hand and demand

investments that are readily convertible to

and cash equivalents.

 Operating activities - are the principal revenue-

 IAS 7 requires SCF to report cash flows during the

 Most of the components of cash flows from

 It shows the extent of new investment in assets which will

 It shows the share of cash which the entity's capital

 An entity shall report cash flows from operating

 It discloses major classes of gross cash

discloses information, not available

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