dipifr-session30 d08 statement of cashflows
TRANSCRIPT
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SESSION 30 IAS 7 STATEMENT OF CASH FLOWS
Accountancy Tuition Centre (International Holdings) Ltd 2008 3001
Overview
Objective
To provide information about historical changes in cash and cash equivalents
by means of a statement of cash flows which classifies cash flows during theperiod from operating, investing and financing activities.
SCOPE
PRESENTATION
INVESTING AND
FINANCING
ACTIVITIES
OPERATING
ACTIVITIES
COMPONENTS OF
CASH AND CASH
EQUIVALENTS
Direct method Indirect m ethod
Techniques
Which method?
Reconcil iation
Classification
PROFORMA
Direct method
Indirect method Notes to the statement of cash f lows
Separate reporting
Investing activities
Financing activities
Applies to all entit ies
Importance of cash flow
Benefits of cash flowinformation
Definitions
ADDITIONAL
DISCLOSURES
Analysis
Major non-cash transactions
Voluntary disclosures
Commentary
The title of IAS 7 was amended from Cash Flow Statements to Statement of Cash
Flows in September 2007 as a consequence of the revision of IAS 1 Presentation ofFinancial Statements.
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1 Scope
1.1 Applies to all entities
Users of financial statement are interested in cash generation regardless of the
nature of the entitys activities.
Entities need cash for essentially the same reasons:
to conduct operations; to pay obligations; to provide returns to investors.
Profitis not the same as cash . . . . andprofitability does not mean liquidity(even profitable companies crash).
1.2 Importance of cash flow To show that profits are being realised
(e.g. that trade receivables are being recovered).
To pay dividends.
To finance further investment (which will generate more cash).
1.3 Benefits of cash flow information
Provides information that enables users to evaluate changes in:
net assets;
financial structure (including its liquidity and solvency);
ability to affect amounts and timing of cash flows (to adapt tochanging circumstances and opportunities).
Useful in assessing ability to generate cash and cash equivalents.
Users can develop models to assess and compare the present value of futurecash flows of different entities.
Enhances comparability of reporting operating performance by different
entities (by eliminating effects of alternative accounting treatments).
Historical cash flow information may provide an indicator of the amount,timing and certainty of future cash flows.
Commentary
Focus on cash management can also improve results (e.g. with lower interest chargesand having cash resources available on a timely basis (e.g. for investment).
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SESSION 30 IAS 7 STATEMENT OF CASH FLOWS
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1.4 Definitions
Cash cash on hand and demand deposits.
Cash equivalents short-term, highly liquid investments:
readily convertible to known amounts of cash;
subject to an insignificant risk of changes in value;
excluding equity investments unless they are, in substance, cashequivalents (e.g. preferred shares acquired within a short period oftheir maturity and a specified redemption date).
Commentary
Cash equivalents are treated as cash because if they were not, the liquidity of
entities which manage their cash effectively (e.g. employing overnight depositfacilities, buying bonds etc) would not look as good as it actually was.
Illustration 1
Notes to the consolidated financial statements (extract)
Cash and cash equivalents
Bank and cash consist of cash at bank and in hand. Cash equivalents consist
of highly liquid available-for-sale investments purchased with remaining
maturities at the date of acquisition of three months or less.
Nokia in 2006
Cash flows inflows and outflows of cash and cash equivalents.
Operating activities principal revenue-producing activities and otheractivities that are not investing or financing activities.
Investing activities acquisition and disposal of long-term assets and otherinvestments not included in cash equivalents.
Financing activities result in changes in the size and composition of equitycapital and borrowings. Bank borrowings generally included.
Commentary
Where bank overdrafts are repayable on demand and form an integral part ofcash management (characteristically balance fluctuates from positive tooverdraft) they are included in cash and cash equivalents.
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2 Presentation
Commentary
A statement of cash flows is essentially a list of cash in and cash out
reconciling opening and closing cash balances.
2.1 Classification
IAS 7 requires cash inflows and outflows to be analysed across three headings:
Operating Investing Financing
Key indicator of sufficiency ofcash flows to:
repay loans;
maintain operatingcapability;
pay dividends;
make new investments.
without recourse to externalsources of finance
Separate disclosure is
important cash flowsrepresent extent to which
expenditures have beenmade for resourcesintended to generatefuture income and cashflows
Examples
Separate disclosure isuseful in predictingclaims on future cash
flows by providers ofcapital
Examples
Useful in forecasting futureoperating cash flows.
Payments to acquire/receipts from sales of:
Cash proceeds fromissuing:
Primarily derived from principalrevenue-producing activities.
Generally result fromtransactions and events soincluded in profit or loss.
Examples
Cash receipts from:
sale of goods/renderingservices;
royalties, fees,commissions.
Cash payments to:
suppliers for goods/services;
and on behalf of employees.
property, plant andequipment,intangibles;
equity or debtinstruments of otherentities and interestsin joint ventures.
Cash advances and loansmade to other parties and
repayments thereof.
shares/equityinstruments;
Debentures, loans,notes, bonds,mortgages, othershort or long-term
borrowings.
Cash payments toowners to acquire or
redeem own shares.
Cash repayments ofborrowings.
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2.2 Illustration 2
Bayer Group Consolidated Statements of Cash Flows
million Note 2005 2006
Income after taxes from continuing operations 1,374 1,526Income taxes 538 454
Non-operating result 602 782
Income taxes paid (463) (763)
Depreciation and amortization 1,608 1,913
Change in pension provisions (501) (295)
(Gains) losses on retirements of noncurrent assets (44) (133)
Non-cash effects of the remeasurementof acquired assets (inventory work-down) 429
Gross cash flow 3,114 3,913
Decrease (increase) in inventories (130) (155)
Decrease (increase) in trade accounts receivable 211 (201)(Decrease) increase in trade accounts payable (117) 130
Changes in other working capital, other non-cash items 149 241
Net cash provided by (used in) operating activities(net cash flow), continuing operations [33] 3,227 3,928
Net cash provided by (used in) operating activities(net cash flow), discontinuing operations [7.2] 275 275
Net cash provided by (used in) operating activities(net cash flow), total 3,502 4,203
Cash outflows for additions to property, plant,equipment and intangible assets (1,389) (1,876)
Cash inflows from sales of property, plant and equipment and other assets 105 185
Cash inflows from divestitures 293 489
Cash inflows from noncurrent financial assets 1,189 850
Cash outflows for acquisitions less acquired cash (2,188) (15,351)
Interest and dividends received 451 686
Cash inflows (outflows) from current financial assets (202) 287
Net cash provided by (used in) investing activities (total) [34] (1,741) (14,730)
Capital contributions 0 1,174
Bayer AG dividend and dividend payments to minority stockholders,reimbursements of advance capital gains tax payments (440) (535)
Issuances of debt 2,005 13,931
Retirements of debt (2,659) (3,216)
Interest paid (787) (1,155)
Net cash provided by (used in) financing activities (total) [35] (1,881) 10,199
Change in cash and cash equivalents due to business activities (total) (120) (328)
Cash and cash equivalents at beginning of year 3,570 3,290
Change in cash and cash equivalents due to changes in scope of consolidation (196) (2)
Change in cash and cash equivalents due to exchange rate movements 36 (45)
Cash and cash equivalents at end of year [36] 3,290 2,9152005 figures restated
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SESSION 30 IAS 7 STATEMENT OF CASH FLOWS
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Commentary
Although the illustration above is a consolidated statement of cash flows,only the single entity statement is examinable.
3 Reporting cash flows from operating activities There are two ways permitted to present cash flows from ordinary activities:
Either 3.1 Direct method Or 3.2 Indirect method
Discloses major classes of gross cashreceipts and gross cash payments.
Information obtained either Fromaccounting records; or
Adjusts net profit or loss for effectsof:
non-cash transactions (e.g.depreciation);
By adjusting sales, cost of sales for:
changes during period ininventories and operatingreceivables and payables;
other non-cash items;
other items for which casheffects are investing/financingcash flows.
any deferrals or accruals of pastor future operating cash receiptsor payments;
items of income or expenseassociated with investing orfinancing cash flows.
Commentary
The direct method is ENCOURAGED as it provides information useful inestimating future cash flows which is not available under indirect method.
3.3 Techniques
3.3.1 Direct method
Steps 1 Cash receipts from customersLess cash paid to suppliers and employees
Cash generated from operations
Step 2 Payments for interest and income taxes
Net cash from operating activities
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SESSION 30 IAS 7 STATEMENT OF CASH FLOWS
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3.3.2 Indirect method
Step 1(a) Start with profit before tax.
Step 1(b) Adjust for non-cash items and investing and financing itemsaccounted for on the accruals basis.
Operating profit before working capital changes
Step 1(c) Making working capital changes.
Cash generated from operations (same as figure calculatedunder direct method).
3.4 Which method?
IASB encourages, but not require, the use of the direct method.
3.4.1 Advantages of the direct method
Reporting the major classes of operating cash receipts and payments betterreveals an entitys ability to generate sufficient cash from operations to paydebts, reinvest in operations, and make distributions to owners. Thus it betterfulfils information needs for decision-making purposes.
Commentary
In particular, being able to see cash paid is particularly important to many
users.
The format is simpler to understand.
3.4.2 Disadvantages of the direct method
Many entities do not collect information that would allow them to determinethe information necessary to prepare the direct method.
It effectively presents items of profit or loss on a cash rather than an accrualbasis. This may suggest, incorrectly, that net cash flow from operations is abetter measure of performance than profit per the statement of comprehensiveincome.
Commentary
The direct method is also sometimes called the income statement method.
It requires supplemental disclosure of a reconciliation of net income and netcash. (However, the incremental cost of providing the additional informationdisclosed in the direct method is not significant.)
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SESSION 30 IAS 7 STATEMENT OF CASH FLOWS
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3.4.3 Advantages of the indirect method
It focuses on the difference between profit or loss and net cash flow fromoperations.
Commentary
The indirect method is also sometimes called the reconciliation method.
It provides a useful link between cash flows, the statement of comprehensiveincome, and the statement of financial position.
Commentary
The indirect method is much more widely used in practice.
4 Investing and financing activities
4.1 Separate reporting
Major classes of gross cash receipts and gross cash payments arising frominvesting and financing activities should be reported separately.
4.2 Investing activities
Purchase of property plant and equipment this must represent actualamountspaid.
Proceeds from sales of tangible assets.
Worked example 1
2007 2006Statement of financial position (extract) $m $m
Non-current assets 10,000 9,000
Further information
Depreciation during the year 1,000Net book value of assets disposed of 100
Required:
Calculate additions in the period.
Worked solution 1
Balance b/f 9,000
Depreciation (1,000)Disposals (100)Additions (Balancing figure) 2,100
Balance c/f 10,000
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SESSION 30 IAS 7 STATEMENT OF CASH FLOWS
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4.3 Financing activities
Again the approach is to reconcile movements between the statements offinancial position to identify the cash element.
Worked example 2
2007 2006
Statement of financial position (extracts) $m $m
Share capital 150 100Share premium 48 40
During the period the following transactions affected share capital
(1) The entity issued shares with a nominal value $10m (Share premium $2m) toacquire an interest in a subsidiary
(2) The entity issued shares for cash. The expense of the issue was $1m. Thishas been debited to the share premium account.
Required:
Calculate the cash raised from the share issue.
Worked solution 2
Sharecapital
Sharepremium
Balances at the end of the reporting period 150 48Add: Expenses of the share issue 1
150 49Less: Non-cash transaction (10) (2)
140 47Less: Balances at the beginning of the reporting
period(100) (40)
40 7
Cash raised47
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SESSION 30 IAS 7 STATEMENT OF CASH FLOWS
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5 Components of cash and cash equivalents
5.1 Reconciliation
Disclose components of cash and cash equivalents and present a
reconciliation of amounts in the statement of cash flows with equivalent itemsreported in the statement of financial position (if necessary, in a note to thestatement of cash flows).
6 Proforma
6.1 Direct method
$ $
Cash flows from operating activities
Cash receipts from customers xCash paid to suppliers and employees (x)
____Cash generated from operations (see next for alternative) x
Interest paid (x)Income taxes paid (x)
____
Net cash from operating activities x
Cash flows from investing activities
Purchase of property, plant and equipment (x)
Proceeds from sale of equipment xInterest received xDividends received x
____
Net cash used in investing activities x
Cash flows from financing activities
Proceeds from issuance of share capital xProceeds from long-term borrowings xDividends paid * (x)
____
Net cash used in financing activities x
____
Net increase in cash and cash equivalents x
Cash and cash equivalents at beginning of period (Note) x____
Cash and cash equivalents at end of period (Note) x
* This could be shown as an operating cash flow.
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SESSION 30 IAS 7 STATEMENT OF CASH FLOWS
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6.2 Indirect method$ $
Cash flows from operating activities
Profit before taxation xAdjustments for
Depreciation xInvestment income (x)Interest expense x
____
Operating profit before working capital changes xIncrease in trade and other receivables (x)Decrease in inventories xDecrease in trade payables (x)
____Cash generated from operations xremainder as for the direct method
6.3 Notes to the statement of cash flows
(Direct and indirect methods)
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and balances with banks, andinvestments in money market instruments. Cash and cash equivalents included in thestatement of cash flows comprise the following amounts in the statement of financial
position.
2007 2006$ $
Cash on hand and balances with banks x xShort-term investments x x
____ ____
x x____ ____
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Worked example 3
Antipodean Entities Statement of Financial Position as at2007 2006
$ $ $ $Non-current assets
(at written down value)Premises 37,000 38,000Equipment 45,800 17,600Motor vehicles 18,930 4,080______
101,730______
59,680
Investments 25,000 17,000_______ ______
126,730 76,680Current assets
Inventories 19,670 27,500Trade receivables 11,960 14,410Short-term investments 4,800 3,600Cash and bank balances 700 1,800______
37,130______
47,310
_______ _______
Total assets 163,860 123,990
Capital and reserves 78,610 75,040
Non-current liabilitiesInterest-bearing borrowings 25,000 28,000
Current liabilities
Trade payables 32,050 20,950Bank overdraft 28,200 ______60,250
______20,950
_______ _______
Total equity and liabilities 163,860 123,990
Profit for the year ended 31 December 2007 ($25,200) is after accounting for:$
DepreciationPremises 1,000Equipment 3,000Motor vehicles 3,000
Profit on disposal of equipment 430Loss on disposal of motor vehicle 740Interest expense 3,000
The written down value of the assets at date of disposal was $Equipment 5,200Motor vehicles 2,010
Interest accrued at 31 December 2007 is $400. The company has made a substantialdistribution out of capital during the year.
Required:
Prepare a statement of cash flows for the year ended 31 December 2007 in
accordance with IAS 7Statement of Cash Flows.
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Worked solution 3 Statement of cash flows
$ $
Cash flows from operating activitiesProfit before taxation 25,200
Adjustments forDepreciation 7,000
Net loss on disposals 310Interest expense 3,000
______
Operating profit before working capital changes 35,510Decrease in trade receivables 2,450Decrease in inventories 7,830Increase in trade payables $((32,050 400) 20,950) 10,700
______
Cash generated from operations 56,490
Interest paid $(3,000 400) (2,600)______
Net cash from operating activities 53,890
Cash flows from investing activitiesPurchase of long-term investments $(25,000 17,000) (8,000)Purchase of equipment and cars
$(36,400 (W1) + 19,860 (W2)) (56,260)Proceeds from sale of equipment and cars (W3) 6,900
______
Net cash used in investing activities (57,360)
Cash flows from financing activitiesCapital repayment (21,630)Borrowings repayment (3,000)
______
Net cash used in financing activities (24,630)______
Net decrease in cash and cash equivalents (28,100)
Cash and cash equivalents at beginning of period $(3,600 + 1,800) 5,400______
Cash and cash equivalents at end of period $(4,800 + 700 28,200) (22,700)
Commentary
It is been assumed that short-term investments are cash equivalents.
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WORKINGS
(1) Equipment (WDV)
$ $
Bal b/d 17,600 Disposal 5,200Depreciation 3,000
Additions () 36,400 Bal c/d 45,800 54,000 54,000
(2) Motor vehicles (WDV)
$ $
Bal b/d 4,080 Disposal 2,010Depreciation 3,000
Additions () 19,860 Bal c/d 18,930 23,940 23,940
(3) Disposals
$ $
Equipment 5,200Motor vehicle 2,010 Loss on disposal (vehicles) 740
Profit on disposal (equipment) 430 Proceeds () 6,900 7,640 7,640
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Worked example 4
Alma has the following income statement for the year ended 31 December 2007 andstatement of financial position extracts at that date.
Income statement
$000Revenue 2,880Cost of sales (2,016)
_____
Gross profit 864Expenses (288)
_____
Profit 576
Statement of financial position (extracts)
2007 2006$000 $000
Current assetsInventory 384 336Trade receivables 622 564
Current liabilitiesTrade payables 403 331
You are given the following information:
(1) Expenses include depreciation of $86,000, bad debts written off of $34,000
and employment costs of $101,000.
(2) During the year Alma disposed of some plant for $58,000 which had a netbook value of $43,000, the profit being netted off against expenses.
Required:
(a) Show how the net cash flows from operating activities would be
presented in the statement of cash flows using the direct method. (Ignore
taxation.)
(b) Prepare the note reconciling the operating profit to net cash flows from
operating activities.
Worked solution 4
(a) Cash-flows from operating activities
$000Cash received from customers (W1) 2,788Cash paid to suppliers and employees (1,992 (W2) + 183 (W4)) (2,175)
_____
Cash from operating activities 613
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WORKINGS
(1) Trade receivables
$000
Bal b/d 564
Revenue 2,880
_____
3,444
$000
Bad debt 34
Cash (Balancing figure) 2,788Bal c/d 622
_____
3,444
(2) Trade payables
$000
Cash (Balancing figure) 1,992Bal c/d 403
_____
2,395
$000
Bal b/d 331Purchases (W3) 2,064
_____
2,395
(3) $000Opening inventory 336Purchases (Balancing figure) 2,064Closing inventory (384)
_____
Cost of sales 2,016_____
(4) Other cash expenses:$000
From income statement 288Adjustments for non-cash items
Depreciation (86)Bad debts (34)Profit on disposal 15
___
183
(b) Reconciliation of operating profit to net cash flows from operating activities
$000Profit 576Depreciation 86Profit on disposal (15)Increase in inventory (384 336) (48)Increase in receivables (622 564) (58)Increase in payables (403 331) 72
___
613
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Activity 1
Casino is a publicly listed company. Details of its statements of financial position as at31 March 2008 and 2007 are shown below together with other relevant information:
Statements of financial position
31 March 2008 31 March 2007
$m $m $m $mNon-current assets (note (i))Property, plant and equipment 880 760Intangible assets 400 510
1,280 1,270
Current assetsInventory 350 420
Trade receivables 808 372Interest receivable 5 3Short term deposits 32 120Bank 15 1,210 75 990
Total assets 2,490 2,260
Equity and liabilitiesOrdinary shares of $1 each 300 200Share premium 60 Revaluation surplus 112 45Retained earnings 1,098 1,270 1,165 1,210
1,570 1,410
Non-current liabilities12% Loan note 1508% Convertible bond 160 Deferred tax 90 250 75 225
Current liabilitiesTrade payables 530 515Bank overdraft 125 Taxation 15 110
670 625 Total equity and liabilities 2,490 2,260
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The following supporting information is available:
(i) Details relating to the non-current assets are:
Property, plant and equipment at:
31 March 2008 31 March 2007Cost/ Carrying Cost/ Carrying
Valuation Depreciation value Valuation Depreciation value$m $m $m $m $m $m
Land and buildings 600 12 588 500 80 420Plant 440 148 292 445 105 340
880 760
Casino revalued the carrying value of its land and buildings by an increase of $70
million on 1 April 2007. On 31 March 2008 Casino transferred $3 million from therevaluation surplus to retained earnings representing the realisation of the revaluationsurplus due to the depreciation of buildings.
During the year Casino acquired new plant at a cost of $60 million and sold some oldplant for $15 million at a loss of $12 million.
There were no acquisitions or disposals of intangible assets.
(ii) Statement of comprehensive income for the year to 31 March 2008 (extract):
$m $mOperating loss (32)
Interest receivable 12Finance costs (24)
Loss before tax (44)Income tax repayment claim 14Deferred tax charge (15) (1)
Loss for the period (45)
The finance costs are made up of:Interest expenses (16)
Penalty cost for early redemption of 12% loan note (6)Issue costs of 8% convertible bond (2)
(24)
(iii) The short term deposits meet the definition of cash equivalents.
(iv) Dividends of $25 million were paid during the year.
Required:
As far as the information permits, prepare a statement of cash flows for Casino
for the year to 31 March 2008 in accordance with IAS 7 Statement of CashFlows.
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7 Additional disclosures
There are a number of extra disclosures which should be made in most casesto support the statement of cash flow:
Analysis of cash and cash equivalents; Major non cash transactions; Cash and cash equivalents held by the group; Reporting futures, options and swaps; Voluntary disclosures.
7.1 Analysis of cash and cash equivalents
A note should be presented that reconciles amounts held as cash and cashequivalents at the start and end of the period.
Illustration 3 Cash and cash equivalents
2007 2006 Change$ $ $
Cash on hand 1,300 (1,300)Bank overdraft (11,000) (11,000)
(11,000) (1,300) (12,300)
7.2 Major non cash transactions
Non cash transactions should be excluded from the statement of cash flows.However some of these do have a major impact on investing and financingactivities and should be disclosed in a note.
Examples of such transactions could include:
the issue of shares in order to acquire assets; the conversion of debt to equity; the inception of significant lease arrangements.
In each case a brief description of the nature and purpose of the transactionshould be given.
7.3 Voluntary disclosures
The standard encourages the disclosure of other information which may be relevantto users seeking to assess the financial health of a business. These are:
the amount of undrawn borrowings that are available and anyrestrictions on their future use.
the amount of cash flows that represent increases in capacity ratherthan maintenance of existing capacity.
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the amount of cash flows from each major activity related tointerests in joint ventures which have been accounted for using
proportional consolidation.
a segment analysis of cash flows arising from each major activity.This information should be presented by way of a note and couldappear as follows:
Cash flows Segment 1 Segment 2 Total
Operating activities x x XInvesting activities x x XFinancing activities x x X
___ ___ ___
x x X___ ___ ___
Focus
You should now be able to:
explain the need for a statement of cash flows and assess the usefulness ofinformation given by the statement of cash flows;
prepare the statement of cash flows, including relevant notes, for anindividual company in accordance with IAS 7.
Commentary
Questions may specify the use of the direct or the indirect method.
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Activity solution
Solution 1
Statement of Cash Flows Casino for the Year to 31 March 2008
$m $mCash inflows from operating activitiesOperating loss (32)Adjustments for:Depreciation buildings (W1) 2
plant (W2) 81 intangibles (510 400) 110
Loss on disposal of plant (from question) 12 205
Operating profit before working capital changes 173Decrease in inventory (420 350) 70Increase in trade receivables (808 372) (436)Increase in trade payables (530 515) 15
Cash generated from operations (178)Interest paid (16)Income tax paid (W3) (81)
Net cash outflow from operating activities (275)Cash flows from investing activitiesPurchase of land and buildings (W1) (100)
plant (W2) (60)Sale of plant (W2) 15Interest received (12 5 + 3) 10 (135)
Cash flows from financing activitiesIssue of ordinary shares (100 + 60) 160Issue of 8% convertible debt (160 2 issue costs) 158Repayments of 12% loan (150 + 6 penalty) (156)Dividends paid (25) 137
Net decrease in cash and cash equivalents (273)Cash and cash equivalents at beginning of period (120 + 75) 195
Cash and cash equivalents at end of period (125 (32 +15)) (78)
Commentary
Interest and dividends received and paid may be shown as operating cashflows or as investing or financing activities as appropriate.
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WORKINGS (in $ million)
(1) Land and buildings (net book value)
$m $m
Bal b/d 420Revaluation gain (see below) 70 Depreciation (12 (80 70)) 2
Additions () 100 Bal c/d 588 590 590
Commentary
Since there have been no disposals but accumulated depreciation is less thanin the previous year, it has been assumed that the revaluation has beenreflected through a write-back of $70m accumulated depreciation, leaving acharge for the year of $2m.
Revaluation surplus
$m $m
Transfer to retained earnings 3 Bal b/d 45
Balance c/d 112 Revaluation gain () 70 115 115
(2) Plant (cost)
$m $m
Bal b/d 445 Disposal () 65Additions (given) 60 Bal c/d 440
505 505
Plant disposals
$m $m
Cost (as above) 65 Proceeds 15
Depreciation () 38Loss on disposal 12
65 65
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Accountancy Tuition Centre (International Holdings) Ltd 2008 3023
Plant depreciation
$m $m
Disposal (as above) 38 Bal b/d 105
Bal c/d 148 Charge for the year () 81
186 65
(3) Taxation
$m $m
Tax paid 81 Bal b/d (110 + 75) 185Bal c/d (15 + 90) 105 Net charge for the year 1
186 186
(4) Retained earnings
$m $m
Loss for period 45 Bal b/d 1,165Dividends paid 25 Transfer from revaluation surplus 3Bal c/d 1,098
1,168 1,168
Commentary
This retained earnings working is not required as part of the solution in thiscase. However, some questions may require such a reconciliation of themovement in retained earnings to find a missing figure, such as a transfer to
share capital in respect of a bonus issue of shares. It is therefore included asa proof that all the movements in retained earnings balances have beenidentified and dealt with.
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