# DFS help

accountschic
Settling In NicelyPosts:

**15**Registered
Hi All

am taking DFS and PEV in june my final two...no pressure then.

I guess a lot of us will be the same, does not seem five minutes since we were here at Xmas!

I am struggling a bit with DFS - Cash Flow rec's/statements, if anyone has any good guidance notes that may help this clearer... not finding the book useful!

I would be most grateful

Thanks

S

am taking DFS and PEV in june my final two...no pressure then.

I guess a lot of us will be the same, does not seem five minutes since we were here at Xmas!

I am struggling a bit with DFS - Cash Flow rec's/statements, if anyone has any good guidance notes that may help this clearer... not finding the book useful!

I would be most grateful

Thanks

S

## Comments

624RegisteredKeep in mind what the objective of IAS 7 actually is. You are taking the income statement and balance sheet and stripping out the non-cash effects of various transactions (accruals, prepayments, depreciation, losses/profits on asset disposals etc) so what you are presenting is a summary of how the entity has spent its cash.

a common problem is when to add/deduct the increases/decreases in the working capital. When dealing with this problem try to think what the effect on the cash is. For example, an increase in debtors is a deduction because there has been less cash received in the year. Conversely, an increase in creditors means less cash has been paid out to creditors resulting in an addition to profit from operations.

I can also recommend a book written by clare Finch from Kaplan (A Students Guide to International Financial Reporting Standards). You can purchase this from Amazon, it may help you in your DFS studies.

There is also an article of mine here:

http://www.accountancystudents.co.uk/cms/professional_bodies/aat_read/where_did_all_the_money_go/

It is not written from the perspective of IAS 7 (it's an FRS 1 article) but it may help you understand the concepts (a link to clare's book is in the article also - but if you get it from Amazon, there's free postage!).

Best wishes

steve

Best wishes

Steve

15RegisteredI appreciate the link , very useful.

I get the concept of adding in/taking off, I just can,t get it to balance!!!

I will read your link and see if I can spot my mistake. ...... as there must be one... two or more!!

Cheers

Sarah

218RegisteredThe easiest of the lot!

You already know the answer to your problem even before you start to solve it!

In any full cash flow statement you will be given 3 things

1) This year's profit and loss account

2) This year's balance sheet

3) Last year's Balance sheet

To know your answer take away last year's cash/bank balance away from this year's cash/ bank balance and that will be your net cash inflow or cash out flow. Beware, if any of the bank balance is an overdraft then you will need to add the balances.

Cash flow statement is split into two sections:

1st section will show how much net cash inflow there has been.

2nd section will show where has that cash been spent.

1st Section - how much net cash inflow into the business?

here you need to know where to start!

From your P&L a/c find profit before interest and draw a draw a line across the page underneath that.

Then there are 7 points that you MUST address

2 points from P&L a/c above the line drawn across the page, and

3 points from the balance sheet (current assets and current liabilities)

2 points from P&L a/c below the line drawn across the page

Start with your profit before interest figure and

1.- ADD any loss (from above the line) that you may have made on the sale of the fixed asset; or LESS any profit that you may have made.

2.- ADD the total depreciation expense for the year (from above the line, or from additional noted given)

1 - STOCK - find the difference between last year's stock and this year's stock. If the stock has increased there is a net cash outflow or if the stock has decreased there is a net cash inflow:

ADD net cash inflow or LESS net cash out flow

2 - Debtors - find the difference between last year's debtors and this year's debtors. If the debtors has increased there is a net cash outflow or if the debtors has decreased there is a net cash inflow:

ADD net cash inflow or LESS net cash out flow

3 - Creditors - BECAREFUL HERE! It is the opposite of Debtors; find the difference between last year's creditors and this year's creditors. If the creditors has increased there is a net cash inflow or if the creditors has decreased there is a net cash outflow:

ADD net cash inflow or LESS net cash out flow

1 - LESS -Interest paid for the current year (found below the line from P&L)

2 - LESS - Actual tax paid.( do your calculations in brackets to demonstrate your understanding) the calculations: last year's unpaid tax (B/S) plus this year's tax payable (P&L) less this year's unpaid tax creditors (B/S) equals actual tax paid to Inland Revenue.

After the above work out you will get NET CASH INFLOW from operating activities.

The 2nd sections starts with NET CASH INFLOW:

there are two things you must remember here:

1 We need to deal with the dividends paid (P&L) here

2 You MUST show your workings for Fixed Asset Register to show (a) how much cash been received for the sold asset and (b) how much cash outflow for the purchase of the new fixed assets.

your workings:

Opening balance of fixed assets from (B/S) xxxx (NBV)

LESS FA sold (cost less acc. dep = NBV) - xxxx (plus/minus profit/loss to

info from foot-notes arrive- Net Cash IN)

ADD PURCHASES ???? missing figure

LESS Depreciation expense for this year xxxx from (P&L) or Notes

EQUALS Closing balance of fixed assets (B/S) xxxx (NBV)

From the above workings you need to

1 ADD Net Cash IN from sale if Fixed Asset ( see my workings)

2 LESS net cash out for purchase of FIXED ASSET (see my workings)

3 Current Assets - deal with each item under this heading and it will be either cash in or cash out. (the difference between last year's and this year's balances- if assets go up then net cash out and if assets go down then net cash IN) ADD if net cash In or LESS if net cash out.

REMEMBER YOU HAVE ALREADY DELT WITH STOCK, DEBTORS AND CREDITORS, so you need to avoid these items.

4 You do NOT have to deal with CASH because that is what you are working on - IGNORE

5 Current liabilities - same as current assets - (if CL go up then net cash IN and if CL go down then net cash OUT)

6 Long term Liabilities - same as current Liabilities

7 Share Capital - same as current Liabilities

8 Share Capital premium - same as current Liabilities

9 Retained P&L balances - IGNORE

10 Do NOT Forget to MINUS Dividends paid. (either from P&L or Foot-note- You might have to work out ACTUAL dividends paid. - SEE TAX calculations above for HOW?)

After the above calculation you will arrive at the EXPECTED ANSWER - of NET CASH increase or decrease.

ADD/LESS the Opening Cash Balance (B/S)

will equal to the Closing Cash Balance (B/S)

I Hope this will help.

If you want to this to be a second nature to you then you must practice the cashflow questions at least 10 questions consecutively in one sitting.

218RegisteredThe easiest of the lot!

You already know the answer to your problem even before you start to solve it!

In any full cash flow statement you will be given 3 things

1) This year's profit and loss account

2) This year's balance sheet

3) Last year's Balance sheet

To know your answer take away last year's cash/bank balance away from this year's cash/ bank balance and that will be your net cash inflow or cash out flow. Beware, if any of the bank balance is an overdraft then you will need to add the balances.

Cash flow statement is split into two sections:

1st section will show how much net cash inflow there has been.

2nd section will show where has that cash been spent.

1st Section - how much net cash inflow into the business?

here you need to know where to start!

From your P&L a/c find profit before interest and draw a draw a line across the page underneath that.

Then there are 7 points that you MUST address

2 points from P&L a/c above the line drawn across the page, and

3 points from the balance sheet (current assets and current liabilities)

2 points from P&L a/c below the line drawn across the page

Start with your profit before interest figure and

1.- ADD any loss (from above the line) that you may have made on the sale of the fixed asset; or LESS any profit that you may have made.

2.- ADD the total depreciation expense for the year (from above the line, or from additional noted given)

1 - STOCK - find the difference between last year's stock and this year's stock. If the stock has increased there is a net cash outflow or if the stock has decreased there is a net cash inflow:

ADD net cash inflow or LESS net cash out flow

2 - Debtors - find the difference between last year's debtors and this year's debtors. If the debtors has increased there is a net cash outflow or if the debtors has decreased there is a net cash inflow:

ADD net cash inflow or LESS net cash out flow

3 - Creditors - BECAREFUL HERE! It is the opposite of Debtors; find the difference between last year's creditors and this year's creditors. If the creditors has increased there is a net cash inflow or if the creditors has decreased there is a net cash outflow:

ADD net cash inflow or LESS net cash out flow

1 - LESS -Interest paid for the current year (found below the line from P&L)

2 - LESS - Actual tax paid.( do your calculations in brackets to demonstrate your understanding) the calculations: last year's unpaid tax (B/S) plus this year's tax payable (P&L) less this year's unpaid tax creditors (B/S) equals actual tax paid to Inland Revenue.

After the above work out you will get NET CASH INFLOW from operating activities.

The 2nd sections starts with NET CASH INFLOW:

there are two things you must remember here:

1 We need to deal with the dividends paid (P&L) here

2 You MUST show your workings for Fixed Asset Register to show (a) how much cash been received for the sold asset and (b) how much cash outflow for the purchase of the new fixed assets.

your workings:

Opening balance of fixed assets from (B/S) xxxx (NBV)

LESS FA sold (cost less acc. dep = NBV) - xxxx (plus/minus profit/loss to

info from foot-notes arrive- Net Cash IN)

ADD PURCHASES ???? missing figure

LESS Depreciation expense for this year xxxx from (P&L) or Notes

EQUALS Closing balance of fixed assets (B/S) xxxx (NBV)

From the above workings you need to

1 ADD Net Cash IN from sale if Fixed Asset ( see my workings)

2 LESS net cash out for purchase of FIXED ASSET (see my workings)

3 Current Assets - deal with each item under this heading and it will be either cash in or cash out. (the difference between last year's and this year's balances- if assets go up then net cash out and if assets go down then net cash IN) ADD if net cash In or LESS if net cash out.

REMEMBER YOU HAVE ALREADY DELT WITH STOCK, DEBTORS AND CREDITORS, so you need to avoid these items.

4 You do NOT have to deal with CASH because that is what you are working on - IGNORE

5 Current liabilities - same as current assets - (if CL go up then net cash IN and if CL go down then net cash OUT)

6 Long term Liabilities - same as current Liabilities

7 Share Capital - same as current Liabilities

8 Share Capital premium - same as current Liabilities

9 Retained P&L balances - IGNORE

10 Do NOT Forget to MINUS Dividends paid. (either from P&L or Foot-note- You might have to work out ACTUAL dividends paid. - SEE TAX calculations above for HOW?)

After the above calculation you will arrive at the EXPECTED ANSWER - of NET CASH increase or decrease.

ADD/LESS the Opening Cash Balance (B/S)

will equal to the Closing Cash Balance (B/S)

I Hope this will help.

If you want to this to be a second nature to you then you must practice the cashflow questions at least 10 questions consecutively in one sitting.

38Registeredcash flow statement is reallyy confusing:confused1:

218RegisteredAny company can produce a profit and loss account to show how much profit they have made but if that profit is not collected from their customers then they may as well not have made that profit.

so if a company has made say £50,000 profit and they not spend that profit on any asset or reduced their liabilities then in theory that £50,000 profit if collected from their debtors should end up in the bank account. and say if the opening balance in the bank a/c was £1000 then at the end of the accounting period the bank account should have a balance of £51,000.

The 50,000 profit has been generated from operation activities ie. buying and selling produces the cash inflow and therefore any profit or loss on fixed asset should be discounted from the operating profits.

Remember profit or loss is NOT cash inflow. Only the receipts of the sale of equipment is Cash inflow, which will be shown on the second statement.

38Registeredthanx