Beruflich Dokumente
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IFRS EDITION
Prepared by
Coby Harmon
University of California, Santa Barbara
13-1 Westmont College
PREVIEW OF CHAPTER 13
Financial Accounting
IFRS 3rd Edition
Weygandt ● Kimmel ● Kieso
13-2
CHAPTER
13-3
Statement of Cash Flows: Usefulness and
Format
Learning Objective 1
Indicate the usefulness of
Provides information to help assess: the statement of cash flows.
13-4 LO 1
Statement of Cash Flows
Question
Which of the following is incorrect about the statement of
cash flows?
13-6 LO 2
Classification of Cash Flows
13-7 LO 2
Classification of Cash Flows
13-9 LO 2
Significant Non-Cash Activities
13-10 LO 2
Accounting Across the Organization
Net What?
Net income is not the same as net cash provided by operating
activities. Below are some results from recent annual reports
(currencies in millions). Note the wide disparity among these
companies, all of which engage in retail merchandising.
13-11 LO 2
Format of the Statement of Cash Flows
Order of Presentation:
Direct Method
1. Operating activities.
Indirect Method
2. Investing activities.
3. Financing activities.
13-12 LO 2
Illustration 13-3
Format of statement of cash flows
13-13 LO 2
> DO IT!
Illustration: Classify each of these transactions by type of cash
flow activity.
1. Issued 100,000 HK$50 par value ordinary
Financing
shares for HK$8,000,000 cash.
2. Borrowed HK$2,000,000 from Castle Bank,
Financing
signing a 5-year note bearing 8% interest.
3. Purchased two semi-trailer trucks for
Investing
HK$1,700,000 cash.
4. Paid employees HK$120,000 for salaries and Operating
wages.
5. Collected HK$200,000 cash for services Operating
performed.
13-14 LO 2
Preparing the Statement of Cash Flows
3. Additional information
13-15 LO 2
Preparing the Statement of Cash Flows
Illustration 13-4
Three major steps in preparing
the statement of cash flows
13-16 LO 2
Preparing the Statement of Cash Flows
Illustration 13-4
Three major steps in preparing
the statement of cash flows
13-17 LO 2
Preparing the Statement of Cash Flows
Illustration 13-4
Three major steps in preparing
the statement of cash flows
13-18 LO 2
Indirect And Direct Methods
13-19 LO 2
Preparing the Statement of Cash Flows
Question
The statement of cash flows classifies cash receipts and
cash payments by these activities:
13-20 LO 2
Learning Objective 3
Statement of Cash Flows: Prepare a statement of cash
flows using the indirect
—Indirect Method method.
Illustration 13-5
Comparative statements of financial position, income statement,
and additional information for Computer Services Company
13-21 LO 3
Illustration 13-5
Comparative statements of financial position, income statement,
and additional information for Computer Services Company
13-22 LO 3
Change in
2017 2016 Account Balance
Illustration 13-5
Additional information for 2017:
1. Depreciation expense was comprised of €6,000 for building and €3,000 for
equipment.
2. The company sold equipment with a book value of €7,000 (cost €8,000, less
accumulated depreciation €1,000) for €4,000 cash.
3. Issued €110,000 of long-term bonds in direct exchange for land.
4. A building costing €120,000 was purchased for cash. Equipment costing €25,000
was also purchased for cash.
5. Issued ordinary shares for €20,000 cash.
6. The company declared and paid a €29,000 cash dividend.
13-23 LO 3
Step 1: Operating Activities
Question
Which is an example of a cash flow from an operating
activity?
13-25 LO 3
Step 1: Operating Activities
Depreciation Expense
Although depreciation expense reduces net income, it does
not reduce cash. The company must add it back to net
income.
Illustration 13-7
13-26 LO 3
Step 1: Operating Activities
13-27 LO 3
Step 1: Operating Activities
13-28 LO 3
Step 1: Operating Activities
13-30 LO 3
Step 1: Operating Activities
Inventory
Cost of goods sold does not reflect cash payments made for
merchandise. The company deducts from net income this
inventory increase.
13-31 LO 3
Step 1: Operating Activities
13-32 LO 3
Step 1: Operating Activities
13-33 LO 3
Step 1: Operating Activities
13-34 LO 3
Step 1: Operating Activities
13-35 LO 3
Step 1: Operating Activities
Illustration 13-12
Adjustments required to convert net income to net cash provided by operating activities
13-37 LO 3
Ethics Insight
Cash Flow Isn’t Always What It Seems
Some managers have taken actions that artificially increase cash flow
from operating activities. They do this by moving negative amounts out of
the operating section and into the investing or financing section. For
example, WorldCom, Inc. (USA) disclosed that it had improperly
capitalized expenses: It had moved $3.8 billion of cash outflows from the
“Cash from operating activities” section of the statement of cash flows to
the “Investing activities” section, thereby greatly enhancing cash provided
by operating activities. Similarly, Dynegy, Inc. (USA) restated its statement
of cash flows because it had improperly included in operating activities,
instead of in financing activities, $300 million from natural gas trading. The
restatement resulted in a drop of 37% in cash flow from operating
activities.
Source: Henny Sender, “Sadly, These Days Even Cash Flow Isn’t Always What It
Seems to Be,” Wall Street Journal (May 8, 2002).
13-38 LO 3
Step 2: Investing and Financing Activities
Land
1/1/17 Balance 20,000
Issued bonds 110,000
12/31/17 Balance 130,000
Bonds Payable
1/1/17 Balance 20,000
For land 110,000
12/31/17 Balance 130,000
13-39 LO 3
Step 2: Investing and Financing Activities
Partial statement Illustration 13-14
13-40 LO 3
Step 2: Investing and Financing Activities
Building
13-41 LO 3
Step 2: Investing and Financing Activities
Partial statement Illustration 13-14
13-42 LO 3
Step 2: Investing and Financing Activities
Equipment
Cash 4,000
Journal
Accumulated Depreciation 1,000
Entry
Loss on Disposal of Plant Assets 3,000
Equipment 8,000
13-43 LO 3
Illustration 13-14
Statement of Cash flows from operating activities:
Net income € 145,000
Cash Flows Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 9,000
Loss on disposal of plant assets 3,000
Decrease in accounts receivable 10,000
Increase in inventory (5,000)
Increase in prepaid expenses (4,000)
Indirect Increase in accounts payable 16,000
Method Decrease in income taxes payable (2,000)
Net cash provided by operating activities 172,000
Cash flows from investing activities:
Purchase of building (120,000)
Purchase of equipment (25,000)
Disposal of plant assets 4,000
Net cash used by investing activities (141,000)
Cash flows from financing activities:
Issuance of ordinary shares 20,000
Payment of cash dividends (29,000)
Net cash used by financing activities (9,000)
Net increase in cash 22,000
Cash at beginning of period 33,000
Cash at end of period € 55,000
13-44
Step 2: Investing and Financing Activities
The increase in ordinary shares resulted from the issuance of
new shares.
13-45 LO 3
Step 2: Investing and Financing Activities
Illustration 13-14
Partial statement
Net cash provided by operating activities 172,000
Cash flows from investing activities:
Purchase of building (120,000)
Purchase of equipment (25,000)
Disposal of plant assets 4,000
Net cash used by investing activities (141,000)
Cash flows from financing activities:
Issuance of ordinary shares 20,000
Payment of cash dividends (29,000)
Net cash used by financing activities (9,000)
Net increase in cash 22,000
Cash at beginning of period 33,000
Cash at end of period € 55,000
13-46 LO 3
Step 2: Investing and Financing Activities
Retained earnings increased €116,000 during the year. This
increase can be explained by two factors: (1) Net income of
€145,000 increased retained earnings, and (2) Dividends of
€29,000 decreased retained earnings.
Retained Earnings
13-47 LO 3
Step 2: Investing and Financing Activities
Question
Which is an example of a cash flow from an investing
activity?
a. Receipt of cash from the issuance of bonds payable.
b. Payment of cash to repurchase outstanding ordinary
shares.
c. Receipt of cash from the sale of equipment.
d. Payment of cash to suppliers for inventory.
13-48 LO 3
Illustration 13-14
Statement of Cash flows from operating activities:
Net income € 145,000
Cash Flows Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 9,000
Loss on disposal of plant assets 3,000
Decrease in accounts receivable 10,000
Increase in inventory (5,000)
Increase in prepaid expenses (4,000)
Indirect Increase in accounts payable 16,000
Decrease in income taxes payable (2,000)
Method
Net cash provided by operating activities 172,000
Cash flows from investing activities:
Purchase of building (120,000)
Purchase of equipment (25,000)
Disposal of plant assets 4,000
Net cash used by investing activities (141,000)
Cash flows from financing activities:
Issuance of ordinary shares 20,000
Payment of cash dividends (29,000)
Net cash used by financing activities (9,000)
Net increase in cash 22,000
Cash at beginning of period 33,000
Cash at end of period € 55,000
13-49
LO 3
ANATOMY OF A FRAUD
For more than a decade, the top executives at the Italian dairy products company
Parmalat engaged in multiple frauds that overstated cash and other assets by more
than $1 billion while understating liabilities by between $8 and $12 billion. Much of the
fraud involved creating fictitious sources and uses of cash. Some of these activities
incorporated sophisticated financial transactions with subsidiaries created with the
help of large international financial institutions. However, much of the fraud employed
very basic, even sloppy, forgery of documents. For example, when outside auditors
requested confirmation of bank accounts (such as a fake $4.8 billion account in the
Cayman Islands), documents were created on scanners, with signatures that were cut
and pasted from other documents. These were then passed through a fax machine
numerous times to make them look real (if difficult to read). Similarly, fictitious bills
were created in order to divert funds to other businesses owned by the Tanzi family
(who controlled Parmalat).
13-50 LO 3
Step 3: Net Change in Cash Illustration 13-5
13-51
LO 3
Using Cash Flow to Evaluate a Company
Learning Objective 4
Analyze the statement of
Free cash flow describes the cash cash flows.
remaining from operations after adjustment
for capital expenditures and dividends.
Illustration 13-15
Free cash flow
13-52 LO 4
Free Cash Flow Illustration 13-16
Anheuser-Busch InBev cash
flow information ($ in millions)
Required:
Calculate
free cash
flow.
13-54 LO 5
Step 1: Operating Activities
Illustration 13A-2
13-55 Major classes of cash receipts and payments LO 5
Direct Method
Illustration 13A-1
Comparative statements of financial position, income statement,
and additional information for Computer Services Company
13-56 LO 5
Illustration 13A-1
Comparative statements of financial position, income statement,
and additional information for Computer Services Company
13-57 LO 5
Change in
2017 2016 Account Balance
Illustration 13A-5
Formula to compute cash receipts from customers—direct method
13-59 LO 5
Step 1: Operating Activities
Accounts Payable
Payment to suppliers 139,000 1/1/17 Balance 12,000
Purchases 155,000
Illustration 13A-9
Formula to compute cash payments to suppliers—direct method
13-61 LO 5
Step 1: Operating Activities
Illustration 13A-10
Computation of cash payments for operating expenses
Illustration 13A-11
Formula to compute cash payments for operating expenses—direct method
13-62 LO 5
Step 1: Operating Activities
Interest Payable
Cash paid for interest 42,000 1/1/17 Balance 0
Interest expense 42,000
12/31/17 Balance 0
13-63 LO 5
Step 1: Operating Activities
Illustration 13A-13
Formula to compute cash payments for income taxes—direct method
13-64 LO 5
Step 1: Operating Activities
Illustration 13A-14
Operating activities section of the statement of cash flows
13-65 LO 5
Step 2: Investing and Financing Activities
Accumulated Depreciation
Equipment sold 1,000 1/1/17 Balance 1,000
Depreciation expense 3,000
12/31/17 Balance 3,000
13-66 LO 5
Step 2: Investing and Financing Activities
Cash 4,000
Accumulated Depreciation—Equipment 1,000
Loss on Disposal of Plant Assets 3,000
Equipment 8,000
13-67 LO 5
Step 2: Investing and Financing Activities
13-68 LO 5
Step 2: Investing and Financing Activities
13-69 LO 5
Illustration 13A-16
Statement of cash flows,
2017—direct method
13-70 LO 5
Step 3: Net Change in Cash Illustration 13A-1
13-71
LO 5
Using a Worksheet to Prepare the
APPENDIX 13B
Statement of Cash Flows—Indirect Method
Learning Objective 6
Explain how to use a
worksheet to prepare the
statement of cash flows
using the indirect method.
Illustration 13B-1
13-72 Format of worksheet LO 6
Preparing a Worksheet
3. Enter on the cash line and at the bottom of the worksheet the
increase or decrease in cash. This entry should enable the
totals of the reconciling columns to be in agreement.
13-73 LO 6
Preparing a
Worksheet
Illustration 13B-3
Completed worksheet—
indirect method
13-74 LO 6
Statement of Cash Flows—
APPENDIX 13C
T-Account Approach
Learning Objective 7
The change in cash is equal to the change Use the T-account approach
to prepare a statement of
in all of the other statement of financial cash flows.
position accounts.
If we analyze the changes in all of the non-cash statement of
financial position accounts, we will explain the change in the
Cash account.
13-75 LO 7
Illustration 13C-1
T-account approach
13-76
A Look at U.S. GAAP Learning Objective 8
Compare the accounting for
statement of cash flows under
IFRS and U.S. GAAP.
Key Points
Similarities
Companies preparing financial statements under both GAAP and IFRS must
prepare a statement of cash flows as an integral part of the financial
statements.
Both IFRS and GAAP require that the statement of cash flows should have
three major sections— operating, investing, and financing—along with
changes in cash and cash equivalents.
Similar to IFRS, the statement of cash flows can be prepared using either the
indirect or direct method under GAAP. Companies choose for the most part
to use the indirect method for reporting net cash flows from operating
activities.
13-77 LO 8
A Look at U.S. GAAP
Key Points
Differences
The definition of cash equivalents used in GAAP is similar to that used in
IFRS. A major difference is that in certain situations, bank overdrafts are
considered part of cash and cash equivalents under IFRS (which is not the
case in GAAP). Under GAAP, bank overdrafts are classified as financing
activities in the statement of cash flows and are reported as liabilities on the
statement of financial position.
IFRS requires that non-cash investing and financing activities be excluded
from the statement of cash flows. Instead, these non-cash activities should
be reported elsewhere. This requirement is interpreted to mean that non-
cash investing and financing activities should be disclosed in the notes to the
financial statements instead of in the financial statements. Under GAAP,
companies may present this information on the face of the statement of cash
flows.
13-78 LO 8
A Look at U.S. GAAP
Key Points
Differences
One area where there can be substantial differences between IFRS and
GAAP relates to the classification of interest, dividends, and taxes. The
following table indicates the differences between the two approaches.
13-79 LO 8
A Look at U.S. GAAP
Key Points
Differences
Under IFRS, some companies present the operating section in a single line
item, with a full reconciliation provided in the notes to the financial
statements. This presentation is not seen under GAAP.
Similar to IFRS, under GAAP companies must disclose the amount of taxes
and interest paid. Under GAAP, companies disclose this in the notes to the
financial statements. Under IFRS, some companies disclose this information
in the notes, but others provide individual line items on the face of the
statement. In order to provide this information on the face of the statement,
companies first add back the amount of interest expense and tax expense
(similar to adding back depreciation expense) and then further down the
statement they subtract the cash amount paid for interest and taxes. This
treatment can be seen in the statement of cash flows provided for Petra
Foods in Appendix C.
13-80 LO 8
A Look at U.S. GAAP
Looking to the Future
Presently, the FASB and the IASB are involved in a joint project on the
presentation and organization of information in the financial statements. One
interesting approach, revealed in a published proposal from that project, is
that in the future the income statement and statement of financial position
(balance sheet) would adopt headings similar to those of the statement of
cash flows. That is, the income statement and statement of financial position
would be broken into operating, investing, and financing sections. With
respect to the cash flow statement specifically, the notion of cash equivalents
will probably not be retained. That is, cash equivalents will not be combined
with cash but instead will be reported as a form of highly liquid, low-risk
investment. The definition of cash in the existing literature would be retained,
and the statement of cash flows would present information on changes in
cash only. In addition, the FASB favors presentation of operating cash flows
using the direct method only. However, the majority of IASB members express
a preference for not requiring use of the direct method of reporting operating
cash flows.
13-81 LO 8
A Look atAU.S.
LookGAAP
at IFRS
GAAP Self-Test Questions
Under GAAP interest paid can be reported as:
13-82 LO 8
A Look atAU.S.
LookGAAP
at IFRS
GAAP Self-Test Questions
IFRS requires that non-cash items:
13-83 LO 8
A Look atAU.S.
LookGAAP
at IFRS
GAAP Self-Test Questions
In the future, it appears likely that:
a) the income statement and statement of financial position
(balance sheet) will have headings of operating,
investing, and financing, much like the statement of cash
flows.
b) cash and cash equivalents will be combined in a single
line item.
c) the IASB will not allow companies to use the direct
approach to the statement of cash flows.
d) None of the above.
13-84 LO 8
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13-85