Fillable Printable Cash Flow Statement - Financial Reporting Council
Fillable Printable Cash Flow Statement - Financial Reporting Council
Cash Flow Statement - Financial Reporting Council
Staff Education Note 1: Cash flow Statements
Accounting and Reporting Policy
FRS 102
Staff Education Note 1
Cash flow statements
Disclaimer
This Education Note has been prepared by FRC staff for the convenience of users of FRS 102 The Financial
Reporting Standard applicable in the UK and Republic of Ireland. It aims to illustrate certain requirements of
FRS 102, but should not be relied upon as a definitive statement on the application of the standard. The
illustrative material is not a substitute for reading the detailed requirements of FRS 102.
Staff Education Note 1: Cash flow Statements
Page | 1
Contents
Page
Introduction
2
Illustrative cash flow statement
FRS 1
3
FRS 102
4
Illustrative extracts from notes to the financial statements
FRS 1
5
FRS 102
6
Other similarities and differences
Exemptions
7
Acquisitions and disposals
8
Foreign currency cash flows
8
Endnotes
9
Staff Education Note 1: Cash Flow Statements
Page | 2
Introduction
In this Staff Education Note, an illustrative cash flow statement is shown first under FRS 1
Cash flow statements (revised 1996) and then restated to comply with Section 7 Statement
of Cash Flows of FRS 102 The Financial Reporting Standard applicable in the UK and
Republic of Ireland.
In contrast to FRS 1, a cash flow statement prepared under FRS 102:
reconciles the movement in cash and cash equivalents, not just cash;
groups cash flows into fewer headings (ie cash flows from operating, investing and
financing activities);
reconciles profit to cash flows from operating activities starting from profit for the year
rather than operating profit; and
has fewer supporting notes.
This Staff Education Note has been prepared to illustrate the format of the cash flow
statement prepared in accordance with FRS 102 and assumes that there are no other
changes arising from the application of FRS 102. In a full set of financial statements,
comparatives would be provided.
There are no requirements in the Regulations
1
in respect of cash flow statements.
This Staff Education Note is written to highlight key areas of consideration when transitioning
to FRS 102 and is not designed to be exhaustive.
Staff Education Note 1: Cash Flow Statements
Page | 3
Illustrative Cash Flow Statement
FRS 1 Cash flow statements (revised 1996)
Cash flow statement
2
for the year ended 31 December 20X1
Note
20X1
CU’000
Net cash inflow from operating activities
A
6,889
Returns on investments and servicing of finance
Interest received
3,011
Interest paid
(12)
Net cash inflow from returns on investments and servicing of
finance
2,999
Taxation
(2,922)
Capital expenditure
Payments to acquire intangible fixed assets
(71)
Payments to acquire tangible fixed assets
(1,496)
Receipts from sales of tangible fixed assets
42
Capital expenditure
(1,525)
5,441
Equity dividends paid
(2,417)
Net cash inflow before use of liquid resources and financing
3,024
Management of liquid resources
Purchase of treasury bills
(650)
Sale of treasury bills
200
Net cash outflow from management of liquid resources
(450)
Financing
Issue of ordinary share capital
211
Repurchase of debenture loan
(149)
Expenses paid in connection with share issue
(5)
Financing
57
Increase in cash
B, C
2,631
Staff Education Note 1: Cash Flow Statements
Page | 4
Illustrative Cash Flow Statement
FRS 102 The Financial Reporting Standard applicable in the UK and Republic
of Ireland
Cash flow statement
3
for the year ended 31 December 20X1
Note
20X1
CU’000
Cash flows from operating activities
4
Profit for the financial year
5
6,099
Adjustments for:
Depreciation of property, plant and equipment
869
Amortisation of intangible assets
50
Profit on disposal of property, plant and equipment
(20)
Interest paid
6
12
Interest received
6
(3,011)
Taxation
7
2,922
Decrease/(increase) in trade and other receivables
(72)
Decrease/(increase) in inventories
(194)
Increase/(decrease) in trade payables
234
Cash from operations
8
6,889
Interest paid
6
(12)
Income taxes paid
(2,922)
Net cash generated from operating activities
3,955
Cash flows from investing activities
Proceeds from sale of equipment
42
Purchases of property, plant and equipment
(1,496)
Purchases of intangible assets
(71)
Interest received
6
3,011
Net cash from investing activities
1,486
Cash flows from financing activities
Issue of ordinary share capital
206
Repayment of borrowings
(149)
Dividends paid
9
(2,417)
Net cash used in financing activities
(2,360)
Net increase/(decrease) in cash and cash equivalents
3,081
Cash and cash equivalents at beginning of year
10
A
(1,492)
Cash and cash equivalents at end of year
11
A
1,589
Staff Education Note 1: Cash Flow Statements
Page | 5
Illustrative extracts from the notes to the financial statements
FRS 1 Cash flow statements (revised 1996)
Notes to the financial statements
for the year ended 31 December 20X1
A. Reconciliation of operating profit to net cash inflow from operating
activities
20X1
CU’000
Operating profit
6,022
Depreciation
869
Amortisation
50
Profit on disposal of tangible assets
(20)
Increase in stock
(194)
Increase in debtors
(72)
Increase in creditors
234
Net cash inflow from operating activities
6,889
B. Analysis of changes in net debt
At 1 Jan
20X1
CU’000
Cash
flows
CU’000
Other
changes
CU’000
At 31 Dec
20X1
CU’000
Cash in hand, at bank
42
847
889
Overdrafts
(1,784)
1,784
2,631
Debt due within one year
(149)
149
(230)
(230)
Debt due after one year
(1,262)
230
(1,032)
Current asset investments
250
450
700
Total
(2,903)
3,230
-
327
C. Reconciliation of net cash flow to movement in net debt
12
20X1
CU’000
Increase in cash in the period
2,631
Cash to repurchase debenture
149
Cash used to increase liquid resources
450
Change in net debt
3,230
Net debt at 1 January
(2,903)
Net funds at 31 December
327
Staff Education Note 1: Cash Flow Statements
Page | 6
Illustrative extracts from the notes to the financial statements
FRS 102 The Financial Reporting Standard applicable in the UK and Republic
of Ireland
Notes to the financial statements
for the year ended 31 December 20X1
A. Components of cash and cash equivalents
13
20X1
CU’000
20X2
CU’000
Cash
42
889
Overdraft
(1,784)
Cash equivalents
250
700
(1,492)
1,589
The Financial Reporting Lab of the FRC carried out a project on net debt reconciliations.
This noted that a majority of investors use a net debt reconciliation or reconciliation of net
cash flows to net debt when one is presented. It encouraged companies to consider how
this might be relevant to their own circumstances and if so enhance their reporting to meet
investor needs.
Staff Education Note 1: Cash Flow Statements
Page | 7
Other similarities and differences
Exemptions
FRS 1
FRS 102
Subsidiary undertakings where 90 per cent
or more of the voting rights are controlled
within the group are exempt from having to
prepare a cash flow statement, provided that
consolidated financial statements in which
the subsidiary undertakings are included are
publicly available.
(FRS 1 paragraph 5)
A qualifying entity may take advantage of
certain disclosure exemptions (including the
preparation of a cash flow statement)
provided that:
(a) Its shareholders have been notified in
writing about, and do not object to, the
use of the disclosure exemptions...
(b) It otherwise applies the recognition,
measurement and disclosure
requirements of this FRS.
(c) It discloses in the notes to its financial
statements:
(i) a brief narrative summary of the
disclosure exemptions adopted;
and
(ii) the name of the parent of the group
in whose consolidated financial
statements its financial statements
are consolidated, and from where
those financial statements may be
obtained.
(FRS 102 paragraph 1.11 and 1.12)
A qualifying entity is a member of a group
where the parent of that group prepares
publicly available consolidated financial
statements which are intended to give a true
and fair view (of the assets, liabilities,
financial position and profit or loss) and that
member is included in the consolidation.
(FRS 102 Glossary)
Under FRS 102, if certain conditions are met and an entity elects to take advantage of the
reduced disclosures for subsidiaries (and ultimate parents), it is possible for any subsidiary
and any parent company to opt out of preparing a cash flow statement. This is in contrast to
FRS 1, where only 90% subsidiaries are exempt from preparing a cash flow statement. This
represents a change when applying FRS 102.
Staff Education Note 1: Cash Flow Statements
Page | 8
Acquisitions and disposals
FRS 1
FRS 102
Individual categories of inflows and outflows
should be disclosed separately, where
material.
(FRS 1 paragraph 7)
Cash outflows from acquisitions and
disposals include payments to acquire
investments in subsidiary undertakings,
showing separately any balances of cash
and overdrafts acquired.
(FRS 1 paragraph 24(a))
An entity shall present separately major
classes of gross cash receipts and gross
cash payments arising from investing and
financing activities. The aggregate cash
flows arising from acquisitions and from
disposals of subsidiaries or other business
units shall be presented separately and
classified as investing activities.
(FRS 102 paragraph 7.10)
Therefore, FRS 102 does not explicitly require the disclosure of the cash or overdrafts
acquired as part of an acquisition. However, if the cash or overdraft acquired was material it
may be regarded as a major class of gross cash receipts or payments and separate
presentation would be required.
Foreign currency cash flows
FRS 1 / SSAP 20
FRS 102
Where a portion of a reporting entity’s
business is undertaken by a foreign entity,
the cash flows of that entity are to be
included in the cash flow statement on the
basis used for translating the results of
those activities in the profit and loss account
of the reporting entity.
(FRS 1 paragraph 41)
The profit and loss account of a foreign
enterprise accounted for under the closing
rate/net investment method should be
translated at the closing rate or at an
average rate for the period.
(SSAP 20 paragraph 54)
… to reconcile cash and cash equivalents at
the beginning and the end of the period, the
effect of exchange rate changes on cash
and cash equivalents held or due in a
foreign currency must be presented in the
statement of cash flows. … The entity shall
present the resulting unrealised gain or loss
separately from cash flows from operating,
investing and financing activities.
(FRS 102 paragraph 7.13)
An entity shall translate cash flows of a
foreign subsidiary at the exchange rate
between the entity’s functional currency and
the foreign currency at the date of the cash
flow or at an exchange rate that
approximates the actual rate (for example, a
weighted average exchange rate for the
period).
(FRS 102 paragraph 7.12)
In accordance with FRS 1, the value changes recognised by translating cash held or due in
a foreign currency at the balance sheet date are not required to be presented separately in
the cash flow statement. However, such value changes are not cash flows as defined by
FRS 102 and FRS 102 requires the separate presentation of foreign exchange differences
relating to cash and cash equivalents. This will be a change when applying FRS 102.
In relation to profit and loss items, FRS 1 allows a choice between translating at the closing
rate or an average rate for the period, in contrast to FRS 102 which allows a choice between
Staff Education Note 1: Cash Flow Statements
Page | 9
the rate at the transaction rate or an average rate for the period. This represents a change
when applying FRS 102.
Endnotes
1
Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410).
2
The individual categories of inflows and outflows under the standard headings should be disclosed
separately in the cash flow statement, as shown here, or in the notes to the financial statements.
3
FRS 102 uses the term ‘Statement of Cash Flows’. No title for this statement is specified in the Regulations,
therefore any title that adequately describes the statement is permitted (FRS 102 paragraph 3.22 permits
any titles as long as they are not misleading).
4
FRS 102 paragraph 7.7 permits entities to present cash flows from operating activities using either the
indirect method or the direct method. This Education Note illustrates the indirect method, which is the
method commonly applied in the UK. The reconciliation of profit or loss to cash from operations can be
shown either on the face of the cash flow statement or in the notes. FRS 1 also permits operating cash
flows to be presented using either the direct method or the indirect method (FRS 1 paragraph 7).
5
If the indirect method is chosen, FRS 102 paragraph 7.7(a) requires the profit or loss to be adjusted for the
effects of non-cash transactions. FRS 102 Section 7 does not specify which measure of profit or loss should
be used, but the glossary defines profit or loss as “The total of income less expenses, excluding the
components of other comprehensive income”. As a result, the measure of profit or loss to be used should
be ‘profit or loss for the financial year’.
6
For simplicity, the interest charge and income in this example are assumed to be the same as the cash
flows. FRS 102 paragraph 7.15 gives a choice for interest paid and received to be included in operating
cash flows or in financing and investing respectively. Here the choice has been taken to include interest
paid in operating cash flows and interest received in investing cash flows.
7
For simplicity, the taxation charge in this example is assumed to be the same as the cash flows.
8
The ‘cash from operations’ subtotal is discretionary and is used here in part to illustrate the similarity
between the two cash flow statements.
9
FRS 102 paragraph 7.16 gives a choice for dividends paid to be included either in cash flows arising from
operating activities or financing activities.
10
Overdrafts have been included within this opening figure as the overdraft is repayable on demand and
forms an integral part of the entity’s cash management (see paragraph 7.2 of FRS 102).
11
It is assumed that the ‘current asset investments’ shown as liquid resources in the first example have a
short maturity of three months or less from the date of acquisition, are readily convertible to known amounts
of cash and are subject to an insignificant risk of changes in value, and hence in the FRS 102 cash flow
statement are included as part of cash and cash equivalents.
12
This reconciliation shall be given either adjoining the cash flow statement or in a note as it is here (FRS 1
paragraph 33).
13
FRS 102 paragraph 7.20 requires an entity to present the components of cash and cash equivalents. It also
requires a reconciliation of cash and cash equivalents as presented in the cash flow statement to the
equivalent items presented in the statement of financial position (balance sheet). In addition, paragraph
7.21 of FRS 102 requires the disclosure of cash held by the entity but which is not available for use. It has
been assumed that this is not the case in this example.
