Statement of cash flows (2): investing, financing and the full statement

Investing activities

• Purchase of property, plant and equipment (outflow)
• Proceeds from the sale of non-current assets (inflow: the cash received, not the profit)
• Purchase or sale of investments; interest and dividends received

Often the purchase figure must be found from the movement in carrying amounts:

Purchases = closing carrying amount - opening carrying amount + depreciation for the year + carrying amount of disposals (- any revaluation gain).

Financing activities

• Proceeds from issuing shares: the increase in share capital plus share premium (a bonus issue raises no cash: ignore it)
• Loans and debentures raised (inflow) or repaid (outflow)
• Dividends paid (outflow; IAS 7 also allows operating, but WAC12 answers show financing)

Then: net cash from operating + investing + financing = net increase (decrease) in cash and cash equivalents, which reconciles opening to closing cash. Bank overdrafts count as negative cash.

Completing the statement

Continuing the example (£000): PPE carrying amount rose from 2,400 to 2,620 after depreciation of 210 and a disposal with carrying amount 70 sold for 100. Share capital rose from 1,000 to 1,200 and share premium from 100 to 180; debentures fell from 800 to 600; dividends paid 180. Cash was 50 and the overdraft 90 at the start.

Statement of cash flows (continued)

Worked example

Show how the purchase of PPE of £500000 is found.

1. Closing carrying amount 2,620 = opening 2,400 + purchases - depreciation 210 - disposals 70
2. Purchases = 2,620 - 2,400 + 210 + 70

Answer: £500000

Check yourself

1. PPE carrying amount: opening £1,800,000, closing £2,050,000. Depreciation for the year £260,000; an asset with carrying amount £90,000 was sold. Calculate purchases of PPE.
   Show answer

   £600000. 2,050,000 - 1,800,000 + 260,000 + 90,000 = £600,000.

2. Machinery with a carrying amount of £48,000 was sold at a loss of £11,000. What cash inflow appears in investing activities?
   Show answer

   £37000. Proceeds = 48,000 - 11,000 = £37,000.

3. Share capital rose from £2,000,000 to £2,500,000 and share premium from £300,000 to £550,000. Part of the increase was a bonus issue of £200,000 paid from retained earnings. Calculate the cash received from issuing shares.
   Show answer

   £550000. Total increase 750,000 less bonus issue 200,000 = £550,000.

4. At the start of the year the company had cash £35,000 and a bank overdraft £120,000. What figure is shown for opening cash and cash equivalents? Give a negative number for a net overdraft.
   Show answer

   £-85000. 35,000 - 120,000 = -85,000, shown as (85,000).

5. Net cash from operating activities £420,000; net cash used in investing activities £510,000; net cash from financing activities £150,000. Calculate the net change in cash and cash equivalents.
   Show answer

   £60000. 420,000 - 510,000 + 150,000 = £60,000 increase.

6. In WAC12 answers, where are dividends paid usually shown?
   • Investing activities
   • Operating activities, as an add-back
   • They are not shown
   • Financing activities
   Show answer

   Financing activities. Dividends are a return to the providers of finance.

7. Where does the cash received from selling a delivery van appear?
   • Operating activities
   • Investing activities
   • Financing activities
   • It does not appear
   Show answer

   Investing activities. Cash from selling non-current assets is an investing inflow.

8. How does a statement of cash flows differ from a cash budget?
   • It records actual cash flows for a past period; a cash budget forecasts future cash flows
   • It forecasts the next year; a cash budget records the past
   • It shows only profits
   • It is prepared only by sole traders
   Show answer

   It records actual cash flows for a past period; a cash budget forecasts future cash flows. Examiners wanted both halves: past and actual versus future and forecast.

Practise with instant feedback Print this lesson

Sources

• Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting specification (XAC11/YAC11), Issue 2
• Pearson Edexcel IAL Accounting WAC12 Unit 2 mark scheme, October 2022
• Pearson Edexcel IAL Accounting WAC12 examiners' report, June 2025

Last updated 8 November 2026. Spotted a mistake? Tell us.