Reconciling financing liabilities

Learning objectives

• Prepare the reconciliation of liabilities arising from financing activities (cash flows, changes in group structure, foreign exchange, fair value, other changes).L2, L3, L4
• Determine the liabilities (and assets) included in the disclosure and relate it to the statement of financial position and the statement of cash flows.L2, L3

Normative references

• IAS 7 §44AAn entity provides disclosures that enable users to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.
• IAS 7 §44BTo meet this objective, the entity discloses, to the extent necessary, the following changes in such liabilities: changes from financing cash flows; changes arising from obtaining or losing control of subsidiaries or other businesses; the effect of changes in foreign exchange rates; changes in fair values; other changes.
• IAS 7 §44CLiabilities arising from financing activities are liabilities for which cash flows were, or future cash flows will be, classified in the statement of cash flows as cash flows from financing activities; the disclosure requirement also applies to changes in financial assets if their cash flows were, or will be, included in financing cash flows (for example assets that hedge financing liabilities).
• IAS 7 §44DOne way to fulfil the requirement of para. 44A is to provide a reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities, including the changes identified in para. 44B; the entity then provides sufficient information to enable users to link items included in the reconciliation to the statement of financial position and the statement of cash flows.
• IAS 7 §44EIf an entity provides this disclosure in combination with disclosures of changes in other assets and liabilities, it discloses the changes in liabilities arising from financing activities separately from changes in those other assets and liabilities.

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

22 questions

• For a 2 million debt-to-equity conversion, which of these presentations comply?L3
• What is the objective of the disclosure on liabilities arising from financing activities?L2
• Which of these items is a liability arising from financing activities?L2
• How may an entity meet the disclosure requirement on financing liabilities?L3
• Fendane presents one movement table for its financing liabilities and other assets and liabilities. What must it observe?L3
• Which changes does the entity disclose, to the extent necessary, for its liabilities arising from financing activities?L2
• Which of these items of Morbis fall within the disclosure on financing liabilities (and assets)?L3
• When reviewing Calmont's financing liabilities reconciliation, which of these findings call for a correction?L4
• Ralvane's financing liabilities: opening balance {opening_balance}; drawdowns {proceeds}; repayments {repayments}; new leases {new_leases}; exchange effect {fx_effect} (increase). Compute the closing balance of the reconciliation.L2
• At the start of the year Fenmira's financial debt (borrowings and lease liabilities) amounted to {opening_balance}. It borrowed {proceeds}, repaid {repayments}, signed leases for {new_leases}, and the rise of the euro reduced its dollar debt by {fx_effect}. What closing balance does the reconciliation show?L3
• Nelquine's borrowings move from {opening_balance} to {closing_balance}. Net financing cash flows (drawdowns less repayments) amount to {net_cash_flows} (outflow). Compute total non-cash changes to show.L3
• Norvora's reconciliation: opening borrowings {borrowings_opening}, net flows {borrowings_cash_flows} (inflow), debt of an acquired subsidiary {acquired_debt}; opening lease liabilities {leases_opening}, principal paid {lease_principal_paid}, new leases {new_leases}. Compute total financing liabilities at year-end.L4
• A Ormira loan measured at fair value moves from {opening_balance} to {closing_balance}. Repayments for the year: {repayments}; exchange effect: {fx_effect} (increase); no change other than fair value (case data). Compute the fair value change to present.L3
• Telbris's financing cash flows amount to {financing_total} (net outflow) and include a share issue of {share_issue} and dividends paid of {dividends_paid} (classified as financing). Compute the cash flows relating to financing liabilities to carry into the reconciliation (negative if an outflow).L4
• Peldis's reconciliation moves from opening to closing showing only drawdowns and repayments; the residual difference of 300,000, due to new leases, is included in repayments. What is the error?L2
• Pelline includes its ordinary trade payables in its financing liabilities reconciliation, “to give a complete view of debt”. What is the error?L3
• Zelquine's reconciliation shows financing cash flows of −820,000, whereas the statement shows repayments of 1,100,000 and drawdowns of 300,000, with no explanation of the difference. What is the error?L3
• Rozbane holds an interest rate swap, as an asset, hedging a loan whose flows are classified as financing; the swap settlements are also classified as financing (case data). Should it be included in the financing liabilities disclosure?L3
• During the year Talmira’s debt increased by 1.5 million when an indebted subsidiary was acquired, and it repaid 400,000. How should these items be presented in the reconciliation?L3
• Calquine publishes a “net debt” table mixing cash, borrowings, leases and an overdraft included in cash, with no other information on its financing liabilities. What assessment should be made?L4
• Prepare for the Ostmira group the structure of the note on liabilities arising from financing activities: bank loans, a dollar bond, lease liabilities, debt of an acquired subsidiary and a hedging swap. Justify your choices.L4
• The Delvis group wonders whether to include in the financing liabilities note: (1) its dividends payable; (2) a shareholder loan; (3) interest-bearing 3-year payables to fixed asset suppliers. Write a reasoned analysis.L3