Comprehensive question
This chapter shows you how to prepare a complete Statement of Cash Flows using both the direct and indirect methods. It also includes a fully worked comprehensive question.
Learning objective
By the end of this chapter, you should be able to:
- Prepare a statement of cash flows or extracts as applicable
Format of statement of cash flow
A complete Statement of Cash Flows brings together cash flows from three categories:
- operating activities
- investing activities
- financing activities
The separate statements for these three categories (covered in the previous two chapters) are consolidated into a single comprehensive Statement of Cash Flows below.
Note: The opening cash and cash equivalents balance has been assumed for illustration. You’ll want to be very familiar with the standard format of the Statement of Cash Flows, because marks in examinations often depend on correct headings, subtotals, and presentation.
Direct method
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2024
| $ | $ | |
|---|---|---|
| CASH FLOWS FROM OPERATING ACTIVITIES | ||
| Cash received from customers | 90,100 | |
| Cash paid to suppliers | (44,100) | |
| Cash paid for rent | (17,200) | |
| Cash paid to employees | (28,100) | |
| Cash generated from operations | 700 | |
| Income tax paid | (200) | |
| Net cash from operating activities | 500 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | ||
| Cash paid for property, plant, and equipment | (92,000) | |
| Cash received from disposal of equipment | 28,000 | |
| Net cash used in investing activities | (64,000) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | ||
| Proceeds from issue of share capital | 50,000 | |
| Cash share premium from issue of shares | 30,000 | |
| Payments of long-term loan | (50,000) | |
| Dividend paid | (69,000) | |
| Net cash used in financing activities | (39,000) | |
| NET DECREASE IN CASH AND CASH EQUIVALENTS | (102,500) | |
| Cash and cash equivalents at beginning of year | 250,000 | |
| CASH AND CASH EQUIVALENTS AT END OF YEAR | 147,500 |
Indirect method
| $ | $ | |
|---|---|---|
| CASH FLOWS FROM OPERATING ACTIVITIES | ||
| Profit before tax | 180,000 | |
| Adjustments for: | ||
| Depreciation charge | 45,000 | |
| Loss on disposal of assets | 8,000 | |
| Investment income | (5,000) | |
| Finance costs | 12,000 | |
| Operating profit before changes in working capital | 240,000 | |
| Changes in working capital: | ||
| Increase in inventory | (22,000) | |
| Increase in trade receivables | (31,000) | |
| Decrease in trade payables | (14,000) | |
| Cash generated from operations | 173,000 | |
| Income taxes paid | (38,000) | |
| Net cash from operating activities | 135,000 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | ||
| Cash paid for property, plant, and equipment | (92,000) | |
| Cash received from disposal of equipment | 28,000 | |
| Net cash used in investing activities | (64,000) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | ||
| Proceeds from issue of share capital | 50,000 | |
| Cash share premium from issue of shares | 30,000 | |
| Payments of long-term loan | (50,000) | |
| Dividend paid | (69,000) | |
| Net cash used in financing activities | (39,000) | |
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 32,000 | |
| Cash and cash equivalents at beginning of year | 250,000 | |
| CASH AND CASH EQUIVALENTS AT END OF YEAR | 282,000 |
Illustration: BAMBO Company Ltd
You are the financial accountant for BAMBO Company Ltd. The company’s draft statements of financial position as at 31 December 2025 and 2024, and the statement of profit or loss for the year ended 31 December 2025 are provided below. Statement of Financial Position as at 31 December
| 2025 | 2024 | |
|---|---|---|
| $'000 | $'000 | |
| Non-current assets: | ||
| Property, plant and equipment (Note 1) | 535 | 380 |
| Current assets: | ||
| Inventory | 125 | 98 |
| Trade receivables | 142 | 156 |
| Cash and cash equivalents | 18 | 5 |
| Total current asset | 285 | 259 |
| Total assets | 820 | 639 |
| EQUITY AND LIABILITIES | ||
| Equity: | ||
| Share capital ($1 ordinary shares) | 200 | 150 |
| Share premium | 50 | 30 |
| Retained earnings | 295 | 248 |
| Revaluation surplus | 50 | 0 |
| Total equity | 595 | 428 |
| Non-current liabilities: | ||
| 6% Bank loan | 80 | 120 |
| Current liabilities | ||
| Trade payables | 115 | 71 |
| Tax payable | 30 | 20 |
| 145 | 91 | |
| Total equity and liabilities | 820 | 639 |
Statement of Profit or Loss for the year ended 31 December 2025
| $'000 | |
|---|---|
| Revenue | 1,240 |
| Cost of sales | (785) |
| Gross profit | 455 |
| Distribution costs | (128) |
| Administrative expenses | (165) |
| Profit from operations | 162 |
| Finance costs | (7) |
| Profit before tax | 155 |
| Income tax expense | (38) |
| Profit for the year | 117 |
| Other comprehensive income: | |
| Revaluation surplus | 50 |
| Total comprehensive income | 167 |
Note 1: Property, Plant and Equipment
| $'000 | |
|---|---|
| Carrying amount at 1 January 2024 | 380 |
| Additions at cost | 175 |
| Disposals - carrying amount | (15) |
| Depreciation charge for the year | (55) |
| Revaluation surplus | 50 |
| Carrying amount at 31 December 2024 | 535 |
Additional information:
- A piece of equipment with an original cost of $25,000 and accumulated depreciation of $10,000 was sold during the year for $12,000.
- Dividends of $70,000 were paid during the year.
- There were no movements in non-current liabilities other than the repayment of the bank loan.
Required: Prepare a Statement of Cash Flows for BAMBO Company Ltd for the year ended 31 December 2025 using the indirect method, in accordance with IAS 7 Statement of Cash Flows. Your statement should show cash flows under the following headings:
- Cash flows from operating activities
- Cash flows from investing activities
- Cash flows from financing activities
Suggested solution:
Try to prepare the statement on your own before checking the solution.
| Cash flows from operating activities | Notes | $'000 | $'000 |
|---|---|---|---|
| Profit before tax | 155 | ||
| Adjustments for: | |||
| Depreciation charge | 55 | ||
| Loss on disposal of equipment | 1 | 3 | |
| Finance costs | 7 | ||
| Operating profit before working capital changes | 220 | ||
| Changes in working capital: | |||
| Increase in inventory | (27) | ||
| Decrease in trade receivables | 14 | ||
| Increase in trade payables | 44 | ||
| Cash generated from operations | 251 | ||
| Income tax paid | 2 | (28) | |
| Net cash from operating activities | 223 | ||
| Cash flows from investing activities | |||
| Purchase of property, plant and equipment | (175) | ||
| Proceeds from sale of equipment | 12 | ||
| Net cash used in investing activities | (163) | ||
| Cash flows from financing activities | |||
| Proceeds from issue of ordinary shares (share premium inclusive) | 70 | ||
| Repayment of bank loan | (40) | ||
| Interest paid | (7) | ||
| Dividends paid | (70) | ||
| Net cash used in financing activities | (47) | ||
| Net increase in cash and cash equivalents | 13 | ||
| Cash and cash equivalents at beginning of year | 5 | ||
| Cash and cash equivalents at end of year | 18 |
Note: Always ensure your cash movement reconciles with the net change in the cash and cash equivalent balance. If it doesn’t, go back through your workings and check each section (operating, investing, and financing) systematically.
Working notes:
Note: This comprehensive question covers many of the core IAS 7 techniques, but it doesn’t include every situation you may see in practice or in an exam. The remaining principles are covered in the preceding two chapters. Use this question for practice with the main adjustments and layout, and then work through the other illustrations to make sure you can handle a wider range of scenarios.