Statement of Cash Flows-International Accounting Standard (IAS) 7
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Transcript of Statement of Cash Flows-International Accounting Standard (IAS) 7
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8/12/2019 Statement of Cash Flows-International Accounting Standard (IAS) 7
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IAS 7 - Statement of
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Statement of cash flows
Executive summary
In general, the requirements under IFRS and US GAAP are quite similar.
There are some differences with regard to classification among operating, inve
financing activities. The most notable of these are the differences in interest anpaid and received:
Under IFRS, interest and dividends paid can be classified either as operating or finaInterest and dividends received can be classified either as operating or investing cas
Under US GAAP, interest paid, interest received and dividends received are all classcash flows. Dividends paid are classified as financing cash flows.
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Statement of cash flows
Content, format and classification
Cash flows are presented in three classifications:operating, investing and financing activities.
The totals from the three activities (operating,investing, financing) are summed and this balance isreconciled with the beginning and ending cash (andcash equivalents) balances.
Simil
Operating, investing and financing activities arespecifically defined.
Similar, except for soexplained on a later
IFRSUS GAAP
Both the direct and indirect method of presentingcash flows from operations are allowed.
Simil
SimilEntities must disclose their policy for determiningwhich items are cash equivalents.
Simil
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8/12/2019 Statement of Cash Flows-International Accounting Standard (IAS) 7
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Statement of cash flows
Content, format and classificationInterest and dividends
IFRS Permits an entity: (a) to clas
and dividends paid or receivoperating cash flows; or (b)interest and dividends paid cash flows and interest andreceived as investing cash
However, interest and dividclassified in a consistent maperiod to period.
US GAAP Requires that interest paid and interest
and dividends received be classified asoperating cash flows. Dividends paid area financing cash flow because they areconsidered a cost of obtaining resources.
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Statement of cash flows
In practice, there may be little practical significance to this difference because IASseparate disclosure of interest paid and received and of dividends paid and receiv
Summary of treatment of interest and dividends:
Content, format and classificationInterest and dividends
Cash flow classification
Transaction IFRS US GAAP
Interest paid Operating orfinancing Operating
Interest received Operating orinvesting OperatingDividends paid Operating or financing Financing
Dividends received Operating orinvesting Operating
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Statement of cash flows
Content, format and classificationIncome taxes
IFRS Requires that cash payments or refunds of
be classified as operating activities unless specifically identified with financing or inveIn that case, the tax cash flows may be clafinancing or investing activities, as appropr
Statements would not necessarily result in comparability with US GAAP since IFRS redisclosure of the total amount of income ta
US GAAP Requires that income taxes
paid be classified as anoperating cash flow.
Convergence:The staff draft issued July 1, 2010, specifies income taxes would section of the balance sheet, the statement of comprehensive income and the staflows.
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Statement of cash flows
Content, format and classificationIndirect method
IFRS The particular income line it
begin the reconciliation is nThus, an entity could begin reconciliation under IFRS wincome.
US GAAP When using the indirect method of
presenting operating cash flows, thereconciliation from income to cash flowsmust begin with net income.
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Statement of cash flows
Content, format and classificationDirect method
I
US GAAP
ASC 230-10-45-30 requires that an entity using the direct method ofreporting net cash flows from operating activities must provide (in aseparate schedule) a reconciliation of net income to net cash flows fromoperating activities.
This has little practical significance, however, because few enterprises inthe United States use the direct method. TheAICPA Accounting Trends
and Techniques
2010reports that 495 companies of the 500 surveyed in2009 used the indirect method of presenting operating cash flows.
Convergence:The Boards had tentatively proposed presenting cash flows using the direct method (includinand requiring the presentation of an indirect reconciliation of operating income to operating cash flows in the notes tIn the Staff Paper presented to the combined Boards at their March 2011 meeting, based on outreach to preparers astatements, there was little support for the direct method. The Boards made no formal decisions at this meeting regaaspects or timing of future discussions on this project.
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Statement of cash flows
Content, format and classificationComponents of cash and cash equivalents
IFRS Required disclosure of the components of cash
equivalents.
The total cash and cash equivalents presented cash flows does not need to agree to a single linstatement of financial position.
Entities must disclose a reconciliation of the comcash equivalents to the amounts presented on thfinancial position.
Thus, while users of a statement of cash flows pable to trace changes in cash and cash equivalethe statement of financial position and the statemthis difference from US GAAP has little practical
US GAAP No required disclosure of the
components of cash and cashequivalents.
Requires that the cash and cashequivalents line item in thestatement of cash flows equals
the cash and cash equivalents inthe statement of financialposition.
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Statement of cash flows
Example 1:
Banks Designers, Inc. (BDI) is preparing its statement of cash flows for the year e
December 31, 2011. BDI wants to see what the statement would look like using Uwell as IFRS. On the next slides are the balance sheet and statement of income abalances, and some additional information.
Statement of cash flows example
Prepare the following:
A statement of cash flows using US GAAP.
A statement of cash flows using IFRS with net income for thereconciliation of income to operating cash flows.
A statement of cash flows using IFRS with operating income forthe reconciliation of income to operating cash flows.
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Statement of cash flows
Example 1 (continued):Balance sheet accounts:
Statement of cash flows example
As of
January 1, 2011
As of
December 31, 2011
Cash $ 555,000 $ 674,480
Accounts receivable 157,800 149,000
Inventory 254,600 269,000
Prepaid expenses 59,000 62,000
Equipment 875,000 875,000
Accumulateddepreciation
(120,000) (175,000)
Land 500,000 450,000
Total assets $2,281,400 $2,304,480
As of
January 1, 201
Accounts payable $ 95,0
Accrued liabilities 45,0
Notes payable 1,200,0
Common stock 400,0
Retainedearnings
541,4
Total liabilitiesand equity
$2,281,4
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Statement of cash flows
Example 1 (continued):Income statement balances:
Statement of cash flows example
For the year endedDecember 31, 2011
Sales $1,300,500
Interest revenue 5,000
Dividend revenue 4,500
Cost of goods sold (750,500)
Salary expense (125,500)
Depreciation expense (55,000)
Other operating expenses (49,800)
Loss on sale of land (5,000)
Interest expense (23,000)
Income tax expense (105,420)
Net income $ 195,780
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Statement of cash flows
Statement of cash flows example
Example 1 (continued):
Other information:
The following account balances are all zero at both the beginning and end of the year: interest receivable, dividends payable, dividends receivable and income taxes payable
BDI does not include any interest or dividend cash flows in the operating section of thecash flows when it prepares its statement under IFRS.
BDI uses the indirect method for the operating section for both US GAAP and IFRS.
As of December 31, 2011, BDI has one bank account balance that is overdrawn. The is $12,000. BDI has not yet moved this from its cash account into the liabilities sectionsheet. Overdrafts are an integral part of BDIs cash management.
BDI paid dividends of $20,000 during 2011.
BDI paid income taxes of $7,000 that were attributable to financing activities. It paid in$2,000, all attributable to investing activities.
BDI sold land this year with a cost basis of $50,000. It reported a $5,000 loss on the s
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Statement of cash flows
Example 1 solution:
Statement of cash flows exampleUS GAAP
BDIStatement of cash flows
For the year ended December 31, 2011
Operating activities
Net income
Adjustments to reconcile net income to net cashprovided by operating activities:
Depreciation expense $55,000
Loss on sale of land 5,000
Decrease in accounts receivable 8,800Increase in inventory (14,400)
Increase in prepaid expenses (3,000)
Decrease in accounts payable (7,500)
Increase in accrued liabilities 4,800
Net cash provided by operating activities
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*Note that the cash balance at December 31, 2011, must exclude bank overdrafts of $12,
Statement of cash flows exampleUS GAAP
Investing activities
Sale of land $45,000
Net cash provided by investing activities
Financing activities
Borrowingsloan repayments (150,000)
Borrowingsbank overdraft 12,000
Payment of dividends (20,000)
Net cash used in financing activities
Net increase in cash
Cash at January 1, 2011
Cash at December 31, 201*
Example 1 solution (continued):
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8/12/2019 Statement of Cash Flows-International Accounting Standard (IAS) 7
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Academic Resource CenterStatement of cash flows
Statement of cash flows exampleIFRS reconciling to net income
BDIStatement of cash flows
For the year ended December 31, 2011
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Interest revenue $(
Dividend revenue (4
Depreciation expense 5
Loss on sale of land
Interest expense 2
Income taxes paid due to investing and financing activities Decrease in accounts receivable
Increase in inventory (14
Increase in prepaid expenses (
Decrease in accounts payable (
Increase in accrued liabilities 4
Net cash provided by operating activities
S f f
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Statement of cash flows exampleIFRS reconciling to net income
Investing activities
Sale of land $45,000
Receipt of interest 5,000
Receipt of dividends 4,500
Income taxes paid due to investing activities (2,000)
Net cash provided by investing activities
Financing activities
Borrowingsloan repayment (150,000)
Payment of interest (23,000)
Payment of dividends (20,000)
Payment of income taxes (7,000)
Net cash used in financing activities
Net increase in cash
Cash at January 1, 2011
Cash at December 31, 2011
Di l
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Disclosures
IFRS
Does not have restrictions odisclosure of cash flows pe
US GAAP
Prohibits disclosure of cash flows pershare.
Additional disclosure differences not mentioned previously: