Cross-IFRS · Case studies (Step 3 of 5)
Practical case
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IAS 7 Statement of Cash Flows — wording before IFRS 18Applicable today
Applies to annual periods beginning before January 1, 2027.
Ostrelan Diagnostics SA, a fictitious company that designs and manufactures laboratory analysers (260 employees, two sites), IFRS financial statements presenting one comparative year, year end 31 December, amounts in euros; its shares are not traded on a market.
L1 · Guided · Year N — N financial statements as published
You follow Ostrelan Diagnostics’ statement of cash flows over three years. In N, the company capitalises two development projects, impairs one of them and sells an analyser line; in N+1, internal audit discovers that one of the projects should never have been capitalised and that an opening inventory was overstated, then the N+1 closing is followed by news that has no cash effect yet; in N+2, that news unfolds and a presentation error in the N+1 statement comes to light. For each event, two questions: does the event change the amounts (and of which period)? Is there a cash flow, and in which activity? All figures, dates, technical reports and governance are case data; Ostrelan’s choices (indirect method, interest paid in operating activities, dividends paid in financing activities) are presentation options of the entity, never obligations imposed by the standards. The useful lives, depreciation methods and values of property, plant and equipment are case data. Teaching assumption: income tax effects are ignored. IAS 7 is taught in its wording before IFRS 18.
Standards involved: IAS 7 Statement of Cash Flows (classification, indirect method), IAS 38 Intangible Assets (research and development) and IAS 36 Impairment of Assets (impairment loss). Classify the items of N, prepare the published N statement, record the entries for the Velisco project and check a statement about research.
Fundamental level: the method, help and references are shown.
Method
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Context · Dated fact of the file
Ostrelan Diagnostics SA, a fictitious company that designs and manufactures laboratory analysers (260 employees, two sites), IFRS financial statements presenting one comparative year, year end 31 December, amounts in euros; its shares are not traded on a market.
Initial event · L1·Year N — N financial statements as published · Current stage
Standards involved: IAS 7 Statement of Cash Flows (classification, indirect method), IAS 38 Intangible Assets (research and development) and IAS 36 Impairment of Assets (impairment loss). Classify the items of N, prepare the published N statement, record the entries for the Velisco project and check a statement about research.
Pieces added
New period · L2·Year N+1 — N+1 financial statements, N comparative · Upcoming: unlocks after the current stage
New period · L3·N+1 closing — window until authorisation for issue on 15 March N+2 · Upcoming: unlocks after the current stage
New period · L4·Year N+2 — closing at 31 December N+2, authorisation on 12 March N+3 · Upcoming: unlocks after the current stage
Conclusion · Upcoming: unlocks after the current stage
1 document to work from at this level.
Document 1Supporting document
| Item for N | Information |
|---|---|
| Profit for the year (tax ignored) | 2,100,000 |
| Expenses included in profit | research 300,000 (paid); amortisation of intangible assets 260,000; depreciation of property, plant and equipment 340,000; impairment loss on the Velisco project 100,000; interest 70,000 (paid, no accrued interest) |
| Gain on disposal of an analyser line (property, plant and equipment) | 30,000 (proceeds received 90,000; carrying amount 60,000) |
| Pelvaro project | 520,000 of development capitalised and paid in N; recognition criteria documented by management |
| Velisco project | 450,000 of development capitalised and paid in N; at year end, management writes the project down to its recoverable amount of 350,000 |
| Changes in balances | inventories + 150,000; trade receivables + 210,000; trade payables + 80,000 |
| Other cash flows | property, plant and equipment acquired and paid 400,000; loan repayment 300,000; dividends paid 400,000 |
| Cash at 1 January N | 1,000,000 |
Ostrelan’s policies (case data): indirect method; interest paid in operating activities; dividends paid in financing activities.
First level: all the data is in the brief and the pieces of this level.
5 parts to answer, marked when you submit the level.
Find the useful facts in the pieces before concluding.
Part 1 · Classification · Recognition
Classify each item of N in Ostrelan’s published statement of cash flows.
Research expenditure paid (300,000)
Development expenditure capitalised and paid (Pelvaro and Velisco)
Impairment loss on the Velisco project (100,000)
Amortisation of intangible assets (260,000)
Proceeds received for the analyser line (90,000)
Interest paid (70,000)
Dividends paid (400,000)
4 more questions will appear once the current question is complete.
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Answer every part to submit the level and see the conclusion.
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