STATEMENTS OF CASH FLOWS – IAS 7

Statement of Cash flows is a comprehensive part of the Financial Statement where

an entity gives information about their historical cash transaction during a particular
period. It is an integral part of IFRS requirements to prepare statement of cash flow
along with other financial statements component.
Classification of Statement of Cashflows
Cashflows Statement categorised into three(3) major Components, and they:
1) Operating activities
2) Investing Activities
3) Financing Activities.
Method of Preparation of Cashflows
1) Direct Method
2) Indirect Method.

QST 1
Babafrayo Nig. Ltd. is a company located in Lagos and is engaged in hotel and
tourism business. The financial statements of the company are as follows:
Statement of profit or loss and other comprehensive income for the year ended
31 December, 2018
N‟000

Revenue 994,500
Cost of sales (884,000)
Gross profit 110,500
Admin expenses (21,250)
Distribu on cost (44,200)
Finance costs (4,250)
Profit before taxa on 40,800
Income tax expense (5,100)
Profit for the year 35,700
Other comprehensive income:

Gains on property revalua on 17,000

Total comprehensive income 52,700

Statement of financial posi on as at 31 December, 2018

2018 2017

Non-current assets: N‟000 N‟000

Property plant & equipment 242,250 174,250

242,250 174,250
Current assets:
Inventories 49,300 51,000
Trade receivables 35,700 25,500
Cash and cash equivalent 2,550 4,250
Total current assets 87,550 80,750
329,800 255,000

Equity and liabili es:

Equity
Share capital 93,500 76,500
Share premium 17,000 8,500
Retained earnings 83,300 51,850

Non-current liabili es:

Loan notes 80,750 68,000

Current liabili es:

Trade payables 24,650 27,200
Bank overdra 1,700 10,200
Current tax payable 3,400 4,250
29,750 41,650
329,800 255,000

Additional information
(i) Property, plant and equipment with a carrying value of N23,800,000 was
sold during the year ended 31 December 2018 for N24,650,000. The asset
had originally cost N38,250,000.
(ii) Depreciation on property, plant and equipment for the year 2018
amounted to N34,000,000.
(iii) Dividend paid during the year 2018 amounted to N4,250,000 and is
reported in the statement of changes in equity for the year.

Required: a. Prepare statement of cash flows for the year ended 31

December 2018 in accordance with IAS 7 using indirect method.
(12 Marks) b. Prepare net cash flows from
operating activities only using the direct method.
(6
Marks)
c. Discuss the advantages of the direct method of preparing statement of
cash flows over the indirect method.
(2 Marks)
(Total 20
Marks)

QST 2
The summarised Financial Statements for the year ended March 31, 2016 of
Perfect World Plc are as follows:
 STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED MARCH 31, 2016

N‟m

Revenue 19,350

Cost of Sales (9,000)

Gross Profit 10,350
Opera ng Expenses (4,500)
Finance Costs (1,125)
Profit Before Tax 4,725
Income Tax Expense (2,025)
Profit for the year 2,700

STATEMENT OF FINANCIAL POSITION AS AT MARCH 31

2016 2015

Non-Current Assets: N‟m N‟m

Property, Plant & Equipment 18,900 16,650

Current Assets Inventories 6,750 7,200
Trade Receivables 9,900 8,100

16,650 15,300

Total Assets 35,550 31,950

Equity

Share Capital 5,400 5,400

Retained Earnings 9,900 8,550

15,300 13,950

Non-Current Liabili es

Deferred Tax 4,815 3,825

Financial Lease Liabili es 5,850 5,400

10,665 9,225

Current Liabili es

Trade Payables 5,625 4,905

Current Tax 1,013 923
Finance Lease Obliga on 2,250 2,025

Bank Overdra 697 922

9,585 8,775

Total Equity & Liabili es 35,550 31,950

Additional Information include:
(i) Dividend paid during the year amounted to N1,350million.
(ii) Perfect World Plc finances a number (but not all) of its property plant and
equipment purchased using finance lease. During the period, property, plant
and equipment which would have cost N2,700million to purchase outright
was acquired under finance lease.
(iii) There was no accrual of interest at the beginning or at the end of the year.
(iv) Depreciation charged for the year totalled N4,365million. There were no
disposals of property, plant and equipment during the year.

Required:
a. Prepare the statement of cashflows of Perfect World Plc for the year ended
March 31, 2016 using indirect method. (14 Marks)
b. Draft a Memo to the Director of Perfect World Plc summarising the major
benefits that users receive from a published statement of cashflows. (6 Marks)
(Total 20 Marks)

QST 3
The financial statements of OSHODI Nigeria Limited for the year ended May
13 2017 are as follows: Statement of Profit or Loss for the year ended May, 31
2017
N‟m
Revenue 3,820
Cost of sales (2,620)
Gross profit 1,200
Operating expenses (300)
900
Interest (30)
Profit before tax 870
Taxation expense (270)
Net profit for the year 600

Statement of Financial Position as at May 31 2017 (including comparative figures)

2017 2016
N‟m N‟m
Non-Current Assets
Property, plant and equipment 1,890 1,830
Intangible assets 650 300
2,540 2,130
Current Assets
Inventory 1,420 940
Account receivables 990 680
Cash 70 nil
2,480 1,620
Total Assets 5,020 3,750

Equity and Liabilities

Ordinary shares of N1 each 750 500
Reserves:
Share premium 300 100
Revaluation reserve 190 Nil
Retained earnings 1,610 1,400

Equity 2,850 2,000

Non-current liabilities 870 540
Current liabilities 1,300 1,210
Total equity and liabilities 5,020 3,750

OSHODI NIGERIA LIMITED

Statement of Changes in Equity for the year ended May 31 2017
Share Share Revaluation Retained Total
Capital Premium Reserve Earnings
N‟m N‟m N‟m N‟m N‟m

June 1 2016 500 100 Nil 1,400 2,000

Profit for the year - - - 600 600
Transactions within
Equity:

Dividend (400) (400)

Bonus issue 50 (50)
Issue of shares 200 250 - 450
Revaluation reserve - - 200 - 200
Transfer to retained
earnings - - (10) 10 -
May 31, 2017 750 300 190 1,610 2,850

Notes to the financial statements:

(1) Cost of sales includes depreciation of property, plant and equipment of
N320 million and a loss on the sale of plant of N50 million. It also includes a
credit for the amortisation of government grants. Operating expenses include
a charge of N20 million for the amortisation of goodwill.

(2) Intangible assets: 2017 2016

N‟m N‟m
Deferred development expenditure 470 100
Goodwill 180 200
650 300
(3) Non-current Liabilities: 2017 2016
N‟m N‟m
10% loan notes 300 100
Government grants 260 300
Deferred tax 310 140
870 540
4) Current Liabilities:
Account payables 875 730
Bank overdraft Nil 115
Accrued loan interest 15 5
Declared dividends unpaid 280 200
Taxation 130 160
1,300 1,210

The following additional information is relevant:

(i) Intangible assets:
The company successfully completed the development of a new product
during the current year, capitalising a further N500 million before
amortisation charges for the period.
(ii) Property, plant and equipment/revaluation reserve:
The company revalued its buildings by N200 million on June 1 2016. The
surplus was credited to revaluation reserve.
 New plant was acquired during the year at a cost of N250 million and a
government grant of N50 million was received for the plant.
 On June 1, 2016 a bonus issue of 1 new share for every 10 held was made
from the share premium.
 N10 million has been transferred from the revaluation reserve to realised
profits as a year-end adjustment in respect of the additional depreciation
created by the revaluation.
 The remaining movement on property, plant and equipment was due to the
disposal of obsolete plant.
(iii) Share issue: In addition to the bonus issue referred to above, Oshodi
Nigeria Limited made a further issue of ordinary shares for cash.

Required:
a. Prepare statement of cash flows for Oshodi Nigeria Limited for the year
ended May 31, 2017 in accordance with IAS 7 „Statements of Cash Flows‟
using the indirect method. (25 Marks)
b. Compare the direct and indirect methods of preparing statement of cash
flows. (5 Marks) (Total 30 Marks) - Qst 1: 2018 Nov.

QST 4
The statement of financial position of Abagana Plc. as at July 31, 2016 and 2017 is
shown below
Statement of financial position as at July 31
2017 2016
N‟000 N‟000 N‟000 N‟000
ASSETS:
Non- current assets:
Property, plant and equipment at cost 735 675
Accumulated depreciation (555) 180 (495) 180

Investment at cost 28 66
208 246

Current assets: Inventories 434 264

Trade receivable 346 159
Allowance for doubtful debt (39) 307 (6) 153
Prepayments 19 18 Cash on 7 day deposit - 75 Cash at bank and in hand - 88 760
598 968 844 EQUITY and LIABILITIES Equity : Ordinary share capital 375 300 Share
premium 45 - Retained earnings 237 319 657 619 Liabilities: Non-current liabilities:
14% Loan notes - 60 12% Loan notes 45 - Current Liabilities: - 14% Loan notes 60
Trade payables 90 83 Accruals 13 1