Australia Cash Flow Statement Help!

[soscashflow]

Hi I have a couple of points in my current assignment which I am having trouble classifying, any help would be appreciated!


(Company) pays significant amounts of money to the Australian Taxation Office for income tax. On the 2nd February 2014 it paid $1,567,231 for the 2012/13 income tax year. Furthermore, on the 15th May 2014 (Company) paid $235,980 income tax for an error in its 2007/08 income tax return. For the 2013/14 year (Company) believes it will pay $2,587,901 income tax.

^^ This point I think all the tax payments from previous years are still included in income tax paid on this statement because that's when the cash was paid? And if they believe the income tax for this period (13/14) is $2,587,901 is that included or would it be recorded in the statement for the next period ie. after the financial year is ended?


While (Company) did sell some of its share portfolio during the year, it still owns a significant parcel of shares. At the 30th June 2014 this investment was recorded at $56,890,000. During the 2013/14 (Company) received dividends of $3,892,310 of which 60% was received as part of a dividend reinvestment plan and the remainder was received by cheques.

^^This one is just slightly ambiguously worded. Would the dividends reinvested add to the total investment given, or are they already included?

16. (Company)’s total wages for the year was $5,676,893. (Company) staff are also subject to a bonus scheme which is paid in (Company) shares. During 2013/14 the bonuses amounted to $510,000 and were paid on the 29th June 2014.

^^Is the bonus amount part of wages/operating expenses or is it just not recorded because no cash is received for the issued shares?

Any assistance you can offer will be much appreciated

 

[Tim8705]

Cash flow is rather intuitive. It only gets confusing when you are so ingrained in accrual based accounting to think back to basics.

You are correct in the first example. The cash should be included in the cash flow statement at the date it went out. The $1,567,231 and the $235,980 would both appear in the company's 2014 statement of cash flows. They should not put anything to the statement of cash flows until cash changes hand, so even if it is expected they will pay $2,587,901 at some point, it should not be included until it is actually paid.

I'm assuming the 2nd question is only asking about the statement of cash flows? If that is the case, then the 40% received via check would appear on the statement as a dividend received. The reinvestment of stock would not appear anywhere in the statement of cash flows as it is not a cash transaction. It would however increase your investment and appear in other financial statements (balance sheet).

For question 3, again, the bonuses are in company stock and not cash has changed hands. Journal entries would be booked for the expenses, but it would not show up on the cash flow. It is still an expense, and would show up on other documents like your income statement and your balance sheet. Hope this helps

 

[Counterofbeans]

Cash flow is rather intuitive. It only gets confusing when you are so ingrained in accrual based accounting to think back to basics.

You are correct in the first example. The cash should be included in the cash flow statement at the date it went out. The $1,567,231 and the $235,980 would both appear in the company's 2014 statement of cash flows. They should not put anything to the statement of cash flows until cash changes hand, so even if it is expected they will pay $2,587,901 at some point, it should not be included until it is actually paid.

I'm assuming the 2nd question is only asking about the statement of cash flows? If that is the case, then the 40% received via check would appear on the statement as a dividend received. The reinvestment of stock would not appear anywhere in the statement of cash flows as it is not a cash transaction. It would however increase your investment and appear in other financial statements (balance sheet).

For question 3, again, the bonuses are in company stock and not cash has changed hands. Journal entries would be booked for the expenses, but it would not show up on the cash flow. It is still an expense, and would show up on other documents like your income statement and your balance sheet. Hope this helps

Most of this is not accurate, especially when using the indirect method of preparing a cash flow statement.

The most pressing error in the comment above is the idea that noncash items don't show up on the cash flow statement. This is patently false. Noncash items appear all over the place on the cash flow statement.

If the noncash item has been included in net income (loss), then it SHOULD show up on the cash flow statement as an adjustment to net income (loss) to get to net cash provided (used) in operations.

For instance, when a company issues stock as compensation to its employees. This would be an addback to net income, as no cash went out the door, but it reduced net income.

Further, if a noncash J/E was balance sheet only, like a capital lease, declared dividend, etc., these items DO show up on a cash flow statement as, "Noncash investing and financing activities" (the former being investing, while the latter being financing. The good part is that you don't need to distinguish between the two on the cash flow statement)

Ultimately, one needs to explain all changes on their balance sheet, whether cash or noncash, in the cash flow statement directly. To this day, I still use the template from D&T and it makes it very easy.

In regards to the OP, taxes actually paid will show up primarily in two places on the cash flow statement: (1) buried/netted In the change in income tax payable and (2) in the, "Supplemental Information" section of the cash flow statement (near the bottom of the statement). Accruing the tax expense also will likely show in the change in income tax payable account. Deferred taxes generally have their own line item in the cash flow statement as well (and these are noncash also).

Your activity in your dividend reinvestment plan likely generated a JE, yes? Probably something like a Dr to Retained Earnings and a Cr. to C/S and APIC, yes? This WILL show in the cash flow statement as a, "Noncash Investing and Financing Activities" & the amount shown there will be the Dr. to Retained Earnings.

Common stock (or options) that generate an expense WILL show in the cash flow statement as an adjustment (add back) to Net Income, as it reduced net income, but no cash went out the door. Note that any tax benefit related to these will show up in the cash flow from financing activities section of the cash flow statement (I dislike this rule, but whatever...)