Accounting Guideline

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Accounting Guideline

GRAP 2

Cash Flow

_Statements

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Permission to reproduce limited extracts from the publication will not usually be withheld.

Though National Treasury (NT) believes reasonable efforts have been made to ensure the accuracy of the information contained in the guideline, it may include inaccuracies or typographical errors and may be changed or updated without notice. NT may amend these guidelines at any time by posting the amended terms on NT's Web site.

Note that this document is not part of the GRAP standard. The GRAP takes precedence while this guideline is used mainly to provide further explanations on the concepts already in the GRAP

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1 INTRODUCTION

This document provides guidance on the identification and disclosure of information about the historical changes in cash and cash equivalents of an entity by means of a cash flow statement, which classifies cash flows during the period from operating, investing and financing activities.

The contents should be read in conjunction with GRAP 2 (issued February 2010) and includes any changes made by the board in terms of the Improvements to Standards of GRAP.

For purposes of this guide, “entities” refer to the following bodies to which the standards of GRAP relate to, unless specifically stated otherwise:

 Public entities

 Constitutional institutions

 Municipalities and all other entities under their control

 Parliament and the provincial legislatures Explanation of images used in manual:

Definition

Take note

Management process and decision making

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2 SCOPE

GRAP 2 is applicable to all entities preparing their financial statements on the accrual basis of accounting.

Entities will comply with GRAP 2 for the preparation of a cash flow statement which should be presented as an integral part of the financial statements for each period for which financial statements are presented.

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3 THE BIG PICTURE

Figure 1

Cash Flow Statements

Disclose Interest and Dividends Separately

Exclude Non-Cash Movements

Cash Flows From Operating Activities

E.g.

Cash FlowsTo/ From Suppliers/Customers

Cash Flows From Investing Activities

E.g.

Acquisition/Disposal Of Long Term Assets

Cash Flows From Financing Activities

E.g. Cash Flows From

Borrowings

Disclose Tax On Surplus Separately Direct Method

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4 PRESENTATION OF A CASH FLOW STATEMENT

The cash flows during the period reported in the cash flow statement should be classified as cash flows from operating, investing and financing activities.

Direct method cash flow statement (paragraph .196)

ENTITY – CONSOLIDATED CASH FLOW STATEMENT

FOR YEAR ENDED 31 DECEMBER MARCH 20X2 (in thousands of

currency units rands)

20X2

20X1

CASH FLOWS FROM OPERATING ACTIVITIES

Receipts

Taxation

x

Sales of goods and services

x

Grants

x

Interest received

x

Other receipts

x

Payments

x

Employee costs

x

Suppliers

x

Interest paid

x

Other receipts

x

Payment

Employee costs

(x)

Suppliers

(x)

Interest paid

(x)

Other payments

(x)

Net cash flows from operating activities

x

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of plant and equipment

(x)

Proceeds from sale of plant and equipment

x

Proceeds from sale of investments

x

Purchase of foreign currency securities

(x)

Net cash flows from investing activities

(x)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from borrowings

x

Repayment of borrowings

(x)

Distribution/dividend to government

(x)

Net cash flows from financing activities

x

Net increase/ (decrease) in cash and cash equivalents

x

Cash and cash equivalents at beginning of period

x

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Notes to the cash flow statement

(a) Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and balances with banks and

investments in money market instruments. Cash and cash equivalents included in the

cash flow statement comprise the following statement of amounts indicating financial

position:

20X2

20X1

Cash on hand and balances with banks

x

Short-term investments

x

The entity has undrawn borrowing facilities of X, of which X must be used on

infrastructural projects.

(b) Property, plant and equipment

During the period, the economic entity acquired property, plant and equipment with an

aggregate cost of X, of which X was acquired by means of capital grants by the national

government. Cash payments of X were made to purchase property, plant and equipment.

(c) Reconciliation of net cash flows from operating activities to surplus/(deficit)

Surplus/(Deficit)

x

Non-cash movements

Depreciation

x

Amortisation

x

Increase in provision for doubtful debts impairment of

debtors

x

Increase in payables

x

Increase in borrowings

x

Increase in provisions relating to employee costs

x

(Gains)/losses on sale of property, plant and equipment

(x)

(Gains)/losses on sale of investments

(x)

Increase in other current assets

(x)

Increase in investments due to revaluation

(x)

Increase in receivables

(x)

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4.1 Operating activities

Operating activities are the activities of the entity that are not investing or financing activities.

Example 1: Cash flows from operating activities

Cash flows from operating activities are derived from the main cash-generating activities of the entity, for example:

 Cash receipts from charges for goods and services;

 Cash receipts from grants (operating and capital); or transfers made by national government or other entities;

 Cash receipts from taxes, levies and fines;

 Cash payments to suppliers for goods and services;

 Cash payments to and on behalf of employees; and

 Cash receipts or payments in relation to litigation settlements.

Example 2: Direct method

Extract from Cash Flow Statement Note 20x1 20x0

R R CASH FLOWS FROM OPERATING ACTIVITIES

Receipts XX XX Taxation XX XX Cash flows from operating activities should be reported by using only the direct method, whereby the entity’s significant classes of cash receipts and cash payments are disclosed.

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Sale of goods and services XX XX Transfers and subsidies XX XX Interest received XX XX Other receipts XX XX

Payments

Employee cost (XX) (XX)

Suppliers (XX) (XX)

Interest paid (XX) (XX) Other payments (XX) (XX)

Net cash flows from operating activities x XXX XXX

The entity should disclose a reconciliation between the surplus/deficit and the cash flows from operating activities. This reconciliation may form part of the cash flow statement or be included in the notes to the financial statements.

Example 3: Reconciliation of net cash flows from operating activities to surplus/(deficit)

Extract from Notes to the Cash Flow

Statement 20x1 20x0

R R Surplus/(deficit) XX (XX)

Non-cash movements

Depreciation XX XX Amortisation XX XX Increase in impairment of receivables XX XX (Gain)/loss on sale of property (XX) XX Increase in provisions relating to employee

cost XX XX

Movement in working capital

Increase in inventory (XX) (XX) Decrease in receivables XX XX Increase in unspent conditional grants XX XX Increase in consumer deposits XX XX

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Decrease in VAT payable (XX) (XX)

Net cash flow from operating activities XXX XXX

4.2 Investing activities

Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents.

Example 4: Cash flows from investing activities

Examples of cash flows arising from investing activities:

 Cash payments to acquire and cash receipts from the sale of property, plant and equipment, intangibles and other long-term assets. These payments include those relating to capitalised development costs and self-constructed property, plant and equipment;

Remember that:

o Proceeds from the sale of property, plant and equipment or similar assets, as disclosed in the cash flow statement, represents only the cash flow in the transaction. If an asset is sold for R100 and the carrying value is R65 then the gain will be R35 but the proceeds to be disclosed in the cash flow statement are R100. The gain of R35 will be a non-cash item to be included as part of the reconciliation of net cash flows from operating activities and the surplus/deficit for the period in the notes.

o When an asset is exchanged for another asset and there is no cash flow, even if a gain or loss is made, then no proceeds on the sale will be disclosed in the cash flow statement. If an asset with a carrying value of R70 is exchanged for an asset with a market value of R60 then the effective gain on the exchange is R10. No cash has flowed in this transaction and thus no proceeds on sale of assets should be disclosed in the cash flow statement.

 Cash payments to acquire and cash receipts from sale of equity or debt instruments of other entities and interest in joint ventures (other than those instruments considered to be cash equivalents or those held for trading or dealing);

o The most commonly known equity instrument is shares in an entity.

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January 2014 Page 11

where an entity invests with the government of South Africa. These bonds can be traded, in the market, similarly to equity instruments.

 Cash advances and loans made to other parties, or cash receipts from the repayment of advances and loans made to other parties (other than advances and loans of a public financial institution).

4.3 Financing activities

Financing activities are activities that result in changes in the size and composition of the contributed capital and borrowings of the entity.

Example 5: Cash flows from financing activities

Examples of cash flows arising from financing activities:

 Cash repayments of amounts borrowed;

 Cash repayments of finance leases; and

 Cash proceeds from short- or long-term borrowings.

4.4 Cash and cash equivalents

Cash and cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Cash equivalents are cash held for the purpose of meeting the entity’s short-term cash commitments rather than for investment purposes, thus the intention of management should be considered when determining what qualifies as cash equivalents.

As indicated in the example above, cash payments to acquire property, plant and equipment are classified as investing activities. There is, however, an exception to this rule. When an entity, in the course of its ordinary activities, acquires an asset for rental to others which is subsequently held for sale, then the initial cash payments, as well as all rental income and the proceeds from the sale of these assets should be classified as operating activities and not investing activities.

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January 2014 Page 12 For an investment to qualify as a cash equivalent it must be readily convertible into cash, it must have a short maturity date, and be subject to an insignificant risk of changes in value. There is no guideline as to what is considered a short investment period, however the standard mentions a period of three months or less as an example.

Bank overdrafts form part of cash and cash equivalents; they are repayable on demand and may form an integral part of an entity’s cash management activities.

Generally excluded from cash and cash equivalents are:

 Equity, unless it is in substance a cash equivalent; and

 Borrowings from the bank (excluding a bank overdraft) as it is considered a financing activity.

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5 NOTES TO THE CASH FLOW STATEMENT

5.1 Cash and cash equivalents

Entities should disclose the components of cash and cash equivalents and should present a reconciliation of the amounts in its cash flow statement with the cash and cash equivalents in the statement of financial position. An entity should also disclose the amount of significant cash and cash equivalent balances that are not available for use by the entity.

Some additional information may be relevant to the users of the financial statements in order to understand the financial position of the entity. Disclosure of this information, together with commentary by management, is encouraged and may be included. For example:

 The amount of undrawn borrowing facilities, indicating any restrictions on the use of these facilities;

 The total amount of cash flows from each of operating, investing and financing activities relating to a joint venture which is accounted for using the proportionate consolidation method; and

 The amount and nature of restricted cash balances.

Example 6: Example of disclosure requirements

Extract from Note to the Cash Flow Statement 20x1 20x0

R R Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, balances with banks and investments in money market instruments. Cash and cash equivalents included in the cash flow statement comprise of the following amounts indicated in the statement of financial position:

Cash on hand XX XX Bank balance XX XX Short-term investment XX XX

Overdraft (XX) (XX)

XXX XXX

The entity has undrawn borrowing facilities of Rx, of which Rx must be used on infrastructure projects.

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6 GUIDANCE ON OTHER CASH FLOW ITEMS

6.1 Interest and dividends or similar distributions

Interest and dividends or similar distributions received and paid should be disclosed separately. These amounts may differ from those recognised in the financial statements. E.g. where borrowing costs are capitalised, it may differ to actual amounts paid.

Interest paid and interest and dividends (or similar distributions) received may be classified as either operating, investing or financing activities. The classification of interest paid and interest and dividends (or similar distributions) received should be driven by the source. Guidance for classification:

 Interest paid and interest and dividends received from working capital (e.g. bank, receivables and payables) should be classified as operating cash flows;

 Interest and dividends (or similar distributions) received may be classified as investing cash flow if they are returns on investments;

 Interest or similar distributions paid on borrowings may also be classified as financing cash flow because they are a cost of obtaining finance; and

 Interest paid on finance leases should rather be classified as financing cash flow together with the movement in the liability.

This classification should be consistent from period to period.

6.2 Non-cash transactions

Many operating, investing and financing activities do not require the use of cash and must be excluded from the cash flow statement.

Example 7: Non-cash transactions

Examples of non-cash transactions are:

 Depreciation and amortisation;

 Increase or decrease in impairment provisions;

 Year-end adjustment to the bonus and leave provision;

 Purchases of an asset by exchanging another asset; and

 Acquiring an asset by means of a finance lease.

6.3 Investments in controlled entities, associates and joint ventures

When an entity has an investment in an associate or a controlled entity accounted for by use of the equity or cost method, only the cash flows between the entity and the investee will be

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January 2014 Page 15 reported in the cash flow statement. These cash flow transactions include, for example, dividends or interest paid or received.

When an entity has an investment in a joint venture and it accounts for that investment by using the proportionate consolidation method, then the entity's proportionate share of the joint venture’s cash flows should be included in the consolidated cash flow statement of the entity.

Example 8: The entity has a 50% share in the joint venture and the proportionate consolidation method is used

Extract from joint venture’s

cash flow statement Note 20x1 included in entity’s 50% share to be consolidated cash flow statement

R R CASH FLOWS FROM OPERATING ACTIVITIES

Receipts

Sale of goods and services 1,000 500

Other receipts 250 125

Payments

Employee cost (670) (335)

Net cash from operating

activities 580 290 CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of plant and

equipment (10,000) (5,000) Proceeds from sale of

investment 20 10

Net cash from investing

activities (9,980) (4,990) CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from borrowings 10,000 5,000

Net cash from financing

activities 10,000 5,000

Net increase in cash and

cash equivalents 600 300 Cash and cash equivalents

and the beginning of the period

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Cash and cash equivalents

at end of the period 800 400

6.4 Acquisitions and disposals of controlled entities and other operating units

The total cash flows from acquiring or selling an interest in a controlled entity or an operating unit should be classified as investing activities.

The entity should disclose in the cash flow statement, and in the notes to the cash flow statement, the total cash flows from acquiring or selling a controlled entity and other operating units, and other relating information.

Below is an illustration of the disclosure requirements (refer to the standard for detail).

Example 9: Disclosure extract for purchase of controlled entity

... R R

CASH FLOW FROM INVESTING ACTIVITIES

Purchase investment in controlled entity x 100 XX

...

Extract from Notes to the Cash Flow Statement 20x1 20x0

... R R

Total purchase price 120 XX Portion of purchase price discharged by

means of cash and cash equivalents (20) XX

Assets

Property, plant and equipment 18 XX Investment property 80 XX

Receivables 7 XX

Liabilities

Payables (5) XX

Net assets excluding cash and cash

equivalents 100 XXX

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Total net asset value 120 XXX

6.5 Foreign currency cash flows

Cash flows from transactions in a foreign currency should be recorded in the entity’s functional currency by applying to the foreign currency amount the exchange rate at the date of the cash flow.

The cash flows from foreign controlled entities should also be converted to the entity’s functional currency at the date of the cash flow.

Example 10: Converting foreign currency at cash flow date

The entity purchased equipment for 100 US dollars on 3 February 20x1; payment was made on the 28 February 20x1. The entity’s functional currency is South African Rands. The exchange rate on 3 February 20x1 was R10 for 1 US dollar and on payment date the exchange rate was R10.50 for 1 US dollar.

... R R

Purchase of equipment (100US$ @ R10.5) x 1,050 XX

...

Refer to the accounting guideline GRAP 4 on the effects of changes in foreign exchange rates for detail on these calculations.

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7 ILLUSTRATIVE EXAMPLE

Example A – direct method cash flow for an entity other than a financial institution Extract from Statement of Financial Position

Note 20x1 20x0

R R

Assets

Current assets

Inventory 30,000 23,000

Other receivables 350,000 450,000

Receivables from the sale of goods/services 1 1,450,000 1,690,000

VAT receivable 10,000 9,000

Cash and cash equivalents 2 175,000 150,000

2,015,000 2,322,000 Non-current assets

Property, plant and equipment 3 12,230,000 10,250,000

Investment in controlled entity 3,000 3,000

Investments 60,000 67,000

Long-term receivables 120,000 220,000

12,413,000 10,540,000

Total assets 14,428,000 12,862,000

Liabilities

Current liabilities

Finance lease obligation 561,000 1,139,000

Payables 4 1,095,000 1,077,000

Unspent conditional grants 7,000,000 6,000,000

Bank overdraft 2 35,000 32,000

8,691,000 8,248,000 Non-current liabilities

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Finance lease obligation - 571,000

Long-term borrowings 840,000 870,000

840,000 1,441,000

Total liabilities 9,531,000 9,689,000

4,897,000 3,173,000 Net assets

Accumulated surplus 4,897,000 3,173,000

Extract from Statement of Financial Performance

Note 20x1 20x0

R R

Revenue

Sales 2,427,000 2,277,000

Interest – Receivables from the sale of goods/services

110,000 102,000

Interest – Investments 2,000 5,000

Transfers and subsidies 1,393,000 1,308,000

Dividends 300 200

Other income 37,000 305,800

Total revenue 3,969,300 3,998,000

Expenditure

Personnel 890,000 810,000

Depreciation 35,000 32,000

Impairment loss on receivables 1 40,000 62,000

Finance cost – Bank overdraft 800 500

Finance cost – Borrowings 1,200 900

Finance cost – Finance lease 1,000 1,100

Repairs and maintenance 99,000 91,000

General expenditure 1,178,300 1,146,500

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Surplus for the period 1,724,000 1,854,000

Extract from Notes to the Annual Financial Statements

20x1 20x0

1. Receivables from the sale of goods/services

Receivables from the sale of goods/services 2,640,000 2,840,000 Less: Allowance for impairment (1,190,000) (1,150,000) 1,450,000 1,690,000 Reconciliation of Impairment allowances

Balance at the beginning of the period 1,150,000 1,088,000

Contribution to provision 40,000 62,000

1,190,000 1,150,000 2. Cash and cash equivalents

Cash and cash equivalents consist of:

Bank balance 5,000 -

Short-term investments 170,000 150,000

Bank overdraft (35,000) (32,000)

140,000 118,000 3. Property, plant and equipment

Reconciliation of property, plant and equipment

Opening balance 10,250,000 10,082,000

Additions 2,015,000 200,000

Depreciation (35,000) (32,000)

Closing balance 12,230,000 10,250,000

4. Payables

Payables from purchase of goods/services 1,070,000 1,042,000

Bonus provision 13,000 10,000

Sundry payables 12,000 25,000

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January 2014 Page 21 ENTITY – CASH FLOW STATEMENT

FOR THE PERIOD ENDED 31 MARCH 20x1

Note 20x1 20x0

Cash flow from operating activities Receipts

Taxation - XX

Sale of goods and services (2,427,000+240,000-40,000-7,000)

2,620,000 XX Transfers and subsidies (1,393,000+1,000,000) 2,393,000 XX Interest – Receivables from the sale of

goods/services

110,000 XX

Dividends received 300 XX

Other receipts (37,000+100,000) 137,000 XX Payments

Employee cost (890,000-3,000) (887,000) (XX)

Suppliers (99,000+1,178,300-15,000) (1,262,300) (XX)

Finance cost – Bank overdraft (800) (XX)

VAT paid (1,000) (XX)

Net cash flow from operating activities 16 3,109,200 XXX

Cash flow from investing activities

Purchases of property, plant and equipment 3 (2,015,000) (XX) Proceeds from sale of property, plant and

equipment

- XX Proceeds from sale of investments

(60,000-67,000)

7,000 XX

Interest – Investments 2,000 XX

Proceeds from long-term receivables (120,000-220,000)

100,000 XX Net cash flow from investing activities (1,906,000) XXX

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January 2014 Page 22 Repayments of finance lease

(561,000-1,139,000-571,000)

(1,149,000) (XX)

Finance cost – Finance lease (1,000) (XX)

Repayment of long-term borrowings (840,000-870,000)

(30,000) (XX)

Finance cost – Borrowings (1,200) (XX)

Net cash flow from financing activities (1,181,200) XXX

Net increase/(decrease) in cash and cash equivalents

22,000 XXX Cash and cash equivalents at the

beginning of the period

118,000 XXX Cash and cash equivalents at end of the

period

15 140,000 118,000

Notes to the cash flow statement

Note 20x1 20x0

15. Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, balances with banks and investments in money market instruments. Cash and cash equivalents included in the cash flow statement comprise the following amounts included in the statement of financial position:

Cash on hand and balance with banks 5,000 -

Short-term investments 170,000 150,000

Bank overdraft (35,000) (32,000)

140,000 118,000

16. Reconciliation of net cash flow from operating activities to surplus/(deficit)

Surplus/(deficit) for the period 1,724,000 XX

Non-cash movements

Depreciation 35,000 XX

Impairment loss on receivables 40,000 XX

Increase in provisions relating to employee cost (13,000-10,000)

3,000 XX

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Interest received - Investments (2,000) XX

Finance cost – Borrowings 1,200 XX

Finance cost – Finance lease 1,000 XX

Movement in working capital

Increase in inventory (30,000-23,000) (7,000) XX Decrease in other receivables (350,000-450,000) 100,000 XX Decrease in receivables from the sale of goods/services

(1,450,000-1,690,000)

240,000 XX

Increase in allowance for impairments (1,190,000-1,150,000)

(40,000) XX

Increase in VAT receivable (10,000-9,000) (1,000) XX Increase in payables

(1,095,000-1,077,000)+(-13,000+10,000)

15,000 XX

Increase in unspent conditional grants (7,000,000-6,000,000) 1,000,000 XX Net cash flow from operating activities 3,109,200 XXX

Non-cash items

Non-cash items should be taken out of the surplus/deficit for the period.

Revenue:

 As revenue increased the surplus (or decreased the deficit), it should be deducted (negative) in the reconciliation.

Expenses:

 As expenses decreased the surplus (or increased the deficit), it should be added (positive) in the reconciliation.

Working capital movements

Remember that a positive figure represents an inflow of cash and a negative figure represents an outflow of cash.

Assets:

 Decreases in assets from prior period to current period represent a cash inflow for the entity.

o For receivables it is an indication that the accounts were paid, which results in a cash inflow for the entity;

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January 2014 Page 24 o A decrease in inventory is an indication that inventory was sold and sales are

a cash inflow for an entity.

o A decrease in investments (investment that does not form part of cash and cash equivalents) is the result of funds that were withdrawn from the investments or investments that were sold, which are cash inflows.

 Increases in assets from prior period to current period represent a cash outflow for the entity.

o An increase in debtors indicates that additional credit was given which represents a cash outflow.

o An increase in inventory means the entity purchased more stock than what it sold and the net effect being an outflow of cash.

o Increase in short term investments (investments that do not form part of cash and cash equivalents) indicates additional funds were invested which is a cash outflow.

Liabilities:

 A decrease in liabilities from prior period to current period represents an outflow of cash for the entity. The decrease indicates that liabilities were paid which is an outflow of cash.

 When a liability increases from period to period, it represents a cash inflow as you are effectively receiving additional cash.

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8 ENTITY-SPECIFIC GUIDANCE

Entity-specific guidance has been included where appropriate to provide specific guidance on a subject that only relates to those types of entities.

8.1 Municipalities

 Disclosure requirements in terms of the Municipal Finance Management Act 56, 2003 The following additional compulsory disclosures are required in terms of the Municipal Finance Management Act 56, 2003.

Note to the financial statements Disclosure requirements

Cash and cash equivalents  For each bank account held by the municipality or the municipal entity during the financial year: o The name of the bank where the account is or

was held and the type of account and;

o The period opening and period closing balances in each of these bank accounts.

Example 11: Compulsory disclosure requirements by the MFMA

Extract from the Notes to the Financial

Statements 20x1 20x0

Cash and cash equivalents

ABSA Bank – Current account

Cash book balance at the beginning of the period XX XX Cash book balance at the end of the period XX XX Bank statement balance at the beginning of the period XX XX Bank statement balance at the end of the period XX XX

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8.2 Public entities and constitutional institutions

Taxes on surplus

Cash flow arising from taxes should be separately disclosed and should be classified as cash flows from operating activities unless the cash flow from the tax can be specifically identified with a financing or investing activity.

Entities are generally exempt from taxes on surpluses.

Example 12: Taxes on surplus

An entity paid taxation to the amount of R55, 000 during the period (20x1). The R55, 000 is made up of R49, 000 income tax on the net profit for 20x0 and R6, 000 capital gains tax on a building sold in 20x0.

The total cash flow in 20x1 for taxes on surplus is R55, 000. R49,000 of the cash flow should be disclosed under operating activities as the tax was a result of operating activities and R6,000 under investing activities as buildings are classified as investing activities.

R R CASH FLOW FROM OPERATING ACTIVITIES

Payments

Taxation (49,000) XX

...

Taxation (6,000) XX

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9 SUMMARY OF KEY PRINCIPLES

GRAP 2 sets out the principles for preparing a cash flow statement. Each entity presents its cash flow from operating, investing and financing activities in a manner which is most appropriate to its activities.

9.1 Preparing and presenting a cash flow statement

All cash flow items should be classified into one of 3 main categories: 1. Operating activities

2. Investing activities 3. Financing activities

Cash flows from operating activities should be reported by using the direct method.

An entity should include a reconciliation of the surplus or deficit presented in the statement of financial performance with the net cash flow from operating activities reflected in the cash flow statement.

Components of cash and cash equivalents and the amount of cash and cash equivalents not available for use by the entity should be disclosed.

Cash and cash equivalents are part of the cash management of an entity and thus the movement in cash and cash equivalents are excluded from cash flow.

Interest paid and interest and dividends or similar distributions received should be classified into the different activities based on the source.

All non-cash transactions should be excluded from the cash flow statement.

Cash flow from taxes, if practical, should be allocated to the different activities based on the source, if not practical then it should be classified as an operating activity.

Cash flows from transactions in a foreign currency should be converted to the entity’s functional currency at the date of the cash flow in accordance with GRAP 4 - The Effects of Changes in Foreign Exchange Rates.

Accounting Guideline