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Interest expense of cash flow statement

Forums › ACCA Forums › ACCA FR Financial Reporting Forums › Interest expense of cash flow statement

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by f6ali.
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  • May 8, 2020 at 8:55 am #570299
    Vu
    Member
    • Topics: 46
    • Replies: 87
    • ☆☆

    Dear Sir,

    Could you please explain Example KANE CO of BPP Text book where interest payable is added back to profit before tax and interest paid (at the same amount) is subtracted from profit before tax based on the following SPLOCI

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

    Sales 720
    Raw materials consumed 70
    Staff cost 94
    Depreciation 118
    Loss on disposal of non-current assets 18

    Operating profit 420
    Interest payable 28
    Profit before tax 392
    Taxation 124
    Profit for the year 268

    What I do not understand is if the interest payable is only recorded as accrual and not actually paid in the year why they have accounted for such adjustment by subtracting it from accounting profit before tax?

    May 9, 2020 at 2:24 pm #570406
    f6ali
    Member
    • Topics: 10
    • Replies: 342
    • ☆☆☆

    If you want to ask directly from the tutor, kindly start a thread in Ask the Tutor Forums. This forum is for students to help each other.

    If no additional data is part of this question, then i’m assuming that interest paid was exactly equal to the interest expense charged in SPLOCI.

    IAS 7 has provided a detailed proforma for cash flow statement where interest expense charged in SOPL should first be added back to Profit before tax (PBT). This would give a figure equal to Operating profit (or PBIT). Then a number of non-cash items and non-operating cash flows need to be adjusted to arrive at net cash generated from operations. Actual interest paid and tax paid are then deducted to arrive at cash flow from operations.

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