IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

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Wiley IFRS: Practical Implementation Guide and Workbook

7. OPERATING ACTIVITIES 7.1 Cash flows from operating activities are mainly derived from principal revenue-generating activities of the entity. This is a critical indicator of the financial strength of an entity because it is an important source of internal finance. Financial statement users usually look at cash flows from operating activities as a gauge of an entity's ability to maintain its operating capability and support other activities, such as servicing debt and repaying of borrowings, paying dividends to sharehold–

ers, and making investments without recourse to external funding. 7.2 Common examples of cash flows from operating activities are Cash Inflows

(a) Cash collection s from customers from sale of goods and the rendering of services (b) Cash receipts from "other revenues," such as royalties, fees and commissions (c) Cash refunds of income taxes unless they can be specific ally identified with financing or investing activities Cash Outflows (a) Cash payments to suppliers of goods and services (b) Cash payments to or on behalf of employees (c) Cash payment of income taxes unless they can be specifically identified with financing or investing activities 7.3 In addition, operati ng cash flows from contracts held for trading or dealing (futures and op– tions) and, in case of insurance entities, cash receipts and payments for premiums and claims, an– nuities, and policy benefit s. Furthermore, cash flows that do not meet the criteria of investing or financing activities also are classified as cash flows from operating activities. 8. INVESTING ACTIVITIES 8.1 Investing activities include the purchase and disposal of property, plant, and equipment and other long-term assets, such as investment property. They also include purchase and sale of debt and equity and debt instruments of other entities that are not considered cash equivalents or held for dealing or trading purposes. Investing activities also include cash advances and collections on loans made to other entities. This, however, does not include loans and advances made by banks and other financial institutions to their customers that would be classified as "operating activities" as they are cash flows from these entities' principal revenue-producing activities. 8.2 Common examples of cash flows relating to investing activities are Cash Infl ows (a) Purchase of property, plant, and equipment (b) Acqui sition of debt instruments of other entities (c) Purchase of equity instruments of other entities (unless held for trading purposes or consid- ered to be cash equivalen ts) 9. FINANCING ACTIVITIES 9.1 Financing activities include obtaining resources from and returni ng resources to the owners. Also included in this category is obtaining resources through borrowings (short term or long term) and repayments of the amounts borrowed. 9.2 Common examples of cash flows relating to financing activities are Cash Inflows (a) Proceeds from issuance of share capital (b) Proceeds from issuing debt instruments (debentures) (c) Proceeds from bank borrowings (a) Proceeds from disposal of property, plant, and equipment (b) Proceeds from disposal of debt instruments of other entities (c) Proceeds from the sale of equity instruments of other entities Cash Outflows