I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

PART F: PREPARING BASIC FINANCIAL STATEMENTS 

 

390

 

2.1 Example: preparation of a statement of cash flows 

Colby Co's statement of profit or loss for the year ended 31 December 20X2 and statements of financial 

position at 31 December 20X1 and 31 December 20X2 were as follows. 

COLBY CO 

STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 20X2 

 

 

 $'000 

 

 $'000 

Revenue 

 

 

 720 

Raw materials consumed 

 

 70 

 

Staff costs 

 

 94 

 

Depreciation 

 

 118 

 

Loss on disposal of non-current asset 

 

  18 

 

 

 

 (300) 

 

 420 

Interest payable 

 

   (28) 

Profit before tax 

 

  392 

Taxation 

 

 (124) 

Profit for the year 

 

  268 

COLBY CO 

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER  

 

20X2 

20X1 

 

 

$'000 

 

$'000 

 

$'000 

 

$'000 

Assets 

 

 

 

 

Property, plant and equipment 

 

 

 

 

 

  Cost 

 1,596 

 

 1,560 

 

 

  Depreciation 

    318 

 

    224 

 

 

 

 1,278 

 

 1,336 

 

Current assets 

 

 

 

 

 

  Inventory 

 24 

 

 20 

 

 

  Trade receivables 

 76 

 

 58 

 

 

  Bank 

      48 

 

   

 

  56 

 

 

 

    148 

 

    134 

 

Total assets 

 

 1,426 

 

 1,470 

 

Equity and liabilities  

 

 

 

 

 

Capital and reserves 

 

 

 

 

 

  Share capital 

 360 

 

 340 

 

 

  Share premium 

 36 

 

 24 

 

 

  Retained earnings 

    716 

 

  

 

514 

 

 

 

 1,112 

 

    878 

 

Non-current liabilities  

 

 

 

 

 

  Non-current loans 

 

  200 

 

 500 

 

Current liabilities 

 

 

 

 

 

  Trade payables 

 12 

 

 6 

 

 

  Taxation 

    102 

 

   

  

86 

 

 

 

    114 

 

      92 

 

 

 1,426 

 

 1,470 

During the year, the company paid $90,000 for a new piece of machinery. 

Dividends paid during 20X2 totalled $66,000 and interest paid was $28,000. Colby Co treats dividends 

paid as an operating cash flow. 

Required  

Prepare a statement of cash flows for Colby Co for the year ended 31 December 20X2 in accordance 

with the requirements of IAS 7, using the indirect method. 

BPP Tutor Toolkit Copy

---

CHAPTER 22  

//

  STATEMENTS OF CASH FLOWS 

 

391 

Solution 

Step 1 

Set out the proforma statement of cash flows with the headings required by IAS 7. You 

should leave plenty of space. Ideally, use three or more sheets of paper, one for the 

main statement, one for the notes and one for your workings. It is obviously essential to 

know the formats very well. 

Step 2 

Begin with the reconciliation of profit before tax to net cash from operating activities 

as far as possible. When preparing the statement from statements of financial position, 

you will usually have to calculate such items as depreciation, loss on sale of non-current 

assets, profit for the year and tax paid (see Step 4). Note that you may not be given the 

tax charge in the statement of profit or loss. You will then have to assume that the tax 

paid in the year is last year's year-end provision and calculate the charge as the 

balancing figure. 

Step 3 

Calculate the cash flow figures for dividends paid, purchase or sale of non-current assets, 

issue of shares and repayment of loans if these are not already given to you (as they may 

be). 

Step 4 

If you are not given the profit figure, open up a working for the trading, income and 

expense account. Using the opening and closing balances, the taxation charge and 

dividends paid and proposed, you will be able to calculate profit for the year as the 

balancing figure to put as the net profit in the net cash flow from operating activities 

section. 

Step 5 

You will now be able to complete the statement by slotting in the figures given or 

calculated. 

Note: 

These steps show you how to prepare a statement of cash flows from scratch, which is good practice for 

your exam and later for F7. Your FFA exam is a CBE, so you will be given the statement of cash flows 

pro-forma and you just have to fill in the numbers and state whether they are added to or deleted from 

cash flows. See the additional MTQ on the ACCA website for an example. 

COLBY CO 

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 20X2 

 

 

$'000 

 

$'000 

Net cash flow from operating activities 

 

 

Profit before tax 

 

392 

 

Depreciation charges 

 

 118 

 

Loss on sale of property, plant and equipment 

 

 18 

 

Interest expense 

 

28 

 

Increase in inventories 

 

 (4) 

 

Increase in receivables 

 

 (18) 

 

Increase in payables 

 

    6 

 

Cash generated from operations 

 

 540 

 

 

 

 

Interest paid 

 

(28) 

 

Dividends paid  

 

(66) 

 

Tax paid (86 + 124 – 102) 

  

(108) 

 

Net cash flow from operating activities 

 

 

338 

 

 

 

Cash flows from investing activities 

 

 

Payments to acquire property, plant and equipment 

 

(90) 

 

Receipts from sales property, plant and equipment (W) 

   12 

 

Net cash outflow from investing activities 

 

 

(78) 

 

 

 

BPP Tutor Toolkit Copy

---