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CASH FLOW STATEMENTS
Regulatory Framework
Accounting Standards
a
...

Standard Headings for a Cashflow statement:
i
...

Examples of cash flows from operating activities are:
 Cash receipts from the sale of goods and the rendering of services;
 Cash receipts from royalties, fees, commissions and other revenue;
 Cash payments to suppliers for goods and services;
 Cash payments to and on behalf of employees;
 Cash receipts and cash payments of an insurance enterprise for premiums and claims, annuities and other
policy benefits;
 Cash payments or refunds of income taxes unless they can be specifically identified with financing and
investing activities;
 Cash receipts and payments from contracts held for dealing or trading purposes
...

Direct Method
 Cash received from customers
 Cash paid to suppliers
 Cash paid to employees
 Cash paid for operating expenses
 Interest paid
 Taxes paid
 Dividends paid
 Net cash from operating activities
...


ii
...

Examples of cash flows arising from investing activities are:
 Cash payments to acquire property, plant and equipment, Intangible and other long term assets;
 Cash receipts from sales of property, plant and equipment, intangibles and other long-term assets;
Cash Flow Statements

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




Cash payments to acquire equity or debt instruments of other enterprises and interest in joint ventures
(other than payments for those instruments considered to be cash equivalents or those held for dealing
or trading purposes)
Cash receipts from sales of equity or debt instruments of other enterprises and interest in joint ventures
(other than payments for those instruments considered to be cash equivalents or those held for dealing
or trading purposes)
Cash advances and loans made to other parties (other than advances and loans made by financial
institutions)
...
Financing Activities
Activities that cause changes to contributed equity and borrowings of an entity
Examples of cash flows arising from financing activities are:
 Cash proceeds from issuing shares or other equity instruments;
 Cash payments to owners to acquire or redeem the enterprise’s shares;
 Cash proceeds from issuing debentures, loans, loan notes, bonds mortgages and other short or long-term
borrowings;
 Cash repayments of amounts borrowed; and
 Cash payments by a lessee for the reduction of the outstanding liability relating to a finance lease
...


ILLUSTRATIONS
The balance sheets of Ndom and Sons Company Ltd
...
I
...

Building at cost and valuation
Plant and Machinery at cost
Fixtures and fittings at cost
Stocks
Debtors
Treasury Bills
Cash and bank

600
3,200
3,020
580
1,020
880
100
220
9,620
Profit and Loss Account for the year ended 31st December, 2003
Cash Flow Statements

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Earnings before interest and tax
Less: Debenture interest
Profit before tax
Tax
Profit after tax

¢million
1,860
120
1,740
750
990

Income Surplus Account for the year ended 31st December, 2003
¢million
Balance b/f
280
Transfer from Profit and Loss Account
990
Proposed dividend
(250)
Bonus issue
(200)
820
The following additional information is provided:
(i)
During the year ¢250 million of capital W
...
P
...

(ii)

In February 2003, an old machine with an initial cost of ¢400 million and accumulated depreciation of ¢300
million was traded in for a machine valued at ¢250 million
...


(iv)

Premium of ¢50 million was paid on redemption of debentures and charged to Profit and Loss Account
...


(vi)

During the year 10,000 ordinary shares were issued as bonus to the existing shareholders for ¢200 million
...

(Cash Flow Statements)
...
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Reconciliation of Operating Profit to Cash flow from operating activities:
¢’million
Earnings before interest and tax
Depreciation:
Plant and Machinery
Fixtures and Fittings
Premium on Debenture redemption
Profit on sale of Machinery
Loss on sale of Fixtures
Increase in Stock
Increase in Debtors
Increase in Creditors

480
100

ii
...
Analysis of Changes in Financing
Share Capital
¢’million
Balance (1/1/03)
2,500
Conversion of Debentures
300
Bonus issue
200
New issue
1,900
Redemption of Debentures
____
Balance (3 1/1 2/03)
4,900

Bank
Bal c/d

Corporate Tax
¢’m
520
...
00 Compr Income
1,180
...
00
750
...
00

Depreciation of Plant & Machinery
¢’m
¢’m
Disposal
300
...
00
Bal c/d
1,080
...
00
1,380
...
00

Disposal of Plant Account
¢’m
400
...
Depr
150
...
00

¢’million
1,860

¢’m
300
...
00
550
...
00 Balance b/d
300
...
00

¢’m
150
...
00
400
...
00 Balance b/d
260
...
00 Compr Income
100
...
00
360
...
00 Disposal
Acquisitions 200
...
00

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00
580
...
00

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...
00 Acc
...
00
Proceeds on sale
30
...
00
100
...
00

Capital Work in Progress
¢’m
Balance b/d
400
...
00 Balance c/d
850
...
00
600
...
00

Plant and Machinery Account
¢’m
¢’m
Balance b/d 2,400
...
00
Trade in
250
...
00 Balance c/d
3,020
...
00
3,420
...
00
Capital W
...
P
...
00
Acquisitions
950
...
00

¢’m

3,200
...
00

Illustration
The following financial statements relating to the 2010 financial year (together with comparable figures for 2009)
were submitted by the CFO of Oforisuo Ltd to the audit committee for preliminary discussion before submission
to the Board of Directors for approval:
Income Statement for the year ended 31 December
2009
GH¢'000
10,000
...
00)
2,000
...
00)
(600
...
00)
1,150
...
00)
750
...
00
840
...
00

2009
GH¢'000
3,720
...
00
4,520
...
00
960
...
00
10,000
...
00
(9,680
...
00
80
...
00
(240
...
00)
(100
...
00
(320
...
00

1,620
...
00
100
...
00
7,320
...
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...
00
200
...
00
2,880
...
00

1,200
...
00
2,620
...
00

100
...
00

800
...
00
860
...
00
420
...
00
300
...
00
10,000
...
00
200
...
00
2,540
...
00

The following supporting information is available:
i) An item of plant with a carrying amount of GH¢480,000 was sold at a loss of GH¢180,000 during the year
...

ii) Depreciation of GH¢560,000 was charged (to cost of sales) for property, plant and equipment in the year
ended 31 December 2010
...
There was no
purchase or sale of investment property during the year
...

iv) There was an issue of new share for cash on 1 July 2010
...
There were no bonus issues of shares during the year
...
The amounts shown in current liabilities as
warranty provision are an accurate assessment, (based on past experience) of the amount of claims likely to
be made in respect of the warranties outstanding at each year end
...

vi) The only movements in the retained earnings during the year ended 31 December 2010 were the earned
profit and dividend payment
...
60 per share
...
He did not understand why in spite of profit of GH¢60,000, the cash position should worsen
from a positive balance of GH¢100,000 in December 2009 to a deficit of GH¢420,000 in December 2010
...

Required:
a) Prepare a statement of cash flows for Oforisuo for the year to 31 December 2010 in accordance with IAS 7
‘Statement of Cash flows’ to explain the situation to the worried director
...

(5 marks)
Cash Flow Statements

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(Total 20 marks)
Solution
OFORISUO LTD
Cash Flow Statement for the year ended 31st December, 2010
OPERATING ACTIVITIES
GH¢'000 GH¢'000
Cash flow from operating activities
1,340
...
00)
Dividend paid
(300
...
00)
(480
...
00
INVESTING ACTIVITIES
Proceeds on sale of Plants
300
...
00) (2,580
...
00)
200
...
00

Increase in cash & cash Equivalent
Cash & Cash Equivalents 1/1/10
Cash & Cash Equivalents (31/12/10)

1,200
...
00)
100
...
00)

NOTES
i
...
00
Depreciation of PPE
560
...
00
Valuation Gain
(40
...
00)
Increase in Trade Receivable
120
...
00
Increase in Warrant Provision
200
...
00
ii
...
Analysis of Changes in Financing

Balance (1/1/10)
New Issue
Re-Issue
Redemption of Loan Note
Balance (3 1/1 2/10)

Cash Flow Statements

Stated
Capital
GH¢'000
1,200
...
00
3,000
...
00
200
...
00

(800
...
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...
00 Balance b/d
400
...
00

¢’000
160
...
00
480
...
00 Depr
560
...
00 Disposal
480
...
00 Balc/d
5,760
...
00
6,800
...
com

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