Chapter 16 CF

Question 1

cash & cash equivalent

Answer 1

• short-term, highly liquid investment that are readily convertible to known amount of cash
• readily convertible - 3 months or less from date of acquisition
• equity invesment are excluded as there is a significant risk of change in value

Question 2

Cash flow from operating activities

Answer 2

• Need to adjust (items in SOPL):
  1. Finance costs (need to include unwinding discount, if got)
  2. Non-cash item
  3. Not operating item: gain/loss on diposal of subsi, investment income, income from associate, investment property changes in FV adjustment recognised in SOPL (overstate / understate the net income need to be adjusted)
  4. expense accrual, revenue accrual (when P.O satisfied, haven’t receive $$ but highly probable will receive $$, recognise in SOPL first)

Profit before tax
* add back: finance costs, depreciation, / minus: investment income, income from associate
* Adjust non-cash item: add back: loss on disposal, depreciation, increase in provisions / minus: gain on disposal
* Changes in working capital: add back: when CL increase - payable ($ retain) / minus: when CA increase - inventory, receivable别人欠你钱不还 ($ out)

Cash generated $$ / used ($$) from operations

Question 3

Cash flow from investing activities

Answer 3

Cash generated / spent relating to investment activities

+cash inflows / (-) cash outflows:
* (-): cash paid to acquire subsi/associate, payments to purchase non-current assets, share exchange to acquire subsi, cash consideration payable in 2 yrs - when u pay, $ out
* +: receipts from non-current asset disposal, interest/dividend received, cash from subsi disposal

Question 4

Cash flow from financing activities

Answer 4

Cash generated / spent relating to financing activities
* (-): lease payment, dividend paid by NCI
* +: receive loan, receive share issue

Question 5

The circumstances where CF may be reported on a net basis

Answer 5

• Cash receipt and payment on behalf of customers in which these CF relates to activities of customer; and
• Cash recipt and payments for items in which turnover is quick, the amount is large, and the maturities are short.

Means CF net basis cannot record all cash outflow and inflow as it will cause huge amount in the CF and fluctuate evrytime, thus reported on a net basis

Question 6

Acquisition of disposal

Answer 6

Decrease in inventory - (+)

Increase in trade payable - (-)

Question 7

CF effect on DBP

Answer 7

1. CSC / PSC - add back to PBT (operating)
2. Remeasurement gain / loss (OCI) - do nothing (Coz PBT exclusive OCI)
3. Benefit paid does not affect P/L - do nothing (FV of PA and PVDBO both reduce, does not affect the cash)
4. Contribute to the plan asset - Cash outflow under operating activities but not in PBT coz Dr PA Cr bank (minus from PBT)

Question 8

CF effect on Share of profit / OCI of associate

Answer 8

Share of profit of associate will affect the cash flow - minus under operating activities

But share of OCI of associate not affect CF coz it is after PBT

Question 9

Cash flow bal b/f & bal c/f

Answer 9

Asset bal b/f: +
Asset B/f: (-)
Liability b/f: (-)
Liability c/f: +
Asset: CF + (+ bal b/f) - (+ bal c/f)
Liability: CF + (- bal b/f) - (- bal c/f)