Group statement of cash flows

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1.1 Consolidated statement of cash flows for the year ended [date]

	$m	$m
Operating Activities
Operating profit	X
Depreciation	X
Impairment	X
Gain/Loss on Disposal of Tangibles	(X)/X
Gain/Loss on Sale of Subsidiary	(X)/X
Inventory	(X)/X
Receivables	(X)/X
Payables	X/(X)
Cash generated from operations	X
Tax Paid	(X)
Cash generated from operating activities		X
Investing Activities
Sale Proceeds from Tangibles	X
Purchase of Tangibles	(X)
Dividend Received from Associate	X
Acquisition/Disposal of Sub	(X)/X
Interest received	X
Dividends Received	X
Cash generated from investing activities		X
Financing Activities
Proceeds from Share Issue	X
Loan Issue/Repayment	X/(X)
Interest paid	(X)
Dividend paid to NCI	(X)
Dividend paid to parent shareholders	(X)
Cash generated from financing activities		X
Change in cash and cash equivalents		X/(X)
Opening cash and cash equivalents		X
Closing cash and cash equivalents		X

2 Dividend paid to the non-controlling interest

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Non-controlling interest
		B/f	X

Dividend paid (β)	X	Profit	X

Disposal of sub.	X	Acquisition of sub.	X

C/f	X

	X		X

Example 1 – Dividend paid to non-controlling interest

Group statement of profit or loss for the year-ended 31 December 2015 (extract)

	$m
Profit before tax	91
Taxation	(31)
Profit for the year	60

Attributable to:
Ordinary shareholders of the parent	54
Non-controlling interest	6

Group statement of financial position as at 31 December 2015 (extract)

	2015 $m	2014 $m
Equity
Non-controlling interests	115	110

Calculate the dividend paid to the non-controlling interests to appear in the group statement of cash flows for the year-ended 31 December 2015.

3 Dividend received from associate

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Associate
B/f	X

Profit	X	Dividend paid (β)	X


		C/f	X

	X		X

Example 2 – Dividend received from associate

Group statement of profit or loss for the year-ended 31 December 2015 (extract)

	$m
Operating profit	83
Finance costs	(12)
Share of profit of associate	20
Profit before tax	91
Taxation	(31)
Profit for the year	60

Attributable to:
Ordinary shareholders of the parent	54
Non-controlling interest	6

Group statement of financial position as at 31 December 2015 (extract)

	2015 $m	2014 $m
Assets
Non-current assets
Investment in associate	190	180

Calculate the dividend received from associate to appear in the group statement of cash flows for the year-ended 31 December 2015.

4 Acquisition/disposal of subsidiary

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The acquisition or disposal of a subsidiary during the year is shown as a net cash outflow or inflow within investing activities to show the net cash paid to acquire the subsidiary or net cash received on disposal of a subsidiary.

An indirect adjustment is also required to adjust for any other balances (e.g. PPE, inventory, receivables, and payables) consolidated as part of the acquisition or disposed of as part of the disposal.

Only cash movements enter this statement. Borrowings that arrive inside an acquired subsidiary’s net assets, and the liability recognised when a lease begins, are non-cash and appear nowhere in it. Where there is both a new loan and a repayment, present the inflow and the outflow separately rather than one net figure.

Working capital movement

	Inventory	Receivables	Payables
Opening	X	X	X
Acquisition/(disposal)	X/(X)	X/(X)	X/(X)
Expected	X	X	X
Closing (actual)	X	X	X
Movement	↑or ↓	↑or ↓	↑ or ↓

Example 3 – Acquisition of a subsidiary

Pablo Group statement of financial position as at 31 December 2015 (extract)

	2015 $m	2014 $m
Non-current assets
Property, plant and equipment	520	490
Current assets
Inventory	145	195
Receivables	130	109
Cash and cash equivalents	50	75

Current liabilities
Trade payables	85	67

The following information relates to the financial statements of the Pablo Group:

On 1 June 2015, Pablo acquired all of the share capital of Juan for $50 million.

The fair value of the identifiable net assets and liabilities at the date of acquisition that have been reflected in the year-end balances of the Pablo Group are as follows:

	$m
Property, plant and equipment	15
Inventory	8
Receivables	6
Cash and cash equivalents	5
Payables	(3)

Show how the above would be dealt with in the consolidated statement of cash flows for the year-ended 31 December 2015.

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Example 4 – Group statement of cash flows

The following draft group financial statements relate to Dove, a public limited company.

Dove Group statement of financial position as at 31 December 2015

	2015 $m	2014 $m
Assets:
Non-current assets
Property, plant and equipment	1,745	1,250
Goodwill	1,184	1,230
Investment in associate	200	190
	3,129	2,670
Current assets:
Inventory	530	580
Receivables	456	390
Cash and cash equivalents	190	230
	1,176	1,200
Total assets	4,305	3,870

Equity and liabilities:
Share capital	1,700	1,500
Retained earning	1,060	900
	2,760	2,400
Non-controlling interest	575	540
	3,335	2,940

Non-current liabilities
Long-term borrowings	300	200
Deferred tax	220	190

Current liabilities
Trade payable	300	430
Current tax payable	150	110
	450	540
Total liabilities	970	930
Total equity and liabilities	4,305	3,870

Dove group statement of profit or loss for the year-ended 31 December 2015

	$m
Revenue	1,765
Cost of sales	(1,185)
Gross profit	580
Distribution costs	(100)
Administrative expenses	(90)
Operating profit	390
Finance costs	(55)
Share of profit of associate	40
Profit before tax	375
Taxation	(95)
Profit for the year	280

Dove group statement of changes in equity for the year-ended 31 December 2015

	Equity shares	Retained earnings		NCI	Total
	$m	$m		$m	$m
B/f	1,500	900	2,400	540	2,940
Issue of share capital	200		200		200
Dividends		(65)	(65)	(20)	(85)
Total comprehensive income for the year		225	225	55	280
Transfer to retained earnings
C/f	1,700	1,060	2,760	575	3,335

The following information relates to the financial statements of the Dove Group:

On 1 June 2015, Dove acquired all of the share capital of Fred for $50 million. The fair value of the identifiable net assets and liabilities at the date of acquisition that have been reflected in the year-end balances of the Dove Group are as follows:

	$m
Property, plant and equipment	13
Inventory	20
Receivables	15
Cash and cash equivalents	3
Payables	(9)
	42

Goodwill arising on this transaction was $8m.

Dove owns 20% of an associate. The associate made a profit for the year of $200 million and paid a dividend of $150 million.
During the year Dove charged depreciation of $130 million on its property, plant and equipment. It sold property, plant and equipment with a carrying value of $43million for $50 million

Calculate the following balances to be included in the Dove Group statement of cash flows for the year-ended 31 December 2015: (i) Cash generated from operations, (ii) Net cash paid to acquire the subsidiary, (iii) Dividend paid to the non-controlling interests, and (iv) Dividend received from the associate.

Example Answer 4

(i)

	$m
Operating Activities
Operating profit
Depreciation
Impairment (1230 + 8 - 1184)
Profit on disposal of PPE
Inventory
Receivables
Payables
Cash generated from operations

(ii) Net cash on acquisition of the subsidiary = $47 million

Cash paid to acquire subsidiary = $50 million

Less: cash in subsidiary = $3 million

Net cash = $47 million

(iii) Dividend paid to the non-controlling interests = $20 million

(iv) Dividend received from associate = $30 million

Associate
B/f		190

Profit	(20% x 200)	40	Dividend paid (β)	30


			C/f	200

		200		200

Workings

Working capital movement

	Inventory	Receivables	Payables
Opening
Acquisition
Expected
Closing (actual)
Movement	70↓	51↑	139↓

5 Other cash flow issues

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Format

You will remember from your FR studies that there is an alternative format for cash flow statements known as the Direct Method. Companies using this method report operating cash flows in a different way:

Operating CF
Receipts from customers	X
Payments to suppliers	(X)
etc

Although it is unlikely that you would be asked to draft cash flow extracts using the direct method you should learn the following points:

The direct method is preferred by IAS 7 because it gives users information not readily otherwise available in the financial statements.
The direct method is not normally used by companies, because, to do so, would take extra time and create additional expense.

Pensions

Pensions should de dealt with as follows:

Add back service costs in operating cash flows as a non-cash-item (like depreciation).
Deduct contributions paid in operating cash flows as a cash outflow.

IFRS 18 requires that:

Interest received and dividends received MUST be classified as INVESTING activities.
Interest paid and dividends paid MUST be classified as FINANCING activities.
Where the indirect method is used, the cash flow statement must start with OPERATING PROFIT.

	2015 $m
Operating activities
Increase in inventory (W)
Increase in receivables (W)
Increase in payables (W)

Investing activities
Acquisition of subsidiary, net of cash (50 – 5)

Group statement of cash flows

1.1 Consolidated statement of cash flows for the year ended [date]

2 Dividend paid to the non-controlling interest

Example 1 – Dividend paid to non-controlling interest

Example Answer 1

3 Dividend received from associate

Example 2 – Dividend received from associate

Example Answer 2

4 Acquisition/disposal of subsidiary

Example 3 – Acquisition of a subsidiary

Example Answer 3

Example 4 – Group statement of cash flows

Example Answer 4

5 Other cash flow issues