LXL Gr12Acc 01 Cash-Flow-Statement 16apr2015
LXL Gr12Acc 01 Cash-Flow-Statement 16apr2015
LXL Gr12Acc 01 Cash-Flow-Statement 16apr2015
3. DIVIDENDS PAID
Amount owing at the end of the previous year
Total dividends for year paid and declared
Amount owing at the end of the current year
Amount paid
4. TAXATION PAID
Amount owing at the end of the previous year
Income Statement amount
Amount owing at the end of the current year
Amount paid
Sometimes the question will require you to draw up an appropriation account or work backwards from
a formula (e.g. Earnings per share) to get this figure.
b) Depreciation: This is the total depreciation for the year, from the income statement. It must be
added back to profit before taxation because it is a non-cash item that was originally subtracted to
get the net profit. You may be required to calculate depreciation for the year on fixed assets to get
this figure (e.g. the question might not tell you how much the depreciation was, but tell you that
Equipment and Vehicles are depreciated at a rate of 15% on cost).
c) Interest expense: This is the total interest expense for the year as shown in the income statement.
It must also be added back to profit before taxation because it is a cash flow from financing activities.
Again, the question might require you to calculate interest by giving you a mortgage bond, an interest
rate and various repayments.
d) Operating profit before changes in working capital: This is a + b + c.
e) Increase/decrease in inventory: Calculate this figure by subtracting inventory at the beginning of
the year from inventory at the end of the year to see how much inventory has increased/decreased
during the year. Remember that inventory = trading stock + consumable stores on hand. If you have
an increase, you must subtract this figure while a decrease must be added.
f) Increase/decrease in trade and other receivables: Calculate this figure by subtracting trade and
other receivables at the beginning of the year from trade and other receivables at the end of the year.
It is very important to take note of the following:
Trade and other receivables = Debtors + Accrued income + Prepaid expenses
You must not include any accrued income or prepaid expenses that involve SARS (income
tax) or interest because there is an adjustment for these later on. So remember to exclude
SARS and Interest from this calculation.
Again, just like inventory, you must add a decrease and subtract an increase.
g) Increase/decrease in trade and other payables: Calculate this figure by subtracting trade and other
receivables at the beginning of the year from trade and other payables at the end of the year. It is
very important to take note of the following:
Trade and other payables = Creditors + Accrued expenses + Deferred income
You must not include any accrued expenses or deferred income that involve SARS (income
tax), shareholders for dividends or interest because there is an adjustment for these later on.
So remember to exclude SARS, Shareholders for dividends and Interest from this
calculation.
This time, you must add an increase and subtract a decrease.
h) Cash generated from operations: This is the operating profit before changes in working capital (d)
plus/minus the changes in working capital (e, f and g). Rewrite this figure next to cash generated
from operations on the face of the cash flow statement, like this:
CASH FLOW STATEMENT FOR YEAR ENDED...
Notes
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations 1 h
Interest paid i
Dividends paid 3 j
Taxation paid 4 k
Now return to the face of the cash flow statement to fill in the other missing figures. Start with
interest, dividends and taxation paid. Remember that these are all outflows of cash and must be
shown in brackets.
i) Interest paid: This is the total amount of interest actually paid during the year – i.e. the amount of
cash that left the business’ bank account to pay interest. Use the following calculation:
Interest paid = Amount in income statement + Interest owed at the beginning of the year – Interest
owed at the end of the year
The interest owed at the beginning of the year will be an accrued expense, as will the interest owed at
the end of the year. The amount in the income statement is the same figure as in (c) in note 1.
Sometimes, the business will have prepaid some of its interest for the year. If this happens, the
calculation becomes:
Interest paid = Amount in income statement – Prepaid interest at the beginning of the year + Prepaid
interest at the end of the year.
Notice how the signs change in the calculation. Make sure you understand this calculation clearly!
j) Dividends paid: This is the total amount of dividends actually paid during the year (excluding
dividends declared but not paid, and including dividends declared last year but paid this year). The
calculation can be done in note 3:
3. DIVIDENDS PAID
Amount owing at the end of the previous year s
Total dividends for year paid and declared t
Amount owing at the end of the current year u
Amount paid v
s = Balance on the shareholders for dividends account at the beginning of the year.
t = Total dividends (paid + declared) for the year. This is the balance on the Ordinary Share
Dividends account for the year, but the question might require you to calculate this figure (e.g. by
saying that a dividend of 45c per share was declared if there are 100 000 ordinary shares)
u = Balance on the shareholders for dividends account at the end of the year.
v=s+t–u
Alternative method
Note that you may also use a T-account to calculate the amount paid – if you draw up your
Shareholders for Dividends and Ordinary Share Dividends accounts, then the amount paid is the
Bank amount on the Debit side of these accounts added together. For example, if your ledger
accounts look like this,
+ DIVIDENDS ON ORDINARY SHARES -
Bank CPJ (a) Appropriation GJ
Shareholders for GJ
dividends
n) Proceeds from the issue of share capital: This is the total amount of cash received from the issue
of shares. Calculate it as follows:
Ordinary share capital at the end of the year – Ordinary share capital at the beginning of the year)
This figure is an inflow of cash and will therefore be positive. There could also be a repurchase of
shares, in which case the figure is negative.
o) Proceeds from/Repayments of long-term borrowings: This shows the change in long-term
mortgage loans. Simply take the balance on the loan account at the end of the year and subtract the
balance on the loan account at the beginning of the year. If this figure is negative, it represents a
repayment of the loan; if it’s positive, it means more money was borrowed.
The final section of the cash flow statement involves the change in cash and cash equivalents:
NET CHANGE IN CASH AND CASH EQUIVALENTS 2 p
Cash and cash equivalents: beginning of year 2 q
Cash and cash equivalents: end of year 2 r
2 CASH AND CASH EQUIVALENTS Net change Year 2 Year 1
Bank
Cash float
Petty cash
p r q
p) Net change in cash and cash equivalents: This shows by how much the business’ cash position
has changed over the year.
To calculate p on the face of the cash flow statement, simply add the three sections of the cash flow
statement together – i.e. cash flows from operating activities + cash flows from financing activities +
cash flows from investing activities (subtract them if they are negative!).
q) Cash and cash equivalents: beginning of year: This is the sum of Bank, Cash float and Petty cash
at the beginning of the year.
r) Cash and cash equivalents: end of year: This is the sum of Bank, Cash float and Petty cash at the
end of the year.
Complete note 2 by filling in the “Net change” column. Here, you subtract year 1 from year 2 for each
of the three – Bank, Cash float and Petty cash. Add these totals together and they should equal p,
the same figure on the face of the cash flow statement.
Section B: Exercises
Question 1
Cash Flow Statements (30 marks, 20 minutes) Rating: *
Bailey Ltd has an authorised share capital of 500 000 ordinary shares. Shares in issue were sold to
the public at the incorporation of Bailey Ltd.
Instructions:
1.1. Prepare the following with regards to the cash flow statement for 2007:
1.1.1. Note showing the reconciliation between profit before taxation and cash generated from
operations (20)
1.1.2. Calculation of dividends paid (5)
1.1.3. Calculation of taxation paid (5)
Extract from the Income Statement of Bailey Stores for the year ended 28 February 2007
Sales 600 000
Income tax 60 000
Net profit for the year after tax 90 000
Interest on loans 12 900
Depreciation: Equipment ?
Depreciation: Vehicles 27 200
Answer Sheets
1.1. Notes to the Cash Flow Statement of Bailey Limited as at 28 February 2007 (20)
1.1.1. Reconciliation between profit before taxation and cash generated from
operations
Section C: Solutions
Question 1
1.1 Notes to the Cash Flow Statement of Bailey Limited as at 28 February 2007 (20)
1.1.1 Reconciliation between profit before taxation and cash generated from operations