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Dear tutor,
I have two questions when I was doing a questions regarding cash flow statement.
1. In my understanding, all the dividend income from subsidiary and associate should be ignored when preparing the consolidated income statement. In that case, considering the the dividend from subsidiary is an internal transfer, the adjustment is not needed. Only the dividend paid to NCI should be adjusted in the financing activities.
In the case of associate, I find there has been an item of “Dividend Received from Associate” under the investing activities in the Notes but no such line under the operating activities. Is it because the dividend from associate has been ignored in the first place where preparing the Consolidated P&L so that we dont need to “reclassify” the dividend income from the operating activities to investing activities?
2. Also, in the Notes of Chapter 7, there has been one line of “Dividends Received” under the investing activities. What does it stand for considering that the dividend from subsidiary has been ignored and dividend from associate has been included already?
3. I was doing a BPP question: question 16 Moyes. Not sure if you have known this one, I am a little confused about an explanation:
“On the disposal of Barham, the net asstets at disposal, including goodwill, are removed from the consolidated financial statements. Since Barham is overdrawn, this will have a positive cash flow effect for the group.”
Why does disposal of an overdraft subsidiary create a cash inflow? I understand disposal will create cash inflow, but does overdraft makes any difference?
I really appreciate your help.
Best regards,
Zheran
In future – one question per post please. 🙂
1. I think you are right. It must because they have not included the profit of the associate in calculating whatever number the cash flow starts with.
2. Dividends from companies that are not subsidiaries or associates.
3. If you get rid of an overdraft it is lovely because you don’t have to pay it off. So it will be a cash ‘inflow’.
Thank you Stephen! I did not expect it was this simple.
I forgot to include another question regarding the cash flow last time.
If there has been a deferred consideration for acqusition in 2 years which will be settled by cash, I think this will create a liability, right? When we apply the indirect method, there should a positive number under the investing activities.
However, if there has been a deferred consideration of shares exchange, will this create a liability? Im thinking there shouldnt be a liability, right? Because its an exchange. The cash flow should not be affected as well.
If you could clear up my confusion, I would really appreciate it!
DC – cash – no impact on CF until you pay the money
DC – shares – no impact on CF ………….. ever
CF = money in and out in current year
For DC-cash, isnt the same with liability. Like when we dont pay a liability by the end of the year, the liabiliy increases. When we use the indirect method, it should be treated as a cash inflow, although we havent pay the cash?
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