How to approach it
- Reconcile every non-current asset and liability with a T-account or movement table before starting the statement.
- Find the missing figure in each reconciliation (often depreciation or cash paid).
- Separate operating adjustments into 'adjustments for non-cash items' and 'changes in working capital'.
- Strip capital payables and interest payable out of the working capital lines.
- Classify interest and dividends exactly as the question's policy says.
Key rules to apply
- IAS 7: transfers from CWIP to PPE are not cash flows; cash paid for capital expenditure is.
- Gains on disposal are deducted in operating activities; proceeds go under investing.
- Tax paid = opening liability + expense − closing liability (adjust for deferred tax if present).
Answer layout
| Statement of cash flows | Rs m |
|---|---|
| Profit before tax | |
| Adjustments for: depreciation, impairment, gains, interest | |
| Changes in working capital | |
| Cash generated from operations | |
| Tax paid | |
| Investing activities | |
| Financing activities | |
| Net change in cash |
Common mistakes
Drawn from the examiners' comments for this sitting (summarised in our words) and from typical errors on this topic.
- Showing the CWIP transfer as the cash outflow (examiners' point).
- Leaving the capital creditor or the change in interest payable inside working capital changes.
- Classifying interest or dividends against the stated policy.
Similar question with worked solution
Written by us with our own numbers; it tests the same skills as Q7 without copying it.
Original practice question
Reconciling PPE, interest and tax
PPE carrying amount: opening Rs 500m, closing Rs 560m. Depreciation Rs 70m. A machine with carrying amount Rs 30m was sold for Rs 40m. Capital creditors: opening Rs 15m (paid this year), closing Rs 20m. Interest expense Rs 40m; interest payable fell from Rs 8m to Rs 5m. Tax expense Rs 60m; tax payable rose from Rs 25m to Rs 30m.
Required: Calculate cash paid for PPE, interest paid and tax paid.
Worked solution
| Working | Rs m |
|---|---|
| Additions: 560 − 500 + 70 + 30 | 160 |
| Less unpaid at year-end | (20) |
| Add opening creditor paid | 15 |
| Cash paid for PPE | 155 |
| Interest paid: 8 + 40 − 5 | 43 |
| Tax paid: 25 + 60 − 30 | 55 |
Gain on disposal Rs 10m is deducted in operating activities; proceeds Rs 40m go to investing.
Answer: PPE Rs 155m, interest Rs 43m, tax Rs 55m.