Chapter 14

Chapter 14
Statement of cash flows

Learning objectives
• Explain the purpose of statement of cash flows (SCF)
• Describe the information reported in the statement of cash
flows
• Understand the major classifications of cash flows: operating,
investing and financing activities
• Prepare the statement of cash flows using the direct and
indirect presentation
• Do a basic analysis of the statement of cash flows of a
business.
Learn Accounting video
www.learnaccounting.uct.ac.za
Go and watch Statement of cash flows –
Introduction. This video explains the principles
underlying the Statement of Cash Flows.
Accruals and prepayments
Used this Paid this To get from
year? year? expense to
cash outflow:
OB prepaid
expense
CB prepaid
expense
OB accrued
expense
CB accrued
expense
What have we
STATEMENT OF
done?
COMPREHENSIVE
INDIRECT INCOME
Profit before DIRECT
tax 79 000 R
Cash from
Revenue/ 550 000
Adjustments: 560 000 customers
Sales Cash to
Working (466 500)
capital Cost of sales (392 000) suppliers
changes: Cash from
Gross profit 168 000 operations 83 500
Cash from
operations 83 500 Operating Interest
expenses (86 000)
Tax
Interest Finance
(3 000) Net Cash
Tax costs from
Net Cash from Profit before operating
tax 79 000 activities
operating
activities Tax expense (24 000)
Investing
Profit for the Financing
55 000
Investing year
Financing
Operating activities
• The following items must be separately disclosed on
the face of the cash flow statement.
Operating Investing Financing
Interest  
received
Interest paid  
Dividends  
received
Dividends paid 
Taxation paid 
Note: IAS7 allows dividends paid to be disclosed
as cash flows from operating activities to assist
users in determining whether the entity can pay
dividends out of cash from operations.
Shareholders for dividends Cash generated from
83 500
19 00 Balance operations
Bank 0 (SoFP) 8 000 Interest paid (3 000)
Balance 12 00 Dividend Dividends paid (19 000)
(SoFP) 0 (SCE) 23 000
31 00 Tax paid (18 000)
31 000
0
SARS (tax payable) Interest

18 00 Balance 18 00 Bank 3 000P + L 3 000
Bank 0 (SoFP) 0
Tax
Balance 24 00 expense 24 00
(SoFP) 0 (P + L) 0 There was no accrued or
42 00 42 00 prepaid interest expense on
0 0 SoFP.
Amount on I/S = amount paid
Dividends tax
• Payments of dividends tax paid are not disclosed as
tax paid on the SCF.
• Disclosed as dividends paid
• The total dividend declared is paid to the

shareholders (and on their behalf to SARS).
Investing activities
• What changes can happen to non-current assets
during the financial period under review?
• Non-current Assets can be:

– Acquired (cash or credit)
– Disposed of (cash or credit)
– Revalued (non-cash)
– Depreciated (non-cash)
– Impaired (non-cash).
Financing activities section
Cash flows relating to the loan

• Cash inflows (loans raised) and cash outflows (loans
repaid) are shown separately on the CFS.
Net proceeds from share issue

• Cash inflows (shares issued) and cash outflows
(refunds, share issue costs, underwriters’
commission) from a share issue are reported as a
single line item on the CFS.
Investing/financing activities
Cash flows from investing activities
Acquisition of non-current assets (32 000)
Property, plant and equipment

Balance (SoFP) 90 000
Bank (C/F) 32 000Balance (SoFP) 122 000
122 000 122 000
Cash flows from financing activities

Decrease in long-term loan (5 000)
Interest-bearing loans
Bank (C/F) 5 000Balance (SoFP) 25 000
Balance (SoFP) 20 000
25 000 25 000
R83 500
Cash flows from operating – R3 000
activities 43 500
Cash generated from operations 83 500
– R19 000
Interest paid (3 000)
– R18 000
Dividends paid (19 000) Direct and
Tax paid (18 000) indirect format
Cash flows from investing (32 000)
activities exactly the
Acquisition of non-current assets (32 000) same from
Cash flows from financing
(5 000)
cash generated
activities from operations
Decrease in long-term loan (5 000)
amount.
Increase in cash 6 500
Cash at beginning of period 0 R43 500
Cash at end of period 6 500 – R32 000
– R5 000
More about investing cash flows
Accumulated
Cost Depreciation Carrying Amount
X1 X0 X1 X0 X1 X0
Land 127 000 67 000 127 000 67 000
Vehicles 121 000 100 000 33 520 25 000 87 480 75 000
Furniture 50 000 50 000 13 184 10 590 36 816 39 410
• PPE purchased for cash.

• A motor vehicle was sold for R15 000 cash.
The vehicle has a CA = R12 000.
• The vehicle originally cost R25 000.
• A replacement model was purchased.
• No other purchases or disposals of vehicles
occurred during the year.
• Land was purchased five years ago.
• Land was revalued during the year.
• No furniture was sold or acquired during the year.
Accumulated
Cost Depreciation Carrying amount
X1 X0 X1 X0 X1 X0
Land 127 000 67 000 127 000 67 000
Vehicles 121 000 100 000 33 520 25 000 87 480 75 000
Furniture 50 000 50 000 13 184 10 590 36 816 39 410
Vehicles - Cost
Balance 100 000Asset disposal 25 000
Bank
46 000Balance 121 000
(SCF)
146 000 146 000
Difference of R21 000 (R121 000 – R100 000) takes

into account the cost of the vehicle sold (R25 000) and
the replacement vehicle purchased (cash flow).
Accumulated Accumulated depreciation
Depreciation
X1 X0 relating to disposal
Land removed from account
Vehicles 33 520 25 000 CV = R12 000,
Furniture 13 184 10 590
Cost = R25 000
Accumulated depreciation on vehicles
Asset
disposal 13 000Balance 25 000
Balance 33 520Depreciation 21 520
46 520 46 520
Accumulated depreciation on furniture

Balance 13 184Balance 10 590
Depreciation 2 594
13 184 13 184
Disposal of PPE
This is the cash flow.
Vehicles - Cost
Balance 100 000Asset disposal 25 000
Bank (SCF) 46 000Balance 121 000
146 000 146 000
Asset disposal
Accumulated
Vehicles 25 000 depreciation 13 000
Profit on
disposal 3 000Bank 15 000
28 000 28 000
This is NOT a cash flow.

Revaluation
Is this a cash flow?
Land
Balance 67 000
Revaluation gain 60 000Balance 127 000
127 000 127 000
• Where in the financial statements would

you be able to see if there had been a
revaluation during the year?

Chapter 14 - Part 3

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Statement of cash flows

SARS (tax payable) Interest

• Disclosed as dividends paid

• The total dividend declared is paid to the

• Non-current Assets can be:

Cash flows relating to the loan

Net proceeds from share issue

Property, plant and equipment

Cash flows from financing activities

• PPE purchased for cash.

Difference of R21 000 (R121 000 – R100 000) takes

Accumulated depreciation on furniture

This is NOT a cash flow.

Is this a cash flow?

• Where in the financial statements would

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