- This topic has 0 replies, 1 voice, and was last updated 5 years ago by juve.
May 8, 2017 at 7:25 pm #385401juve
- Topics: 59
- Replies: 77
Hello dear tutor…
I hope that you are well.
I asked this question from F7 tutor about preparing cash flow using indirect method and he told me, I should ask this question from P2 tutor as it is in this paper’s syllabus.
This is extracted from IAS 7:
“We should start with PBT and then adjust for non cash items such as total exchange gain or loss”…
But in my opinion this is incorrect and we must do this:
we should adjust for exchange gain or loss on cash and cash equivalent Only and not total exchange gain or loss as opposed to what it is said in IAS 7 and then automatically show profit or loss on exchange gain or loss on rec. And pay. In working capital changes and show exchange gain or loss on cash and cash equivalent in the seperate line at the bottom of the cash flow )
Would you please take a look at this simple example:
A company has $1 cash and $2 rec.at the start of the year 1$=1000R and at the year end 1$=2000R…and assume that there is no other profit or loss for this co.
So its profit(R) is=1000+2000=3000
If we want to prepare cashflow(R) and adjust for total exchange gain or losd:
Total exchange gain (3000)
Increase in rec (2000)
Total cash flow (2000)
Cash at start 1000 Exchane gain on cash 1000
Cash at year end 0
Which is incorrect…
But if adjust only exchange gain on cash,our cash flow(R) will be as follows:
Exchange gain on cash (1000)
Increase in rec. (2000)
Total cash flow for the yr 0
Cash in advance 1000 Exchange gain on cash 1000
Cash at year end 2000
Which is correct…
So it seems that we must adjust for exchange gain or loss on cash and cash equivalent and not the total amount of exchange gain or loss…is it correct?
Thank you in advance…
And I am sorry if this text was too long…
- You must be logged in to reply to this topic.