Accounting Business Reporting for Decision Making

CHAPTER 7 Statement of cash flows 289

Putting steps 1a to 1c together, the net cash flows from operating activities are as follows:

Cash flows from operating activities

Receipts from customers

Payments to suppliers and employers

Dividends and interest received

Interest paid

Income taxes paid

$ 1 480 100

(1 251 500

1 000

(14 000

(45 000

)

)

)

Net cash from operating activities $ 170 600

Step 2: Determine the cash flows from investing activities

Recall that the cash flows from investing activities mainly deal with changes in non-current assets in the
balance sheet. As illustrated in figure 7.2, cash flows from investing activities include:
• proceeds from repayment of related party loans
• payments for plant and equipment
• proceeds from sale of plant and equipment
• payments for businesses.
Examining the non-current assets in the balance sheet and the note in our example reveals that there
was an extension to the manufacturing facility that cost $100 000 and the acquisition of manufacturing
equipment that cost $60 000. No businesses were acquired, nor were any proceeds from related party
loans obtained. The cash from investing activities is therefore:

Cash flows from investing activities

Payments for property, plant and equipment

Proceeds from sale of property, plant and equipment

$ (160 000

—

)

Net cash from investing activities $(160 000)

Step 3: Determine the cash flow from financing activities

Recall that the cash flows from financing activities mainly deal with changes in non-current liabilities
and equity in the balance sheet. As illustrated in figure 7.2, cash flows from financing activities include:
• proceeds from issue of equity securities (shares)
• proceeds from borrowings
• repayment of borrowings
• dividends paid.
Examining the non-current liabilities and equity in the balance sheet in our example should help to
decipher changes in the financial structure of Coconut Plantations Pty Ltd. For our example:

1. Comparing the loan payable under non-current liabilities shows there was an increase of $111 000.
   The accounting standard requires net amounts, not gross amounts, to be presented. The note reveals
   that a new loan of $140 000 was taken out and the existing loan of $20 000 was repaid. The difference
   in the balance means that $9000 of the new loan was also repaid.


2. The dividend payable at 31 December 2016 for $14 790 would have been paid during 2017.
   The cash from financing activities will therefore be as follows:

Cash flows from financing activities

Proceeds from borrowings

Repayment of borrowings

Dividend paid

$ 140 000

(29 000

(14 790

)

)

Net cash from financing activities $ 96 210

Step 4: Calculate the net cash flow and the ending cash balance for the year (the direct method)
The statement of cash flows can be completed by bringing together the sections compiled above and
calculating the net cash flow and ending cash balance for the year. The beginning cash balance can be
extracted from the balance sheet. The ending cash balance calculated should equate with the ending
cash balance in the balance sheet.