Accounting Business Reporting for Decision Making

290 Accounting: Business Reporting for Decision Making

Coconut Plantations Pty Ltd

Statement of cash flows for the year ended 31 December 2017

Cash flows from operating activities

Receipts from customers

Payments to suppliers and employees

Dividends received

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

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)

Cash flows from financing activities

Proceeds from borrowings

Repayment of borrowings

Distributions paid

140 000

(29 000

(14 790

)

)

Net cash from financing activities 96 210

Net increase (decrease) in cash held

Cash at beginning of the reporting period

106 810

60 390

Cash at the end of the reporting period $ 167 200

(continued)

Step 5: Reconcile cash from operating activities with operating profit (the indirect method)

The statement of cash flows presented in step 4 was prepared and presented using the direct method.

IFRS also requires the indirect method to be used to present a reconciliation of the cash flows from oper-

ating activities with the profit in the statement of profit or loss. This is normally presented as a note to

the statement of cash flows. Generally, the reconciliation starts with the profit or loss after tax as per the

statement of profit or loss and ends with the cash from operating activities. To reconcile the two amounts

it is necessary to think about the differences between them. In determining the cash flows from operating

activities in step 1 above, we used the operating expenses in the statement of profit or loss and the cur-

rent assets and liabilities in the balance sheet (accounts receivable, accounts payable, inventory, prepaid

expenses and accruals). So, it would be these items that need to be considered in reconciling the cash

from operating activities with the profit. The profit or loss would contain non-cash expenses such as

depreciation and loss on sale of an asset, so these would need to be added back to the profit or loss.

There would also be differences in non-cash current assets and liabilities such as inventory, accounts

receivable and payable, and prepayments and accruals as these are the items that were considered

above when preparing the statement of cash flows. The form of the reconciliation will be:

Profit or loss after tax + Non-cash expenses +/−

Changes in non-current assets and liabilities

For our example the reconciliation would be:

Profit after tax

+ Depreciation

(Increase)/decrease in inventory

(Increase)/decrease in accounts receivable

(Increase)/decrease in prepaid expenses

Increase/(decrease) in accounts payable

Increase/(decrease) in tax payable

Increase/(decrease) in accruals

$ 229 600

30 000

(115 000

(69 900

(3 500

39 200

53 400

6 800

)

)

)

Net cash flow from operating activities $ 170 600