Friday, November 16, 2012

REPORTING CASH FLOWS FROM OPERATING ACTIVITIES (USING INDIRECT METHOD)


The cash from operating activities is the ‘cash generated from operations’ less interest and tax actually paid in the year.
There are two ways of getting to ‘cash generated from operations’, the direct method and the indirect method.
With the indirect method, we start with Profit before tax, and then have to make some adjustments for:
A. Non cash items, eg depreciation, provisions, profits/losses on the sale of assets
B. Changes during the period in inventories, receivables and payables
C. Other items, the cash flows from which should be classified under investing or financing activities 
PROFORMA
Cash flows from operating activities                           $
Profit before taxation                                                    x
Adjustment for:
            Depreciation                                                    x         
            Foreign Exchange Loss                                    x
            Loss on Disposal of asset                                x
            Interest Expenses (net)                                    x
            Profit on disposal of asset                              (x)        
            Investment Income                                        (x)
                                                                                 x
            Decrease in inventories                                  x
            Increase in Trade Receivables                      (x)
            Decrease in Trade Payables                         (x)
Cash generated from operations                                 x
Interest Paid                                                             (x)
Income tax paid                                                        (x)
Net cash from operating activities                               x

Friday, November 9, 2012

IFRS 9 FINANCIAL INSTRUMENTS


IFRS 9 deals with recognition and measurement of Financial Assets. An entity recognise  financial asset on its Sttatement of Financial Postion.
The three classification of financial assets are measured at fair value under IFRS 9, as follows:

Debt instruments
A debt instrument will be measured at amortised cost or FVTPL. A debt instrument generally must be measured at amortised cost if both the ‘business model test’ and the ‘contractual cash flow characteristics test’ are satisfied.
Business model test: The objective of the entity’s business model is to hold the financial asset to collect the contractual cash flows (rather than have the business model objective to sell the instrument prior to its contractual maturity to realise its fair value changes). 
Contractual cash flow characteristics test: The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Equity investments
Under IFRS 9 all equity investments held must be measured at either:
1. fair value through profit or loss, or
2. fair value through other comprehensive income.

Gains and losses arising on equity investments are recognised in profit or loss (i.e. they are measured at FVTPL) unless the entity irrevocably designates at initial recognition that they should be recognised in other comprehensive income (i.e. designating them as at FVTOCI). Designation at FVTOCI is not permitted if the equity investment is held for trading.