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Cash Flow Statement (Contd)
Illustration 01

• In the following example we have provided you with a Balance Sheet with comparative figures and some additional information.
• All figures including those given in additional information are in thousands of Rupees.

Cash flow statement- Explanation

• We have started with profit before tax that was provided in the additional information; otherwise it can be obtained from income statement.
• Next we have adjusted the profit figure for non-cash items and other items that are to be shown separately.
• Non cash items usually include depreciation, provisions.
• Items to be shown separately usually include interest income / expense and dividend income and other items that are to be dealt with in investing or financing activities such as gain / loss on sale of fixed assets.
• Working capital changes are calculated as a difference of opening and closing balance (worked out from current and comparative figures of balance sheet)
• Payments / receipts of interest and dividend and tax payment are calculated through “T” accounts as follows:

United Company Limited

• In case of dividend income and expense and tax expense there is no receivable or payable therefore we assume that the receipt / payment is equal to income / expense. Otherwise payment / receipt from these heads would also have been worked out like interest payable or receivable.
• Investment in Shares was sold for Rs. 65 and a gain of Rs. 15 was realized. Therefore Rs. 15 has been adjusted as non cash item and a receipt of Rs. 65 has been shown.
• In this example there is no addition or disposal of fixed assets which is evident from opening and closing balance of the WDV of fixed assets.