The International Accounting Standards Board (IASB) had published amendments to IAS 7 ‘Statement of Cash Flows’ which recently became effective (for annual periods that began on or after 1st January 2017). The amendments were intended to clarify IAS 7 and improve information provided to users of financial statements about an entity’s financing activities. These require companies to disclose additional information that will assist investors in making net debt reconciliation.
Mtiririko Limited, a public listed company, has prepared a statement of cash flows for the year ended 31st August 2018. Under financing activities, it has shown an increase in long-term borrowings to TZS.9,800 million, increase of short term borrowings to TZS.767 million and a decrease of lease liability to TZS.500 million.
As at 31st August 2017, Mtiririko Limited had shown in its financial statements long term borrowings of TZS.4,600 million, short term borrowings of TZS.600 million and capital element of lease liability of TZS.310 million.
During the year ended 31st August 2018 Mtiririko Limited acquired 90% of shareholdings of Pambana Ltd for TZS.780 million. Pambana took a short term loan of TZS.47 million and a long term loan of TZS.86.million. Furthermore, during the year, Mtiririko took out a long term loan of TZS.6,114 million from ABCD bank and on 31st August 2018 the company paid TZS.1,400 million (Principal element being TZS.1,000 million and interest being TZS.400 million) to the bank as a liability payment installment. The TZS.400 million interest was shown under operating activities in the statement of cash flows.
During the year Mtiririko also entered into a finance lease agreement to lease equipment for TZS.400 million and had paid TZS.210 million in arrear off the capital element of the lease liabilities. Interest of TZS.70 million on the lease was also shown under operating activities in the statement of cash flows.
At the beginning of the year there was an American supplier whom Mtiririko owed US Dollar 132,000, equivalent to TZS.190 million as at 1st September 2017, but due to currency fluctuation the amount owing increased to TZS.310 million at 31st August 2018. The company also had an overdraft of TZS.400 million as at 31st August 2018.
Show the note to the statement of cash flows, required under the amended IAS 7, which sets out the components of financing activities.