Section 6: Statement of Cash Flows (AASB1061_04-26)

This section sets out the information to be presented in a statement of cash flows and how to present it. The statement of cash flows provides information about the changes in cash and cash equivalents of an entity for a reporting period, showing separately changes from operating activities and changes from other activities. 

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value. They include at-call deposits with banks, term deposit investments with a maturity not exceeding three months from their date of purchase and bank overdrafts that are repayable on demand and form an integral part of an entity’s cash management.

An entity shall present a statement of cash flows that presents, as a minimum, cash flows for a reporting period classified by operating activities and other activities. Other activities comprise the entity’s investing activities and financing activities. An entity may classify and present cash flows from investing activities separately from cash flows from financing activities instead of presenting cash flows from other activities.

An entity’s operating activities are its principal activities. Consequently, cash flows from operating activities generally result from the transactions and other events and conditions that enter into the determination of profit or loss. Examples of cash flows from operating activities are: 

(a) cash receipts from grants and donations, excluding grants and donations that are restricted for the acquisition or construction of long-term assets (eg property, plant and equipment); 

(b) cash receipts from the sale of goods and the rendering of services; 

(c) cash receipts from membership fees and subscriptions; 

(d) cash payments to suppliers for goods and services; 

(e) cash payments to and on behalf of employees; 

(f) grants and donations paid to beneficiaries; and 

(g) cash receipts from investments and cash receipts and payments from loans, when those investments or loans are held for dealing or trading purposes. 

Some transactions, such as the sale of a building, may give rise to a gain or loss included in profit or loss. However, the cash flows relating to such transactions are not typically cash flows from operating activities.

Activities other than operating activities are: 

(a) the acquisition and disposal of long-term assets and other investments not included in cash equivalents; and 

(b) activities that result in changes in the size and composition of the contributed equity and borrowings of an entity.

Examples of cash flows arising from other activities are: 

(a) cash payments to acquire or construct long-term assets such as property, plant and equipment; 

(b) cash receipts from sales of long-term assets such as property, plant and equipment; 

(c) cash payments to acquire equity or debt instruments of other entities and interests in joint ventures; 

(d) cash receipts from sales of equity or debt instruments of other entities and interests in joint ventures; and 

(e) cash receipts and payments from borrowings and repaying loan principal, for loans that are not held for dealing or trading purposes.

An entity shall present cash flows from operating activities using either the indirect method in paragraphs 6.8 and 6.9 or the direct method in paragraph 6.10.

Under the indirect method, the net cash flow from operating activities is determined by adjusting profit or loss for the effects of non-cash transactions, any deferrals or accruals of past or future operating cash receipts or payments and items of income or expense associated with investing or financing cash flows. Under that method, the entity shall adjust profit or loss for the effects of: 

(a) changes during the period in inventories and receivables and payables arising from operating activities; 

(b) non-cash items such as depreciation, provisions, accrued income (expenses) not yet received (paid) in cash, unrealised foreign currency gains and losses, undistributed profits of associates and non-controlling interests; and 

(c) all other items for which the cash flows relate to investing or financing activities.

Alternatively, the net cash flow from operating activities may be presented under the indirect method by showing the relevant revenues and expenses disclosed in the statement(s) of profit or loss and other comprehensive income and the changes during the period in inventories and receivables and payables arising from operating activities.

Under the direct method, the net cash flow from operating activities is presented by disclosing information about major classes of gross cash receipts and gross cash payments. Such information may be obtained either: 

(a) from the accounting records of the entity; or 

(b) by adjusting sales, cost of sales and other items in the statement(s) of profit or loss and other comprehensive income for: 

(i) changes during the period in inventories and receivables and payables arising from operating activities; 

(ii) other non-cash items; and 

(iii) other items for which the cash effects are investing or financing cash flows.

An entity shall present separately major classes of gross cash receipts and gross cash payments arising from its activities other than operating activities. An entity that classifies cash flows from investing activities separately from cash flows from financing activities shall present cash flows from acquisitions and disposals of notable relationship entities (or subsidiaries or other operating units, as applicable) as cash flows from investing activities.

Cash flows arising from operating activities or other activities may be reported on a net basis when they are cash receipts and cash payments for items in which the turnover is quick, the amounts are large and the maturities are short (eg the borrowing and repayment of short-term loans).

An entity shall present separately cash flows from interest paid and interest and dividends received. The entity shall classify these cash flows consistently from period to period.

An entity may classify interest paid and interest and dividends received as cash flows from operating activities because they are included in profit or loss. Alternatively, the entity may classify interest paid and interest and dividends received as cash flows from other activities because they are costs of obtaining financial resources or returns on investments.

An entity shall present separately cash flows arising from income tax and shall classify them as cash flows from operating activities unless they can be specifically identified with an investing activity or a financing activity. When tax cash flows are allocated over more than one class of activity, the entity shall disclose the total amount of taxes paid.

An entity shall exclude from the statement of cash flows investing and financing transactions that do not require the use of cash or cash equivalents. An entity shall disclose such transactions, separately or together, elsewhere in the financial statements in a way that provides all the relevant information about those other activities.

Many investing and financing activities do not have a direct impact on current cash flows even though they affect the capital and asset structure of an entity. The exclusion of non-cash transactions from the statement of cash flows is consistent with the objective of a statement of cash flows because these items do not involve cash flows in the current period. Examples of non-cash transactions are: 

(a) the receipt of donated assets; 

(b) the acquisition of assets by assuming directly related liabilities; and 

(c) the acquisition of an entity by means of an equity issue.

An entity shall disclose the components of cash and cash equivalents.

An entity shall disclose, together with a commentary by management, the amount of significant cash and cash equivalent balances held by the entity that are unavailable for use by the entity. Cash and cash equivalents held by an entity may be unavailable for use by the entity because of, among other reasons, foreign exchange controls or legal restrictions.