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ACCOUNTING GUIDELINE
GRAP 2
Cash Flow
Statements
All rights reserved. No part of this publication may be reproduced, stored in retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior permission of the National Treasury of South Africa.
Permission to reproduce limited extracts from the publication will not usually be withheld.
Though National Treasury (NT) believes reasonable efforts have been made to ensure the accuracy of the information contained in the guideline,
it may include inaccuracies or typographical errors and may be changed or updated without notice. NT may amend these guidelines at any time by
posting the amended terms on NT's Web site.
Note that this document is not part of the GRAP standard. The GRAP takes precedence while this guideline is used mainly to provide further
explanations on the concepts already in the GRAP.
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 3 of 32
Contents
1. Introduction .................................................................................................................. 4
2. Scope .......................................................................................................................... 5
3. Presentation of a Cash Flow Statement ....................................................................... 5
3.1 Operating activities ............................................................................................. 5
3.2 Investing activities ............................................................................................... 7
3.3 Financing activities.............................................................................................. 8
3.4 Classifying cash flows ......................................................................................... 9
4. Cash and Cash Equivalents ....................................................................................... 10
5. Notes to the Cash Flow Statement ............................................................................. 11
5.1 Cash and cash equivalents ............................................................................... 11
5.2 Other Supplementary Disclosures ..................................................................... 12
6. Guidance on other cash flows .................................................................................... 14
6.1 Interest and dividends or similar distributions .................................................... 14
6.2 Non cash transactions ...................................................................................... 15
6.3 Discounts and premiums .................................................................................. 15
6.4 Refinancing of borrowings................................................................................. 17
6.5 Sale and leaseback transactions....................................................................... 17
6.6 Treatment of cash in the statement of financial position .................................... 17
6.7 Investments in controlled entities, associates and joint ventures ....................... 18
6.8 Acquisitions and disposals of controlled entities and other operating units ........ 19
6.9 Foreign currency cash flows ............................................................................. 21
6.10 Factoring of trade receivables ........................................................................... 21
6.11 Renegotiating terms - trade payables ............................................................... 21
6.12 Reporting cash flows on a gross vs net basis.................................................... 22
7. Illustrative Example .................................................................................................... 23
8. Entity Specific Guidance ............................................................................................ 30
8.1 Municipalities .................................................................................................... 30
8.2 Public entities and constitutional institutions ..................................................... 31
9. Useful links and references ........................................................................................ 32
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 4 of 32
1. Introduction
This document provides guidance on the identification and disclosure of information about the
historical changes in cash and cash equivalents of an entity by means of a cash flow
statement, which classifies cash flows during the period from operating, investing and
financing activities. The contents should be read in conjunction with GRAP 2. For purposes
of this guide, “entities” refer to the following bodies to which the standard of GRAP relate to,
unless specifically stated otherwise:
• Public entities
• Constitutional institutions
• Municipalities and all other entities under their control
• Trading entities and government components applying the standards of GRAP
• Parliament and the provincial legislatures
• TVET and CET colleges
Explanation of images used in manual:
Definition
Take note
Management process and decision making
Example
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 5 of 32
2. Scope
GRAP 2 is applicable to all entities preparing their financial statements on the accrual basis of
accounting. Entities will comply with GRAP 2 for the preparation of a cash flow statement
which should be presented as an integral part of the financial statements for each period for
which financial statements are prepared.
3. Presentation of a Cash Flow Statement
The primary purpose of a cash flow statement is to provide information about cash receipts,
cash payments, and the net change in cash resulting from the operating, investing, and
financing activities of an entity during the period.
3.1 Operating activities
The amount of net cash flows arising from operating activities is a key indicator of the extent
to which the operations of the entity are funded from internal sources (such as the sale of
goods and services provided by the entity) or external sources (such as allocations from the
government fiscus). It also provides an indication of the entity’s ability to maintain its operating
capability, repay obligations and make new investments without recourse to external sources
of financing (such as the issuance of bonds).
Cash flows from operating activities include:
• Cash receipts from charges for goods and services;
• Cash receipts from transfers and subsidies (current or capital);
• Cash receipts from taxes, levies and fines;
• Cash payments to suppliers for goods and services;
Cash flows from
operating
activities
Cash flows from
investing
activities
Cash flows from
financing
activities
Net cash flows for the period
(important for example in analyzing the liquidity and long term solvency of an entity)
Activities of the entity that
are not investing or
financing activities
Activities that are the
acquisition and disposal of
long-term assets and other
investments not included in
cash and cash equivalents
Activities that result in
changes in the size and
composition of the
contributed capital and
borrowings of the entity
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 6 of 32
• Cash payments to and on behalf of employees; and
• Cash receipts or payments in relation to litigation settlements.
Cash flows from operating activities should be reported by using only the direct method,
whereby the entity’s significant classes of cash receipts and cash payments are disclosed.
Example: Direct Method
Extract from Cash Flow Statement Note 20x1 20x0
R R
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts XX XX
Taxation XX XX
Sale of goods and services XX XX
Transfers and subsidies received XX XX
Interest received XX XX
Levies XX XX
Payments
Compensation of employees (XX) (XX)
Goods and services (XX) (XX)
Interest paid (XX) (XX)
Transfers and subsidies paid (XX) (XX)
Net cash flows from operating activities x XXX XXX
An entity should disclose a reconciliation between the surplus/deficit and the cash flows from
operating activities.
This reconciliation may form part of the cash flow statement or be included in the notes to the
financial statements.
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 7 of 32
Example: Reconciliation of net cash flows from operating activities to surplus/(deficit)
Extract from Notes to the Cash Flow Statement 20x1 20x0
R R
Surplus/(deficit) XX (XX)
Non-cash movements
Depreciation XX XX
Amortisation XX XX
Increase in impairment of receivables XX XX
(Gain)/loss on sale of property (XX) XX
Increase in provisions relating to employee cost XX XX
Movement in working capital
Increase in inventory (XX) (XX)
Decrease in receivables XX XX
Increase in unspent transfers and subsidies XX XX
Increase in consumer deposits XX XX
Decrease in VAT payable (XX) (XX)
Net cash flow from operating activities XXX XXX
3.2 Investing activities
Cash flows arising from investing activities represent the extent to which cash outflows have
been made for resources that are intended to contribute to the entity’s future service delivery.
Cash flows from investing activities include:
• Cash payments to acquire and cash receipts from the sale of property, plant and
equipment, intangibles and other long-term assets. These payments include those relating
to capitalised development costs and self-constructed property, plant and equipment;
Remember that:
o Proceeds from the sale of property, plant and equipment or similar assets, as disclosed
in the cash flow statement, represents only the cash flow in the transaction. If an asset
is sold for R100 and the carrying value is R65 then the gain will be R35 but the
proceeds to be disclosed in the cash flow statement are R100. The gain of R35 will
be a non-cash item to be included as part of the reconciliation of net cash flows from
operating activities and the surplus/deficit for the period in the notes.
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 8 of 32
o When an asset is exchanged for another asset and there is no cash flow, even if a
gain or loss is made, then no proceeds on the sale will be disclosed in the cash flow
statement. If an asset with a carrying value of R70 is exchanged for an asset with a
market value of R60 then the effective gain on the exchange is R10. No cash has
flowed in this transaction and thus no proceeds on sale of assets should be disclosed
in the cash flow statement.
• Cash payments to acquire and cash receipts from sale of equity or debt instruments of
other entities and interest in joint ventures (other than those instruments considered to be
cash equivalents or those held for trading or dealing);
o The most commonly known equity instrument is shares in an entity.
o An RSA Government Bond is an example of a debt instrument, where an entity invests
with the government of South Africa. These bonds can be traded, in the market,
similarly to equity instruments.
• Cash advances and loans made to other parties, or cash receipts from the repayment of
advances and loans made to other parties (other than advances and loans of a public
financial institution).
3.3 Financing activities
Cash flows from financing activities is useful in predicting claims on future cash flows by
providers of capital to the entity.
Cash flows from financing activities include:
• Cash repayments of amounts borrowed;
• Cash repayments of finance leases; and
• Cash proceeds from short- or long-term borrowings.
As indicated in the example above, cash payments to acquire property, plant and equipment are classified as investing activities. There is, however, an exception to this rule. When an entity, in the course of its ordinary activities, acquires an asset for rental to others which is subsequently held for sale, then the initial cash payments, as well as all rental income and the proceeds from the sale of these assets should be classified as operating activities and not investing activities.
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 9 of 32
3.4 Classifying cash flows
Cash flows should be classified in accordance with the nature of the activity to which they
relate (operating, investing or financing).
Example Nature of Transaction Classification in Cash Flow Statement
Cash contributions to a long-term employee benefit fund
Cash outflows are part of the compensation for employment services and would be classified like any other cash payment on behalf of the employees
Operating activities
Cash received as compensation for an insured loss for damaged property, plant & equipment
Cash inflows are received to cover for losses and damages of property, plant & equipment. This transaction represents ‘in substance’ a disposal of property, plant & equipment and would be classified as an investing activity. Insurance proceeds are not derived from the principal cash-generating (or revenue generating) activities of the entity.
Investing activities
Cash payment to purchase of property, plant and equipment on deferred payment terms
Cash outflows are to acquire property, plant & equipment and made to a supplier. Consequently they would be classified as an investing activity regardless of when cash flows will be paid.
Investing activities
Cash payment to meet a rehabilitation obligation
Cash outflows are for costs of rehabilitation, which are derived from the mine’s normal operation activities. These activities are for the decommissioning or dismantlement of an asset. They therefore do not meet the definition of an investing and/or financing activity.
Operating activities
Cash received from a transfer or subsidy (also referred to as a government grant)
These cash inflows provide the entity with revenue to finance its current activities. Although an entity may use the funds to acquire/construct an asset, the initial receipt of the cash is in substance operating cash inflows.
Operating activities
Cash payments in a reverse factoring agreement
The bank has provided credit to the entity to enable the entity’s liabilities to be settled on the due date. The repayment of that amount to the bank is a financing cash outflow.
Financing activities
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 10 of 32
4. Cash and Cash Equivalents
Cash and cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Cash equivalents are cash held for the purpose of meeting the entity’s short-term cash
commitments rather than for investment purposes, thus the intention of management should
be considered when determining what qualifies as cash equivalents.
Bank overdrafts that are repayable on demand usually form part of an entity’s cash
management activities and are part of cash and cash equivalents.
For an investment to qualify as a cash equivalent it must be readily convertible into cash, it
must have a short maturity date, and be subject to an insignificant risk of changes in value.
Each element of the definition should be considered as follows:
An investment requires a short maturity to meet the definition
of cash equivalent. GRAP 2 is not definitive, but it makes
reference to an investment with a maturity date of three months
or less from the date of acquisition, as an example of this. This
does not automatically mean an investment with a maturity
date of more than three months cannot be classified as a cash
equivalent. Note that the maturity period is measured from the
date of acquisition and not the reporting date.
This implies that an investment must be convertible into cash
without an undue period of notice and without incurring a
significant penalty on withdrawal. Known amounts of cash
means that the amount of cash that will be received must be
known at the time of the initial investment. Investments in
shares or units of money market funds that are redeemable at
Generally excluded from cash and cash equivalents are equity investments, unless they are cash equivalents in substance and bank borrowings (excluding bank overdrafts)
Short term, highly liquid
Readily convertible to known amounts of cash
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 11 of 32
any time are not considered cash equivalents, even though
they can be converted to cash at any time at the then market
price in an active market. This is because the share price or
unit price fluctuates and the amount of cash for which the
shares or units of money market funds can be exchanged are
not known at initial investment.
This implies that an investment must be so similar to cash that
any changes in value are insignificant. For this reason, a short
maturity period is necessary because a longer maturity period
exposes an investment to fluctuations in value. Entities should
consider the effect on the redemption amount of e.g.
cancellation clauses, termination fees or usage restrictions and
whether they create a more than insignificant risk of change in
value.
GRAP 2 recognises that entities may have a variety of cash management practices and
banking arrangements that will influence which items are classified as cash and cash
equivalents. For this reason, GRAP 2 requires that, in order to comply with GRAP 1 on
Presentation of Financial Statements, an entity should disclose the policy which it adopts in
determining the composition of cash and cash equivalents.
5. Notes to the Cash Flow Statement
5.1 Cash and cash equivalents
Entities should disclose the components of cash and cash equivalents and should present a
reconciliation of the amounts in its cash flow statement with the cash and cash equivalents in
the statement of financial position. An entity should also disclose the amount of significant
cash and cash equivalent balances that are not available for use by the entity along with
commentary on the restrictions.
Insignificant risk of change in value
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 12 of 32
Example: Cash and cash equivalent note
Extract from Note to the Cash Flow Statement 20x1 20x0
R R
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, balances with banks and investments in money market instruments. Cash and cash equivalents included in the cash flow statement comprise of the following amounts indicated in the statement of financial position:
Cash on hand XX XX
Bank balance XX XX
Short-term investment XX XX
Overdraft (XX) (XX)
XXX XXX
The entity has undrawn borrowing facilities of Rx, of which Rx must be used on infrastructure projects.
5.2 Other Supplementary Disclosures
Net cash flows attributable to activities of discontinued operations
Entities are, in terms of GRAP 100 on Discontinued Operations, required to disclose the net
cash flows attributable to the operating, investing and financing activities of discontinued
operations. These disclosures are included in either the notes or on the face of the cash flow
statement.
Undrawn facilities
Entities are encouraged to disclose the amount of any undrawn borrowing facilities, for
example, undrawn loan facility agreed with the bank or the National Treasury. Disclosure of
any restrictions on the use of these facilities by the entity is also encouraged. This may also
be included as part of an entity’s liquidity risk disclosures.
Cash flows from entities accounted for using proportional consolidation
Disclosure of cash flows arising from those investments accounted for as join ventures using
proportionate consolidation is encouraged. The aggregate cash flows for each of the three
main classifications of operating, investing and financing activities would provide useful
information to the users of the financial statements.
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 13 of 32
Segmental cash flows
GRAP 2 encourages that cash flows arising from operating, financing and investing activities
be disclosed for each reportable segment. This enables users to understand the relationship
between the cash flows of the entity as a whole and those of its components. The Standard
does not specifically identify the type of segmental cash flow information to be reported, but
as a minimum an entity should consider giving an analysis of the most important elements of
operating cash flows between major reportable segments.
In presenting information on a segment basis it is suggested that a full cash flow statement,
in compliance with GRAP 2, is separately prepared for each reportable segment. It may also
be necessary to present a column/row for inter-entity eliminations and other adjustments in
order to reconcile to the primary statements.
Example: Segmental cash flows
Net cash flows from operating activities
Net cash flow from investing activities
Net cash flow from financing activities
Public ordinary school education
20x1
20x0
XXX
XXX
XX
(XX)
X
XX
Independent schools subsidies
20x1
20x0
XXX
XXX
XXX
XX
XX
(X)
Public special school education
20x1
20x0
XXX
XXX
XX
(X)
XX
(XX)
Early childhood development 20x1
20x0
XXX
XXX
XX
XX
XX
(XX)
Total 20x1
20x0
XXX
XXX
XX
XX
X
XX
Eliminations 20x1
20x0
XX
(X)
XX
(XX)
XX
(X)
Total for entity (or economic entity)
20x1
20x0
XXX
XXX
XX
XX
X
XX
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 14 of 32
6. Guidance on other cash flows
6.1 Interest and dividends or similar distributions
The cash flows arising from interests and dividends or similar distributions should be classified
in the cash flow statement under the activity appropriate to their nature. Classification should
be on a consistent basis from one period to the next. Additionally, these items are required to
be disclosed separately on the face of the cash flow statement.
Guidance on classification:
• Interest and dividends or similar distributions paid or received from working capital (e.g.
bank, receivables, payables) should be classified as operating cash flows;
• Interest and dividends or similar distributions paid or received may be classified as
investing cash flows if they are returns on investments;
• Interest and dividends or similar distributions paid or received from borrowings may be
classified as financing cash flows as they are a cost of obtaining or issuing finance;
• Interest paid (or received) on finance leases should be classified as financing cash flows
together with the movement in the liability (or receivable).
The table below summarises in which category interest and dividends or similar distributions
are allowed to be included:
Operating activities
Investing activities
Financing activities
Interest paid ✓ ✓
Interest received ✓ ✓
dividends or similar distributions paid ✓ ✓
dividends or similar distributions received ✓ ✓
For total interest paid, GRAP 2 requires disclosure on the face of the cash flow, regardless of whether the interest has been expensed or capitalised in terms of GRAP 5 on Borrowing costs.
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 15 of 32
6.2 Non cash transactions
Any operating, investing and financing activities that not require the use of cash and must be
excluded from the cash flow statement.
Examples of non-cash transactions are:
• Depreciation and amortisation;
• Increase or decrease in impairment provisions;
• Year-end adjustment to the bonus and leave provision;
• Purchases of an asset by exchanging another asset; and
• Acquiring an asset by means of a finance lease.
Surplus/deficit from sale, disposal, write-offs, revaluations etc.
It is consistent with the objective of cash flow reporting that such surpluses/deficits from such
transactions should be excluded from the cash flow statement. These surpluses/deficits are
usually reported in the statement of financial performance and to the extent that they are
included in arriving at the total surplus/deficit for the period, they should be adjusted in the
reconciliation to arrive at the net cash flow from operating activities.
6.3 Discounts and premiums
GRAP 2 does not specifically address how the redemption of a deep discount bond or a
premium payable on the redemption of a debt security should be treated in the cash flow
statement. When applying GRAP 104 on Financial Instruments, any difference between the
initial measurement at cost (being the fair value of the consideration received less transaction
costs) and the maturity value of the liability, such as a discount or redemption premium, will
be amortised to the statement of financial performance as a finance cost. Such finance costs
are similar to interest costs for the liability and, therefore, the cash flow effects of these items
should be reported in the cash flow statement when the instruments are redeemed in a manner
consistent with interest costs.
A surplus from the sale of machinery should be excluded from cash flow from operating activities. The surplus is not a cash flow as such, but the proceeds from the sale forms part of the cash flows from investing activities.
Similar treatment is required for movement in inventory and/or investments;
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 16 of 32
Example: Discounted bond
An entity issues a 10 year zero coupon bond with a face value of R120,000 at a discount of R65,000. Its issue price is therefore, R55,000 and the effective yield is 8,11%.
At the issue date, the proceeds of R55,000 would be shown as a cash inflow from financing activities.
The discount of R65,000 represents a rolled-up interest charge which would be amortised to the statement of financial performance as finance cost over the life of the bond while the bond remains outstanding. However, there would be no cash flow in these periods, because no cash (i.e. interest) has been paid.
On maturity the repayment of R120,000 should be split between the R65,000 premium paid and the repayment of long-term borrowings of R55,000. The premium paid is similar in nature to interest and should accordingly be classified as such in the cash flow statement. The balance should be classified as a cash flow from financing activities.
Similarly, the investor should record the payment for the bond as part of cash flows from investing activities. On maturity, the receipt should be split classifying the R65,000 in the same manner as interest received and the R55,000 as cash flows from investing activities.
If the entity decides to redeem the bond early, at the beginning of year 4 for R75,000.
The carrying value of the bond in the statement of financial position at the end of year 3 is calculated as follows:
Proceeds at the beginning of year 1 55,000
Interest accrued in year 1 8.11 % on 55,000 4,463
Interest accrued in year 2 8.11 % on 59,463 4,825
Interest accrued in year 3 8.11 % on 64,287 5,216
Total interest 14,504
Carrying value 69,504
Loss on redemption:
Redemption proceeds 75,000
Less: carrying value (69,504)
Loss (5,496)
The loss should be allocated to finance costs, being R20,000 (14,504 + 5,496) and should be classified in the same manner as interest paid in the cash flow statement.
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 17 of 32
6.4 Refinancing of borrowings
Entities may renegotiate their existing borrowings on terms that are different from those that
were in place prior to the renegotiation. The classification of such renegotiation in the cash
flow statement will depend on whether the renegotiation gives rise to any cash flows.
6.5 Sale and leaseback transactions
If the sale and leaseback results in an operating leaseback, any cash flows should be treated
as proceeds from the sale of assets and recorded in the cash flow statement as investing
activities. The lease payments made in the future are shown as operating cash flows.
If the leaseback is a finance lease, any cash flows should be classified as financing activities
in the cash flow statement.
6.6 Treatment of cash in the statement of financial position
According to GRAP 1, cash and cash equivalents should be disclosed as a line item on the
face of the statement of financial position.
As mentioned previously, a bank overdraft repayable on demand and which is used in the
entity’s cash management should be included as a component of cash and cash equivalents
for the purpose of the cash flow statement. However, this does not mean that the bank
overdraft should be included in the line item “cash and cash equivalents” in the statement of
financial position (unless the conditions for offsetting in GRAP 104 on Financial Instruments
(2018) are met). Instead the bank overdraft will be included with financial liabilities in the
statement of financial position (or separately on the face if material).
Example: Refinancing of bank loan
An entity renegotiates a refinancing arrangement whereby an old loan is repaid with a new loan facility. The refinancing is accounted for as a modification of the existing debt.
From a cash flow statement perspective the entity the new facility will be shown as a financing activity cash inflow and the settlement of the old loan as a finance activity cash outflow.
Further disclosure should be provided to explain this arrangement to the users of the financial statements.
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 18 of 32
Cash should be recognised initially at the amount received by the entity or the amount received
into the entity’s bank account. Cash equivalents should initially be recognised at cost, which
is the fair value of the consideration given to acquire the cash equivalent. Normally no
adjustment should be required to cash and cash equivalents balances except to update the
exchange rate applied to balances dominated in foreign currencies and to reflect the effect of
subsequent cash transactions. This is because they are only subject to insignificant risk of
changes in value.
6.7 Investments in controlled entities, associates and joint ventures
When an entity has an investment in an associate or a controlled entity accounted for by use
of the equity or cost method, on consolidation, only the cash flows between the entity and the
investee will be reported in the cash flow statement. These cash flow transactions include, for
example, dividends or interest paid or received.
When an entity has an investment in a joint venture and it accounts for that investment by
using the proportionate consolidation method, then the entity’s proportionate share of the joint
venture’s cash flows should be included in the consolidated cash flow statement of the entity.
The reconciliation of cash and cash equivalents in the notes to the financial statements should reconcile the closing cash and cash equivalents to the appropriate line items in the statement of financial position, being the “cash and cash equivalents” under current assets and the bank overdraft under current liabilities.
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 19 of 32
Example: The entity has a 50% share in the joint venture and the proportionate consolidation method is used
Extract from joint venture’s cash flow statement
Note 20x1 50% share to be included in entity’s consolidated cash flow
statement
R R
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts
Sale of goods and services 1,000 500
Other receipts 250 125
Payments
Employee cost (670) (335)
Net cash from operating activities 580 290
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of plant and equipment (10,000) (5,000)
Proceeds from sale of investment 20 10
Net cash from investing activities (9,980) (4,990)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 10,000 5,000
Net cash from financing activities 10,000 5,000
Net increase in cash and cash equivalents
600 300
Cash and cash equivalents and the beginning of the period
200 100
Cash and cash equivalents at end of the period
800 400
6.8 Acquisitions and disposals of controlled entities and other operating units
The total cash flows from acquiring or selling an interest in a controlled entity or an operating
unit should be classified as investing activities.
The entity should disclose in the cash flow statement, and in the notes to the cash flow
statement, the total cash flows from acquiring or selling a controlled entity and other operating
units, and other relating information.
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 20 of 32
Example: Disclosure extract for purchase of controlled entity
Extract from Cash Flow Statement Note 20x1 20x0
….. R R
CASH FLOW FROM INVESTING ACTIVITIES
Purchase investment in controlled entity x 100 XX
…..
Extract from Notes to the Cash Flow Statement 20x1 20x0
….. R R
Total purchase price 120 XX
Portion of purchase price discharged by means of cash and cash equivalents
(20) XX
Assets
Property, plant and equipment 18 XX
Investment property 80 XX
Receivables 7 XX
Liabilities
Payables (5) XX
Net assets excluding cash and cash equivalents 100 XXX
Cash and cash equivalents 20 XX
Total net asset value 120 XXX
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 21 of 32
6.9 Foreign currency cash flows
Cash flows from transactions in a foreign currency should be recorded in the entity’s functional
currency by applying to the foreign currency amount the exchange rate at the date of the cash
flow.
The cash flows from foreign controlled entities should also be converted to the entity’s
functional currency at the date of the cash flow.
Example: Converting foreign currency at cash flow date
The entity purchased equipment for 100 US dollars on 3 February 20x1; payment was made on the 28 February 20x1. The entity’s functional currency is South African Rands. The exchange rate on 3 February 20x1 was R10 for 1 US dollar and on payment date the exchange rate was R10.50 for 1 US dollar.
Extract from Cash Flow Statement Note 20x1 20x0
….. R R
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of equipment (100US$ @ R10.5) x 1,050 XX
…..
6.10 Factoring of trade receivables
The presentation in the statement of cash flows depends on whether trade receivables subject
to factoring are derecognised or not (as per GRAP 104 on Financial Instruments). If they are
derecognised, it means that in substance they have been paid and a cash inflow from
operating activities should be reported.
If trade receivables are not derecognised, factoring is in substance a borrowing with trade
receivables treated as security, hence a financial liability and cash receipt in financing
activities. When a payment from a “customer” is received, a trade receivable is derecognised
with an inflow in operating activities and a financial liability effectively repaid with a cash
outflow in financing activities.
6.11 Renegotiating terms - trade payables
Similar to the discussion above, the entity considers the impact on the cash flow statement
when a trade payable is derecognised (in accordance with GRAP 104 on Financial
Instruments). If for example, the re-payment date to a supplier is extended, it is treated as
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 22 of 32
non-cash transaction. Any subsequent repayment will be reflected as a cash outflow for the
entity.
6.12 Reporting cash flows on a gross vs net basis
Cash flows are reported on a gross basis, i.e. cash receipts and cash payments are presented
separately. However, in certain cases, cash flows may be reported on a net basis when:
✓ cash receipts and payments are on behalf of third parties, i.e. when the reporting entity
acts only as an agent (in accordance with GRAP 109 on Accounting by Principals and
Agents); and
✓ cash receipts and payments are for items in which the turnover is quick, the amounts are
large and the maturities are short.
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 23 of 32
7. Illustrative Example
Example: Direct method cash flow for an entity other than a financial institution
Statement of Financial Position Note 20x1 20x0
Assets
Current assets
Inventory 30,000 23,000
Other receivables 350,000 450,000
Receivables from the sale of goods/services 1 1,450,000 1,690,000
VAT receivable 10,000 9,000
Cash and cash equivalents 2 175,000 150,000
2,015,000 2,322,000
Non-current assets
Property, plant and equipment 3 12,230,000 10,250,000
Investment in controlled entity 3,000 3,000
Investments 60,000 67,000
Long-term receivables 120,000 220,000
12,413,000 10,540,000
Total assets 14,428,000 12,862,000
Liabilities
Current liabilities
Finance lease obligation 561,000 1,139,000
Payables 4 1,095,000 1,077,000
Unspent transfers and subsidies 7,000,000 6,000,000
Bank overdraft 2 35,000 32,000
8,691,000 8,248,000
Non-current liabilities
Finance lease obligation - 571,000
Long-term borrowings 840,000 870,000
840,000 1,441,000
Total liabilities 9,531,000 9,689,000
4,897,000 3,173,000
Net Assets – Accumulated surplus 4,897,000 3,173,000
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 24 of 32
Statement of Financial Performance Note 20x1 20x0
R R
Revenue
Exchange revenue
Sales 2,427,000 2,277,000
Interest – Receivables from the sale of goods/services
110,000 102,000
Interest – Investments 2,000 5,000
Non-exchange revenue
Transfers and subsidies 1,393,000 1,308,000
Dividends 300 200
Other revenue 37,000 305,800
Total revenue 3,969,300 3,998,000
Expenditure
Compensation of Employees 890,000 810,000
Depreciation 35,000 32,000
Impairment loss on receivables 1 40,000 62,000
Finance cost – Bank overdraft 800 500
Finance cost – Borrowings 1,200 900
Finance cost – Finance lease 1,000 1,100
Building material and supplies 99,000 91,000
Other goods and services 1,178,300 1,146,500
Total expenditure 2,245,300 2,144,000
Surplus for the period 1,724,000 1,854,000
Separated on the face of the statement for illustrative purposes only
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 25 of 32
Notes from the financial statements 20x1 20x0
1. Receivables from the sale of goods/services
Receivables from the sale of goods/services 2,640,000 2,840,000
Less: Allowance for impairment (1,190,000) (1,150,000)
1,450,000 1,690,000
Reconciliation of Impairment allowances
Balance at the beginning of the period 1,150,000 1,088,000
Contribution to provision 40,000 62,000
1,190,000 1,150,000
2. Cash and cash equivalents
Cash and cash equivalents consist of:
Bank balance 5,000 -
Short-term investments 170,000 150,000
Bank overdraft (35,000) (32,000)
140,000 118,000
3. Property, plant and equipment
Reconciliation of property, plant and equipment
Opening balance 10,250,000 10,082,000
Additions 2,015,000 200,000
Depreciation (35,000) (32,000)
12,230,000 10,250,000
4. Payables
Payables from purchase of goods/services 1,070,000 1,042,000
Bonus provision 13,000 10,000
Sundry payables 12,000 25,000
1,095,000 1,077,000
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 26 of 32
Cash Flow Statement Note 20x1 20x0
Cash flow from operating activities
Receipts
Taxation - XX
Sale of goods and services (2,427,000+240,000-40,000-
7,000) 2,620,000 XX
Transfers and subsidies (1,393,000+1,000,000) 2,393,000 XX
Interest – Receivables from the sale of goods/services
110,000 XX
Dividends received 300 XX
Other receipts (37,000+100,000) 137,000 XX
Payments
Employee cost (890,000-3,000) (887,000) (XX)
Suppliers (99,000+1,178,300-15,000) (1,262,300) (XX)
Finance cost – Bank overdraft (800) (XX)
VAT paid (1,000) (XX)
Net cash flow from operating activities 16 3,109,200 XXX
Cash flow from investing activities
Purchases of property, plant and equipment 3 (2,015,000) (XX)
Proceeds from sale of property, plant and equipment - XX
Proceeds from sale of investments (60,000-67,000) 7,000 XX
Interest – Investments 2,000 XX
Proceeds from long-term receivables (120,000-220,000) 100,000 XX
Net cash flow from investing activities (1,906,000) XXX
Cash flow from financing activities
Repayments of finance lease (561,000-1,139,000-
571,000) (1,149,000) (XX)
Finance cost – Finance lease (1,000) (XX)
Repayment of long-term borrowings
(840,000-870,000)
(30,000) (XX)
Finance cost – Borrowings (1,200) (XX)
Net cash flow from financing activities (1,181,200) XXX
Separated on the face of the statement for illustrative purposes only
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 27 of 32
Net increase/(decrease) in cash and cash equivalents
22,000 XXX
Cash and cash equivalents at the beginning of the period
118,000 XXX
Cash and cash equivalents at end of the period 15 140,000 118,000
Notes to the cash flow statement Note 20x1 20x0
15. Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, balances with banks and investments in money market instruments. Cash and cash equivalents included in the cash flow statement comprise the following amounts included in the statement of financial position:
Cash on hand and balance with banks 5,000 -
Short-term investments 170,000 150,000
Bank overdraft (35,000) (32,000)
140,000 118,000
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 28 of 32
Notes to the cash flow statement Note 20x1 20x0
16. Reconciliation of net cash flow from operating activities to surplus/(deficit)
Surplus/(deficit) for the period 1,724,000 XX
Non-cash movements
Depreciation 35,000 XX
Impairment loss on receivables 40,000 XX
Increase in provisions relating to employee cost
(13,000-10,000)
3,000 XX
Items shown separately on the face of cash flow statement
Interest received - Investments (2,000) XX
Finance cost – Borrowings 1,200 XX
Finance cost – Finance lease 1,000 XX
Movement in working capital
Increase in inventory (30,000-23,000) (7,000) XX
Decrease in other receivables (350,000-450,000) 100,000 XX
Decrease in receivables from the sale of goods/services
(1,450,000-1,690,000)
240,000 XX
Increase in allowance for impairments
(1,190,000-1,150,000)
(40,000) XX
Increase in VAT receivable (10,000-9,000) (1,000) XX
Increase in payables
(1,095,000-1,077,000)+(-13,000+10,000)
15,000 XX
Increase in transfers and subsidies (7,000,000-6,000,000) 1,000,000 XX
Net cash flow from operating activities 3,109,200 XXX
Non-cash items
Non-cash items should be taken out of the surplus/deficit for the period.
Revenue:
• As revenue increased the surplus (or decreased the deficit), it should be deducted (negative) in the reconciliation.
Expenses:
• As expenses decreased the surplus (or increased the deficit), it should be added (positive) in the reconciliation.
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 29 of 32
Working capital movements
Remember that a positive figure represents an inflow of cash and a negative figure represents an outflow of cash.
Assets:
• Decreases in assets from prior period to current period represent a cash inflow for the entity.
o For receivables it is an indication that the accounts were paid, which results in a cash inflow for the entity;
o A decrease in inventory is an indication that inventory was sold and sales are a cash inflow for an entity.
o A decrease in investments (investment that does not form part of cash and cash equivalents) is the result of funds that were withdrawn from the investments or investments that were sold, which are cash inflows.
• Increases in assets from prior period to current period represent a cash outflow for the entity.
o An increase in debtors indicates that additional credit was given which represents a cash outflow.
o An increase in inventory means the entity purchased more stock than what it sold and the net effect being an outflow of cash.
o Increase in short term investments (investments that do not form part of cash and cash equivalents) indicates additional funds were invested which is a cash outflow.
Liabilities:
• A decrease in liabilities from prior period to current period represents an outflow of cash for the entity. The decrease indicates that liabilities were paid which is an outflow of cash.
• When a liability increases from period to period, it represents a cash inflow as you are effectively receiving additional cash.
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 30 of 32
8. Entity Specific Guidance
Entity-specific guidance has been included where appropriate to provide specific guidance on
a subject that only relates to those types of entities.
8.1 Municipalities
Disclosure requirements in terms of the Municipal Finance Management Act 56, 2003
The following additional compulsory disclosures are required in terms of the Municipal Finance Management Act 56, 2003.
Note to the financial statements Disclosure requirements
Cash and cash equivalents • For each bank account held by the municipality or the municipal entity during the financial year:
o The name of the bank where the account is or was held and the type of account and;
o The period opening and period closing balances in each of these bank accounts.
Example: Compulsory disclosure requirements by the MFMA
Extract from the Notes to the Financial Statements 20x1 20x0
Cash and cash equivalents
ABSA Bank – Current account
Cash book balance at the beginning of the period XX XX
Cash book balance at the end of the period XX XX
Bank statement balance at the beginning of the period XX XX
Bank statement balance at the end of the period XX XX
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 31 of 32
8.2 Public entities and constitutional institutions
Taxes on surplus
Cash flow arising from taxes should be separately disclosed and should be classified as cash
flows from operating activities unless the cash flow from the tax can be specifically identified
with a financing or investing activity.
Example: Taxes on surplus
An entity paid taxation to the amount of R55, 000 during the period (20x1). The R55, 000 is made up of R49, 000 income tax on the net profit for 20x0 and R6, 000 capital gains tax on a building sold in 20x0.
The total cash flow in 20x1 for taxes on surplus is R55, 000. R49,000 of the cash flow should be disclosed under operating activities as the tax was a result of operating activities and R6,000 under investing activities as buildings are classified as investing activities.
Extract from Cash Flow Statement Note 20x1 20x0
R R
CASH FLOW FROM OPERATING ACTIVITIES
Payments
Taxation (49,000) XX
.....
CASH FLOW FROM INVESTING ACTIVITIES
Taxation (6,000) XX
.....
Entities are generally exempt from taxes on surpluses.
GRAP 2 on Cash Flow Statements
Issued February 2020 Page 32 of 32
9. Useful links and references
Reference Location of reference
Frequently Asked Questions (FAQs)
on the Standards of GRAP
ASB website:
http://www.asb.co.za/frequently-asked-questions/
Guideline on The Application of
Materiality to Financial Statements
ASB website:
http://www.asb.co.za/guidelines/
Standard Chart of Accounts for Local
Government (mSCOA)
National Treasury website:
http://mfma.treasury.gov.za
(mSCOA – Municipal Standard Chart of Accounts)
Illustrative Financial Statements for
local government
National Treasury website:
http://mfma.treasury.gov.za
(mSCOA – Municipal Standard Chart of Accounts)