Statement of Cash Flows (part b) Example 1 – ACCA Financial Accounting (FA) lectures
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Would dividends paid not be under Financing instead of operations? Thank you!
Nvm, just saw the last bit of the lecture, i understand it now
Great 🙂
there is workings to calculate the actual tax paid, but what about interest. Do we just assume that the whole amount of interest from Profit or loss is paid ?
Dear tutor,
Thank you for the lecture. I have one small question: is it fine under IFRS, if I move the item of interest paid of $1,000 that you showed under cash from operating activities to under the heading of cash from financing activities?
This came to my mind because in the lecture, you mentioned the movement of dividend paid into under cash from financing activities. I remember these two items are allowed to be classified in either of the 2 headings.
Thank you tutor!
For Paper FA it should be shown under cash from operating activities, as in the lecture.
Thank you tutor for your reply.
But that is allowed in practice? I mean.
Yes.
I am also confused by this input.
I understand that:
Profit before tax
Less: Interest expense (1000)
However, I don’t think the “Interest Paid” would necessarily be 1000 in the example 1.
True, although if the interest paid was different then there would be an opening or closing accrual for interest.
So basically if we want we can show interest paid in financing activities or operating activities, same with dividends paid or received, but tax is always be going to be in cash flow from operating activities at last.
Best explanation ever. Just to get a doubt off my head. I learned that tax payable in the beginning of year is the provision that must be paid later somewhere in the year and the entries are adjusted based on over provision or underprovision. I am trying to calculate cash paid under that method but i am not able to. Can you please elaborate on this further
At the start of the earthy were owing 30,000. The charge for the year is 39,000 and so if they had paid nothing they would be owing 69,000 at the end of the year. In fact they are only owing 20,000 at the end of the year and so they must have paid 49,000 during the year. This is nothing to do with any specific over or under provision.
Hello Sir
In the Non-Current Asset T-Account, if the opening balance is taken to be net book value of 410,000, how can we debit depreciation of 40000?
Please explain.
Sorry sir not debit but credit??
We don’t debit or credit anything. We are simply adjusting the profit to get a ‘cash’ profit because depreciation is not a cash item.
Sir should’nt interest and dividend paid be subracted from financing activity
hi, the first part when we reduce the interest form the profit before tax
can we add this part after the change in working capital under the tax paid…
??
The profit before tax is after charging interest. We add back the interest charged because we are required by accounting standards to then show the interest paid as a separate item.
Thanks for your replied.
How about where there is bank overdraft? It will just less from cash? But show in working?
I saw an example:
The dividend received during the year 30,000, we will record in investment.
And the dividend paid during the year 80,000, we record at financing activities.
why do we still need to record the dividend income of 30,000 in operating activities? if is required by accounting standards, why the dividend expense of 80,000 not record also in operating activities?
This is confusing. Thanks Sir John.
A bank overdraft is negative cash and is subtracted from other cash balances in arriving at the net cash figure. There is no requirement to show workings.
I do not know where you found the example. Dividend income is not shown as part of cash flow from operating activities. Dividends paid can be shown either under cash flows from operating activities or under cash flows from financing activities, as I explain in my lectures – either is allowed.
Hi John, I’m kinda confused with the
Profit before tax 100000
Add: interest 1000
But then at the last part of the
Less: Interest paid (1000)
Can you explain this?
Thanks.