(141)-PARTICIPATING INTEREST

Participating Interest Financial reporting standards (FRS) states that a participating interest is an interest is an interest held by an undertaking in the shares of another undertaking which it holds on a long term basis for the purpose of securing a contribution to its activities by the exercise of control or influence arising from or related to that interest. A holding of 20% or more of the shares...

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(140)-PARENT UNDERTAKING

Parent Undertaking Financial Reporting Standards (FRS) states that an undertaking is the parent undertaking of another undertaking if any of the following apply. It holds a majority of the voting rights in the undertaking. It is a member of the undertaking and has the right or appoints or removes directors holding a majority of the voting rights at meetings of the board on all, or substantially all,...

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(139)-GROUP ACCOUNTS

Group Accounts Definitions You will probably know that many large companies actually consist of several companies controlled by one central or administrative company. Together these companies are called a group. The controlling company, called the parent or holding company, will own one some or all of the shares in the other companies, called subsidiary and associated companies. There are many reasons...

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(138)-THE ADVANTAGES OF CASH FLOW ACCOUNTING

The Advantages of Cash Flow Accounting Some of the advantages of cash flow accounting are as follows Cash flow reporting satisfies the needs of all users better,1. For management, it provides the sort of information on which decisions should be taken: (in management accounting, “relevant costs” to a decision are future cash flows); traditional profit accounting does not help with decision making.2....

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(137)-THE ADVANTAGES OF CASH FLOW ACCOUNTING

The Advantages of Cash Flow Accounting Some of the advantages of cash flow accounting are as follows, Survival in business depends on the ability to generate cash. Cash flow accounting directs attention towards this critical issue. Cash flow is more comprehensive than “profit” which is dependent on accounting conventions and concepts. Creditors (long term and short term) are more interested in an...

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(136)-STEPS TO PREPARING A CASH FLOW STATEMENT

Steps to Preparing a Cash Flow StatementStep 1 Set out the Proforma cash flow statement with all the headings required by financial reporting standards (FRS). Step 2 Complete the reconciliation of operating profit to net cash inflows as far as possible. When preparing the statement from balance sheets, you will usually have to calculate such items as depreciation, loss on sale of fixed assets and...

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(135)-PREPARING A CASH FLOW STATEMENT

Preparing a Cash Flow Statement In essence, preparing a cash flow statement is very straightforward. You should therefore simple learn the format given above and apply the steps noted in the example below. Note that the following items are treated in a way that might seem confusing, but the treatment is logical if you think in term of cash. Increase in stock is treated as negative (in brackets). This...

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(134)-CASH FLOW STATEMENTS - INDIRECT METHOD

Cash Flow Statements -Indirect Method Another way of arriving at net cash flows from operating activities is to start from operating profit and adjust non cash items, such as depreciation, debtors etc. This is known as the indirect method. A Proforma calculation is given below. Operating profit-----------------------------------------------------XXX(Add)- Depreciation-----------------------------------------------XXXLoss/Profit...

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(133)-CLASSIFICATION OF CASH FLOWS BY STANDARD HEADING

Classification of Cash Flows by Standard HeadingFinancing Financing cash flows comprise receipts or repayment of principle from or to external providers of finance. The cash flows in this section can be shown in a single section with those under “management of liquid resources” provided that separate subtotals for each are given. Financing cash inflows include: Receipts from issuing shares or other...

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(132)-CLASSIFICATION OF CASH FLOWS BY STANDARD HEADING

Classification of Cash Flows by Standard Heading Management of liquid resources This section should include cash flows in respect of liquid resources as defined above. Each entity should explain what it includes as liquid resources and any changes in its policy. The cash flows in this section can be shown in a single section with those under “financing” provided that separate subtotals for each are...

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(131)-CLASSIFICATION OF CASH FLOWS BY STANDARD HEADING

Classification of Cash Flows by Standard Heading Taxation These are cash flows to or from taxation authorities in respect of the reporting entity’s revenue and capital profits. Value added tax (VAT) and other sales taxes are disclosed below. Taxation cash inflows include cash receipts from the relevant tax authority of tax rebates, claims or returns or over payments. Taxation cash outflows include...

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(130)-CLASSIFICATION OF CASH FLOWS BY STANDARD HEADING

Classification of Cash Flows by Standard HeadingCapital expenditure and financial investment These cash flows are those related to the acquisition or disposal of any fixed asset other than one required to be classified under “acquisitions and disposals” and any current asset investment not included in liquid resources. If no cash flows relating to financial investment fall to be included under this...

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(129)-CLASSIFICATION OF CASH FLOWS BY STANDARD HEADING

Classification of Cash Flows by Standard Heading Returns on investments and servicing of finance These are receipts resulting from the ownership of an investment and payments to providers of finance and non equity shareholders. Cash inflows from returns on investments and servicing of finance include1. Interest received, including any related tax recovered2. Dividend received, net of any tax credits...

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(128)-CLASSIFICATION OF CASH FLOWS BY STANDARD HEADING

Classification of Cash Flows by Standard Heading Operating activities Cash flows from operating activities are in general the cash effects of transactions and other events relating to operating or trading activities, normally shown in the profit and loss account in arriving at operating profit. They include cash flows in respect of operating items relating to provisions, whether or not the provision...

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(127)-FINANCIAL REPORTING STANDARD FOR CASH FLOW STATEMENTS

Financial Reporting Standard for Cash Flow Statements Financial Reporting Statements (FRS) sets out the structure of a cash flow statement and it also sets the minimum level of disclosure. Objective The financial reporting standard begins with the following statement, The objective of this financial reporting standard is to ensure that reporting entities falling within its scope: Reporting their cash...

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(126)-DEFINITIONS FOR CASH FLOW STATEMENTS

Definitions for Cash Flow Statements The financial reporting standards (FRS) include the following important definitions. Note particularly the definitions of cash and liquid resources. An active market is a market sufficient depth to absorb the investment help without a significant effect on then price. Cash is cash in hand and deposits receivable on demand with any qualifying financial institution,...

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(125)-LINKS WITH CASH FLOW AND OTHER PRIMARY STATEMENTS

Links with Cash Flow and Other Primary Statements Because the information given by a cash flow statement is best appreciated in the context of the information given by the other primary statements, the Financial Reporting Standards (FRS) requires two reconciliations, between: Operating profit and the net cash flow from operating activities The movement in cash in the period and the movement in net...

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(124)-FORMAT OF THE CASH FLOW STATEMENT

Format of the Cash Flow Statement There are two methods for preparing cash flow statements,Direct method. Indirect method. A cash flow statement should list its cash flows for the period classified under the following standard headings: Operating activities Returns on investments and servicing of finance Taxation Capital expenditure and financial investment Acquisitions and disposals Equity dividends...

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(123)-CASH FLOW STATEMENTS

Cash Flow Statements It has been argued that “profit” does not always give a useful or meaningful picture of a company’s operations. Readers of a company’s financial statements might even be misled by a reported profit figure. Shareholders might believe if a company makes a profit after tax, of say, 100000$ then this is the amount which it could afford to pay as a dividend. Unless the company has...

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(122)-SUMMARY FOR COMPANY ACCOUNTS

Summary for Company Accounts Limited companies have limited liability, which means that their members’ liability in the event of insolvency is limited to the amount of capital they put in. There are two types companies,1. Private companies2. Public companies Limited companies must keep accounting records. Limited companies have a share capital, it divided1. Authorized share capital2. Issued share...

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(121)-TAXATION FOR COMPANIES

Taxation for Companies Companies pay corporation tax on the profit they earn. Note that because a company has a separate legal personality, its tax is included in its accounts. An unincorporated business would not show income tax in its accounts, as it would not be a business expense but the personal affair of the proprietors. Presentation in accounts The charge for corporation tax on profits for...

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(120)-LEDGER ACCOUNTS AND LIMITED COMPANIES

Ledger Accounts and Limited Companies Limited companies keep ledger accounts and the only difference from sole trader, is the nature of some of the transactions, assets and liabilities. Taxation Tax charged against profits will be accounted by:Profit and loss account – DebitTaxation account - Credit The outstanding balance on the taxation account will be a liability in the balance sheet, until eventually...

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(119)-DEBENTURES

Debentures Limited companies may issue debenture stock or loan stock. These are long term liabilities described on the balance sheet as loan capital. They are different from share capital in the following ways. Shareholders are members of a company, while provides of loan capital are creditors. Shareholders receive dividends (appropriation of profits) whereas the holders of loan capital are entitled...

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(118)-BONUS ISSUES AND RIGHTS ISSUES

Bonus Issues and Rights Issues Bonus issues A company may wish to increase its share capital without needing to raise additional finance by issuing new shares. For example, a profitable company might expand from modest beginnings over a number of years. Its profitability would be reflected in large balances on its reserves, while its original share capital might look like that of a much smaller business....

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