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Consolidation Notes Consolidated Statement of Cash Flows

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The key takeaways are the calculation of cash paid to non-controlling interests, cash received from associates, and treatment of cash flows from acquisition and disposal of subsidiaries in the consolidated statement of cash flows.

Cash paid to non-controlling interests is presented as a financing activity outflow. It can be calculated using a T-account approach by looking at the movement in the non-controlling interest account from the beginning to the end of the period.

Cash received from associates is presented as an investing activity inflow. It too can be calculated using a T-account approach by looking at the movement in the investment in associate account from the beginning to the end of the period.

Consolidation Notes: Lecture 11 Lecture Notes

Consolidation Lecture 11
Notes 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.

Non-Controlling Interest
$000 $000
NCI decrease – step acquisition XXX Balance b/d XXX
Cash (dividends paid) β ?? NCI share of profit XX
Balance c/d XXX NCI increase – partial disposal XX
XXX 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.

Investment in Associates
$000 $000
Balance b/d XXX Impairment loss XX
Share of profit XX Cash (shareholding sold) XX
Share of other reserves XX Cash (dividend received) β ??
Cash (further investment) XX Balance c/d XXX
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


$000
Operating Profit 734
Share of profit from associate 68
Profit before tax 802
Tax on profit (including $20,000 in respect of associate) (324)
Profit after tax 478

Group Statement of Financial Position


2001 2000
$000 $000
Investments in associates
Investments (other than loan) at equity method 466 456
Loan to associates 380 300

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.

EXAMPLE 11C
The extracts of a company’s statement of financial position is shown below:
2008 2007
$ $
Inventory 74,666 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.

Page 3 of 10 (kashifadeel.com)
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: $’000
Profit before tax XXX

Adjustments for:
[non-cash income and expenses included in SPL] XX/(XX)
[items of income and expenses relating to investing or financing
activity but included in SPL] XX/(XX)
[post-employment benefit expense, finance income and
expense] XX/(XX)
Impairment of goodwill (if any) XX
Share of profit from associate (if any) (XX)
Operating profit before working capital changes XXX
[increase on decrease in current assets and liabilities] Note 1 XX/(XX)
Cash generated from operations XXX
Interest paid (XX)
Pension benefits paid (XX)
Income tax paid (XX)
Net cash from (used in) operating activities A XXX

Cash flows from investing activities:


Purchase of non-current assets or short term investment (on cash basis) Note 1 (XXX)
Disposal of non-current assets or short term investment (on cash basis) Note 1 XX
Cash received from associate (dividend) XX
Cash paid to acquire subsidiary (net of cash acquired) (XX)
Cash received from disposal of subsidiary (net of cash balance) XX
Investment income (on cash basis) XX
Net cash from (used in) investing activities B (XXX)

Cash flows from financing activities:


Cash proceeds from share issue, loan issue and borrowings Note 1 XXX
Cash paid for share re-purchase, loan and borrowings repayment Note 1 (XX)
Cash (Dividend) paid to NCI (XX)
Interest paid on borrowings/Dividend paid (XX)
Net cash from financing activities C XXX

Net decrease in cash and cash equivalents A+B+C XXX


Cash and cash equivalents at beginning of the year SFP XX
Cash and cash equivalents at end of the year SFP 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 4,866
Tax (2,038)
Net profit for the period 2,828
Attributable to:
Owners of the parent 2,805
Non-controlling interests 23
2,828

Statement of other comprehensive income


Profit for the year 2,828
Exchange difference on translation of foreign operations (note 5) 302
Total comprehensive income 3,130

Changes in capital and reserves of equity holders of the parent


Share capital and reserves b/f 14,164
Profit for the year 2,805
Dividends paid (445)
Exchange differences 302
Share capital and reserves c/f 16,826

Consolidated statement of financial position at 31 December


2007 2006
$000 $000 $000 $000
Non-current assets
Goodwill 500 -
Tangible assets (note 1) 11,157 8,985
Investment in associate 300 280
11957 9,265
Current assets
Inventories 9,749 7,624
Receivables 5,354 4,420
Short term investments 1,543 741
Cash at bank and in hand 1,013 17,659 394 13,179
29,616 22,444
Capital and reserves
Called up share capital ($1 ordinary shares) 1,997 1,997
Share premium 5,808 5,808
Reserves 9,021 6,359
16,826 14,164
Non-controlling interest 170 17
Equity 16,996 14,181

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Consolidation Notes: Lecture 11 Lecture Notes

Non-current liabilities
Loans 2,102 1,682
Provisions (note 3) 1,290 935
Current liabilities (note 2) 9,228 5,646
29,616 22,444

Notes to the accounts


(1) Tangible assets
Non-current assets movements included the following:
$000
Disposals at carrying amount 305
Proceeds from asset sales 854
Depreciation provided for the year 907

(2) Current liabilities


2007 2006
$000 $000
Bank overdrafts 1,228 91
Trade payables 4,278 2,989
Tax 3,722 2,566
9,228 5,646

(3) Provisions
Provisions Deferred Total
Pension taxation
$000 $000 $000
At 31 Dec 2006 246 689 935
Exchange rate adj 29 - 26
Increase in provision 460 - 460
Decrease in provision - (134) (134)
At 31 Dec 2007 735 555 1,290

(4) Liberated
During the year, the company acquired 82% of the issued share capital of Liberated, a
limited liability company, for cash consideration of $1,268,000. The fair values of the assets
of Liberated were as follows:
$000
Non-current assets 208
Inventories 612
Receivables 500
Cash in hand 232
Trade payables (407)
Debenture loans (312)
833

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Consolidation Notes: Lecture 11 Lecture Notes

(5) Exchange gains


Exchange gains on the translating the financial statements of a wholly owned subsidiary
have been taken to equity and comprise differences on the retranslation of the following:
$000
Non-current assets 138
Pensions (29)
Inventories 116
Trade receivables 286
Trade payables (209)
302

(6) The non-controlling interest is valued using the proportion of net assets method.

Required:
Prepare the statement of cash flows for the year ended 31 Dec 2007.

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Consolidation Notes: Lecture 11 Lecture Notes

ANSWER 11A

Non-Controlling Interest
$000 $000
Cash (dividends paid) β 30 Balance b/d 690
Balance c/d 780 NCI share of profit 120
810 810

ANSWER 11B
Extracts from statement of cash flows
$000
Cash flows from operating activities
Profit before tax 802
Adjustments for:
Share of profit from associates (68)

Cash flows from investing activities


Dividends received from associates (W1) 38
Loan to associate ($380-300) (80)

W1- Investment in Associates


$000 $000
Balance b/d 456 Cash (dividend received) β 38
Share of profit - tax ($68-20) 48 Balance c/d 466
504 504

ANSWER 11C
The movement on inventory is [($74,666 – 9,384 Acquisition) – $53,019] = $12,263
This will be shown as outflow.

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Consolidation Notes: Lecture 11 Lecture Notes

ANSWER 11D
Statement of cash flows for the year ended 31 Dec 2007
Cash flows from Operating activities $000
Profit before tax 4,866
Adjustment:
Depreciation (Note1) 907
Impairment of goodwill (W1) 85
Gain on disposal of assets 854 – 305 (Note 1) (549)
Increase in pension provisions (Note 3) 460
Interest expense 305
Share of profit from associate (30)
Operating profit before working capital changes 6,044
Increase in inventory 9,749 – 7,624 – 612 acq – 116 ex diff (Note 4, 5) (1,397)
Increase in receivables 5,354 – 4,420 – 500 acq – 286 ex diff (Note 4, 5) (148)
Increase in payables 4,278 – 2,989 – 407 acq – 209 ex diff (Note 2, 4, 5) 673
Cash generated from operations 5,172
Interest paid (305)
Tax paid (W2) (1,016)
Net cash from operating activities (A) 3,851
Cash flows from Investing activities
Purchase of non-current assets (W3) (3,038)
Proceeds on disposal (Note 1) 854
Cash paid on acquisition of subsidiary, net of cash acquired $1,268 – 232 (Note 4) (1,036)
Dividend received from associate (W4) 10
Net cash using in investing activities (B) (3,210)
Cash flows from Financing activities
Dividends paid (445)
Dividends paid to NCI (W6) (20)
Proceeds from debt issue (W5) 108
Net cash used in financing activities (C) (357)

Net increase in cash and cash equivalents (A+B+C) 284


Opening cash and cash equivalents (394 – 741 – 91) 1,044
Cash and cash equivalents (1,013 + 1,543 – 1,228) 1,328
Workings $000
W1: Goodwill $000
Cost of investment (Note 4) 1,268
Less: net assets acquired 82% x 833 (Note 4) (683)
Goodwill arising 585
Amount written off (β) 85
Remaining in SFP 500

W2 Tax
Cash 1,016 Bal b/f – CT 2,566
Bal c/f – CT 3,722 Bal b/f – DT 689
Bal c/f - DT 555 I/S 2,038
5,293 5,293

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Consolidation Notes: Lecture 11 Lecture Notes

W3 Non current assets


Bal b/f 8,985 Dep 907
Exchange gain 138 Disposal 305
Acquisition 208 Bal c/f 11,157
Cash 3,038
12,369 12,369

W4 Dividends from associates


Bal b/f 280 Cash 10
Profit 30 Bal c/f 300
310 310

W5 Debentures
Bal c/f 2,102 Bal b/f 1,682
Acquisition 312
Cash 108
2,102 2,102

W6 Non-controlling interest
Cash 20 Bal b/f 17
I/S 23
Bal c/f 170 Acq (18% x 833) 150
190 190

Dated: 23 September 2016

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