Financing activities

Learning objectives

• Identify financing cash flows (issues and buy-backs of shares, borrowings, repayments, payments of lease liabilities).L1, L2
• Calculate loan repayments, proceeds from issues and the principal portion of lease payments from the balances and non-cash changes.L2, L3
• Relate the journal entries for a loan drawdown, a share issue and a lease payment to the financing cash flows.L1, L2

Normative references

• IAS 7 §6Definitions: cash comprises cash on hand and demand deposits; cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value; cash flows are inflows and outflows of cash and cash equivalents; operating activities are the principal revenue-producing activities and other activities that are not investing or financing activities; investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents; financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of the entity.
• IAS 7 §17Separate disclosure of financing cash flows is useful in predicting claims on future cash flows by providers of capital. Examples: cash proceeds from issuing shares or other equity instruments; cash payments to owners to acquire or redeem the entity's shares; cash proceeds from issuing debentures, loans, notes, bonds, mortgages and other short-term or long-term borrowings; cash repayments of amounts borrowed; cash payments by a lessee for the reduction of the outstanding lease liability.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

20 questions

• Cash payments by a lessee for the reduction of the outstanding lease liability are financing cash flows.L1
• A payment to owners to acquire or redeem the entity's shares is an investing cash flow, the entity acquiring securities.L2
• Which of these flows is a financing cash flow under the standard?L1
• Why does the standard require financing cash flows to be presented separately?L1
• Rozane pays 96,000 of lease payments under a lease recognised on the balance sheet, of which 21,000 is interest; its policy classifies interest paid as operating (case data). What amount should be presented in financing?L2
• Which of the following flows of Zantis are financing cash flows?L2
• When reviewing Fenquine's statement, which of these financing presentations are correct?L3
• Fenzane's bank borrowings move from {opening_borrowings} to {closing_borrowings}. It drew {new_borrowings} of new loans; there are no non-cash changes (case data). Compute repayments for the period.L2
• At the start of the year Belvane owed {opening_borrowings} to its banks; at the end it owes {closing_borrowings}. During the year it took out a new loan of {new_borrowings}, and no non-cash movement affected these debts (case data). What amount of repayments appears in financing?L2
• Sarquine's borrowings move from {opening_borrowings} to {closing_borrowings}. During the year: new loan drawn {new_borrowings}; bonds converted into shares {converted}; increase in a foreign-currency loan due to exchange rates {fx_increase} (case data). Compute cash repayments.L3
• Elquine's share capital and premium move from {opening_equity} to {closing_equity}. The increase includes a capitalisation of reserves of {bonus_issue} and shares issued in exchange for a contribution of land for {shares_for_land} (case data). Compute the cash proceeds from share issues.L2
• Marlisse's lease liability moves from {opening_liability} to {closing_liability}. New leases were recognised for {new_leases} and interest for the year amounts to {interest}, paid in full with the lease payments (case data; measurement under IFRS 16). Compute the principal payments presented in financing and total lease payments made.L3
• Calbris presents all its lease payments (principal and interest) on leases recognised on the balance sheet as operating cash flows, “like office rent”. What is the error?L2
• Velquine's borrowings fall by 500,000 during the year, of which 350,000 is due to bonds converted into shares; Velquine presents 500,000 of repayments in financing. What is the error?L3
• Quelmont obtains and receives a bank loan of {loan} (case data). Record the entry; the debit to cash is a financing inflow.L1
• Delbris issues new shares fully paid in cash for {proceeds} (case data; capital and premium combined). Record the entry and identify the cash flow presented.L2
• Saldine pays a lease instalment of {payment}, of which {interest} is interest on the lease liability (case data; measurement under IFRS 16). Record the payment entry and state the financing part.L2
• Ostbris buys back 5% of its own shares on the market for 900,000, in order to cancel them (case data). How should this payment be presented?L2
• Lirdane pays during the year: 120,000 on leases recognised on the balance sheet (of which 30,000 is interest) and 18,000 for short-term leases not recognised under the exemption applied (case data). Its interest paid is classified as operating. What amount should be presented in financing?L3
• Rosbane renegotiates a 2 million loan: the bank cancels it and grants a new one of 2.3 million, of which only 300,000 is paid into Rosbane’s account, the balance settling the old loan without passing through cash (case data). How should the transaction be presented?L3