Consolidation Lecture 11 Notes Consolidated Statement of ...

Consolidation Notes: Lecture 11

Lecture Notes

Consolidation Notes

Lecture 11 Consolidated Statement of Cash Flows

INTRODUCTION This lecture assumes that you are familiar with individual entity's statement of cash flows. The group statement of cash flows has further three elements: 1. Cash paid to NCI (i.e. dividends paid to NCI) 2. Cash received from associates (i.e. dividends received etc.) 3. Acquisition and disposal of subsidiaries

CASH (DIVIDEND) PAID TO NCI The dividends paid to NCI are presented as financing activities' outflow. We can use T-account to calculate this figure. The working remains same whichever method is used to value the NCI.

NCI decrease ? step acquisition Cash (dividends paid) Balance c/d

Non-Controlling Interest

$000

XXX

Balance b/d

??

NCI share of profit

XXX

NCI increase ? partial disposal

XXX

$000 XXX XX XX XXX

EXAMPLE 11A

The following information has been extracted from the consolidated financial statements of WG for

the years ended 31 Dec:

2007

2006

$000

$000

NCI in consolidated net assets

780

690

NCI in consolidated profit after tax

120

230

What is the dividend paid to non controlling interests in the year 2007?

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Consolidation Notes: Lecture 11

Lecture Notes

CASH (DIVIDEND) RECEIVED FROM ASSOCIATE The dividends received are presented as investing activities' inflow. Again a T-account approach is suitable for calculation. Only dividend received represents a cash inflow, dividends receivable but not yet received represent an increase in group receivables.

Balance b/d Share of profit Share of other reserves Cash (further investment)

Investment in Associates

$000

XXX

Impairment loss

XX

Cash (shareholding sold)

XX

Cash (dividend received)

XX

Balance c/d

XXX

$000 XX XX ?? XXX XXX

The other cash inflow/outflow should also be considered, that includes: Cash paid to acquire further shareholding Cash received from disposing of some shareholding Cash loans made to associate Loans paid by associate

EXAMPLE 11B

The following information has been extracted from the consolidated financial statements of H for the year ended 31 December 2001:

Group Income Statement

Operating Profit Share of profit from associate Profit before tax Tax on profit (including $20,000 in respect of associate) Profit after tax

$000 734 68 802 (324) 478

Group Statement of Financial Position

Investments in associates Investments (other than loan) at equity method Loan to associates

2001 $000

466 380

2000 $000

456 300

Current assets Receivables

260

190

Included in above receivables are current account with associate

40

70

Show the relevant figures to be included in group statement of cash flows for the year ended 31 December 2001.

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Consolidation Notes: Lecture 11

Lecture Notes

ACQUISITION AND DISPOSAL OF SUBSIDIARIES If a subsidiary is acquired or disposed of during a year, the cash flows of the group should include the cash flows of that subsidiary for the same period for which results of subsidiary are included in SCI.

The following must be reported separately: 1. Cash payments to acquire subsidiaries (net of cash and cash equivalent acquired); and 2. Cash receipts from disposals of subsidiaries (net of cash and cash equivalent disposed of).

The assets and liabilities purchased (or disposed of) are not shown with the cash outflow (or inflow) in the statement of cash flows. All assets and liabilities acquired (or disposed of) must be included in any workings to calculate the cash movement for an item during the year. If they are not included in deriving the balancing figure, the incorrect cash flow figure will be calculated. This applies to all assets and liabilities acquired (or disposed of) including the NCI.

A note to the statement of cash flows should show a summary of the effects of acquisitions and disposals of subsidiaries, indicating how much of the consideration comprised cash and cash equivalents and the assets and liabilities acquired or disposed of.

The extracts of a company's statement of financial position is shown below:

2008

$

Inventory

74,666

EXAMPLE 11C

2007 $

53,019

During the year, a subsidiary was acquired. At the date of acquisition, the subsidiary had an inventory balance of $9,384.

Calculate the movement on inventory for the statement of cash flows.

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Consolidation Notes: Lecture 11

Lecture Notes

FORMAT AND GUIDANCE

Consolidation specific items have been colored green.

[Entity Name] Statement of cash flows For the year ended [date here] Cash flows from operating activities: Profit before tax

$'000 XXX

Adjustments for: [non-cash income and expenses included in SPL] [items of income and expenses relating to investing or financing activity but included in SPL] [post-employment benefit expense, finance income and expense] Impairment of goodwill (if any) Share of profit from associate (if any)

Operating profit before working capital changes [increase on decrease in current assets and liabilities]

Cash generated from operations Interest paid Pension benefits paid Income tax paid

Net cash from (used in) operating activities

Note 1 A

XX/(XX)

XX/(XX)

XX/(XX) XX (XX) XXX

XX/(XX) XXX (XX) (XX) (XX) XXX

Cash flows from investing activities: Purchase of non-current assets or short term investment (on cash basis) Disposal of non-current assets or short term investment (on cash basis) Cash received from associate (dividend) Cash paid to acquire subsidiary (net of cash acquired) Cash received from disposal of subsidiary (net of cash balance) Investment income (on cash basis) Net cash from (used in) investing activities

Note 1 Note 1

B

(XXX) XX XX (XX) XX XX

(XXX)

Cash flows from financing activities: Cash proceeds from share issue, loan issue and borrowings Cash paid for share re-purchase, loan and borrowings repayment Cash (Dividend) paid to NCI Interest paid on borrowings/Dividend paid Net cash from financing activities

Note 1 Note 1

C

XXX (XX) (XX) (XX) XXX

Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year

A+B+C SFP SFP

XXX XX XX

Note1: Remember to take effect of acquisitions, disposals, and exchange gain or loss.

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Consolidation Notes: Lecture 11

Lecture Notes

EXAMPLE 11D

Set out below is a summary of the accounts of Boardres, a public limited company, for the year

ended 31 Dec 2007.

Consolidated income statement for the year ended 31 Dec 2007

$000

Revenue

44,754

Cost of sales and other expenses

(39,613)

Income from associates

30

Finance cost

(305)

Profit before tax Tax

4,866 (2,038)

Net profit for the period

2,828

Attributable to: Owners of the parent Non-controlling interests

2,805 23

2,828

Statement of other comprehensive income Profit for the year Exchange difference on translation of foreign operations (note 5) Total comprehensive income

2,828 302 3,130

Changes in capital and reserves of equity holders of the parent Share capital and reserves b/f Profit for the year Dividends paid Exchange differences Share capital and reserves c/f

14,164 2,805 (445) 302 16,826

Consolidated statement of financial position at 31 December

2007

$000 $000

Non-current assets

Goodwill

500

Tangible assets (note 1)

11,157

Investment in associate

300

11957

Current assets

Inventories

9,749

Receivables

5,354

Short term investments

1,543

Cash at bank and in hand

1,013 17,659

29,616

Capital and reserves

Called up share capital ($1 ordinary shares)

1,997

Share premium

5,808

Reserves

9,021

16,826

Non-controlling interest

170

Equity

16,996

2006 $000 $000

8,985 280 9,265

7,624 4,420 741 394

13,179 22,444

1,997 5,808 6,359 14,164

17 14,181

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