When to report net

Learning objectives

• Distinguish cash flows to be presented gross from those that may be presented net (on behalf of customers, quick turnover, financial institutions).L2, L3
• Calculate a permitted net cash flow and check the prohibition on offsetting other investing and financing cash flows.L2, L3

Normative references

• IAS 7 §21An entity reports separately major classes of gross cash receipts and gross cash payments arising from investing and financing activities, except for cash flows reported on a net basis under paras. 22 and 24.
• IAS 7 §22Cash flows from operating, investing or financing activities may be reported on a net basis when they are: (a) cash receipts and payments on behalf of customers when the cash flows reflect the activities of the customer rather than those of the entity; (b) cash receipts and payments for items in which the turnover is quick, the amounts are large and the maturities are short.
• IAS 7 §23Examples within para. 22(a): the acceptance and repayment of demand deposits of a bank; funds held for customers by an investment entity; rents collected on behalf of, and paid over to, the owners of properties.
• IAS 7 §23AExamples within para. 22(b): advances made for, and the repayment of, principal amounts relating to credit card customers, the purchase and sale of investments, and other short-term borrowings, for example those that have a maturity period of three months or less.
• IAS 7 §24A financial institution may report on a net basis the cash flows arising from: the acceptance and repayment of deposits with a fixed maturity date; the placement of deposits with and withdrawal of deposits from other financial institutions; cash advances and loans made to customers and the repayment of those advances and loans.

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

15 questions

• An entity may present its acquisitions and disposals of property, plant and equipment for the period as a single net amount.L2
• A financial institution may report on a net basis cash flows from advances and loans made to customers and their repayment.L2
• In which case may cash flows be reported on a net basis under the general provision?L2
• Which of these examples is a flow on behalf of customers that may be presented net?L2
• Which of these examples corresponds to items with quick turnover, large amounts and short maturities?L3
• Which of these flows may be presented net?L2
• For a financial institution, which of these flows may be presented net?L3
• Tormelle, a property manager, collects {rents_collected} of rents on behalf of owners and pays {rents_remitted} over to them; the flows reflect the owners’ activities (case data). Compute the net flow that may be presented.L2
• Velnore Card, a credit card issuer, advanced {advances} to its cardholders and received {repayments} of principal repayments during the year (case data). Compute the net flow presented, as a negative amount if it is an outflow.L3
• Ardane paid {acquisitions_paid} for acquisitions of PPE; it sold assets with a carrying amount of {disposals_carrying} at a gain of {gain}. Compute the gross amounts to present in investing.L3
• Morbris presents a line “net investment in PPE: −340,000”, offsetting 900,000 of acquisitions and 560,000 of disposals. What is the error?L2
• Tortara, a manufacturer, presents net the drawdowns and repayments of its 5-year bank loans, “because the amounts are large”. What is the error?L3
• Ralnore Agency collects ticket prices on behalf of event organisers and pays them over, keeping only a separately invoiced commission (case data). How should the collections and remittances be presented?L2
• Peldane's group treasury buys and resells every week investment securities with an original maturity of 2 months (not qualifying as cash equivalents), for amounts of about 50 million (case data). How should these flows be presented?L3
• Selrane Bank wants to present net, on the one hand, loans made to its customers and their repayments and, on the other hand, the issue and repayment of its own 10-year bonds (case data). What is your view?L3