IAS 7 Investing and Financing Activities: Workings for Assets, Shares, Loans and Dividends

The previous two topics produced the first section of the statement of cash flows, the cash from operations. The other two sections are built the same way, from the opening and closing statements of financial position and the profit or loss figures: what the company spent on assets and investments, and how it raised and repaid finance.

The skill is to find, for each balance, the cash flow that explains its movement once non-cash changes (depreciation, revaluations, bonus issues) are stripped out. This topic covers the investing and financing sections, the workings for purchases and sales of property, plant and equipment, share issues, loans and dividends, interest and dividends received, and a complete worked statement built from comparative statements.

The next topic covers the value added statement and the five-year summary.

These workings are tested every time a full statement of cash flows is set: May Diet, 2025, Question 1 (indirect method, 20 marks), November Diet, 2024, Questions 3 and 4, and May Diet, 2024, Question 1. Read working capital adjustments and the direct method first.

Investing activities: the workings

Property, plant and equipment

Build a ledger account for the carrying amount (or two accounts, for cost and accumulated depreciation), enter every non-cash movement, and the balancing figure is the cash paid for additions.

• Opening carrying amount, plus additions (the unknown), plus any revaluation increase, less depreciation, less the carrying amount of disposals = closing carrying amount.
• Cash paid = closing − opening + depreciation + carrying amount of disposals − revaluation surplus. Additions acquired by a lease or for shares are non-cash and are not included.
• Cash from disposals = carrying amount of the asset sold + gain (or − loss) on disposal. This is the figure from the earlier topic: the gain or loss is deducted or added back in the operating section and the proceeds are shown here.

For example, carrying amount was ₦300 million at the start and ₦291 million at the end. Depreciation was ₦30 million and equipment with a carrying amount of ₦39 million was sold at a gain of ₦16 million. Purchases were ₦291m − ₦300m + ₦30m + ₦39m = ₦60 million and sale proceeds ₦39m + ₦16m = ₦55 million.

Other investing flows

Purchases and sales of investments are found from the movement in the investment balance adjusted for fair value changes. Intangible assets are treated like property, plant and equipment, with amortisation instead of depreciation and the capitalised development costs shown as cash paid.

Interest and dividends received are investing (or operating) flows, shown consistently from year to year; where they are in profit before tax they are deducted in the operating reconciliation if classified as investing. Cash advances and loans to other parties (other than by a financial institution) are investing flows.

Financing activities: the workings

• Shares. Cash from issuing shares = the increase in share capital and share premium, less any bonus issue (a capitalisation of reserves with no cash) and any shares issued for assets. Buy-backs are financing outflows.
• Loans. The net movement in loan balances is the net of new borrowing and repayments, shown separately if the question gives them. Remove non-cash changes, such as a convertible loan converted into shares, or a discount unwinding.
• Lease payments. The repayment of the principal element of a lease liability is financing; the interest element follows the classification of interest paid.
• Dividends. Dividends paid = opening retained earnings + profit − closing retained earnings, if dividends are the only other movement. If dividends are declared and a dividend payable is carried, cash paid = opening payable + declared − closing payable. Before 2027 dividends paid may be shown as operating or financing; under International Financial Reporting Standard (IFRS) 18 they are financing.

A complete example

A company has these statements of financial position at the start and end of the year (₦ million). Assets: property, plant and equipment 300 and 291; investments 40 and 50; inventory 80 and 76; receivables 70 and 79; cash 12 and unknown. Equity and liabilities: share capital 100 and 120; share premium 30 and 50; retained earnings 234 and 287; loans 60 and 65; payables 45 and 51; tax payable 28 and 30; interest payable 5 and 6.

In the year profit before tax was ₦120m after finance costs of ₦8m, depreciation of ₦30m and a gain on disposal of ₦16m. The tax charge was ₦32m. Equipment with a carrying amount of ₦39m was sold. The loan movement was new borrowing of ₦25m and repayment of ₦20m. There were no other non-cash items.

1. Operating.
   Profit before tax ₦120m + depreciation ₦30m + finance costs ₦8m − gain ₦16m = ₦142m; working capital: receivables −₦9m, inventory +₦4m, payables +₦6m = +₦1m; cash generated ₦143m.
   Tax paid ₦28m + ₦32m − ₦30m = ₦30m
   interest paid ₦5m + ₦8m − ₦6m = ₦7m.
   Net cash from operating activities ₦106m.
2. Investing.
   Purchases of property, plant and equipment ₦60m (as above), proceeds ₦55m, purchase of investments ₦50m − ₦40m = ₦10m.
   Net −₦15m.
3. Financing.
   Share issue (₦120m − ₦100m) + (₦50m − ₦30m) = ₦40m.
   Loan proceeds ₦25m, repayment −₦20m.
   Profit after tax ₦120m − ₦32m = ₦88m, so dividends paid = ₦234m + ₦88m − ₦287m = ₦35m.
   Net +₦10m.
4. Result.
   Net increase ₦106m − ₦15m + ₦10m = ₦101m
   closing cash ₦12m + ₦101m = ₦113m.
5. Check.
   Closing assets ₦291m + ₦50m + ₦76m + ₦79m + ₦113m = ₦609m, equal to equity and liabilities ₦457m + ₦65m + ₦51m + ₦30m + ₦6m.

This is the same statement as in the topic on the format, and each figure can be traced to a balance.

Other items

• Revaluation. A revaluation surplus increases the carrying amount with no cash, so it is deducted from the additions working.
• Associates. The share of the profit of an associate is deducted from operating profit if it is not cash; dividends received from it are investing (or operating) flows.
• Non-cash transactions. Buying an asset with a lease or by issuing shares is excluded from the statement and disclosed in the notes.
• Reconciliation of financing liabilities. The movement in borrowings is shown with cash flows and non-cash changes (for example, a loan of ₦60m with new borrowing of ₦25m and repayment of ₦20m closes at ₦65m).

Purchases on credit and the ledger method

The additions figure is the cost of assets acquired in the year. The cash paid equals additions only if all purchases were paid for in the year. If part is bought on credit from suppliers of non-current assets, cash paid = additions − increase in payables for non-current assets (or + a decrease).

For example, additions are ₦60 million and payables to suppliers of non-current assets rose from ₦4m to ₦12m, so cash paid is ₦60m − (₦12m − ₦4m) = ₦52m. If those payables had fallen from ₦14m to ₦4m, cash paid would be ₦60m + ₦10m = ₦70m.

Using cost and accumulated depreciation

Questions often give cost and accumulated depreciation separately, with a disposal. Draw two accounts and find the balancing figures. For motor vehicles: cost was ₦150m at the start and ₦180m at the end, accumulated depreciation ₦105m and ₦88m. Vehicles that cost ₦60m, with accumulated depreciation of ₦45m, were sold.

Additions are ₦90m, the charge for the year is ₦28m. The carrying amount of the disposals is ₦60m − ₦45m = ₦15m. Check on carrying amounts: ₦45m (opening) + ₦90m − ₦15m − ₦28m = ₦92m (closing: ₦180m − ₦88m). If the vehicles were sold for ₦18m, the gain is ₦3m, deducted in the operating section, and ₦18m is the investing inflow.

When there is a revaluation

Add the revaluation increase to the carrying amount working. If the carrying amount rose from ₦1,050m to ₦1,525m, with a revaluation increase of ₦200m, depreciation of ₦40m and a disposal with a carrying amount of ₦20m, then additions are ₦1,525m − ₦1,050m − ₦200m + ₦40m + ₦20m = ₦335m. Without the revaluation adjustment the additions would be overstated by ₦200m.

Investments, interest and dividends received

Cash paid for investments = closing balance − opening balance + carrying amount of investments sold − fair value gains. Proceeds = carrying amount + gain on sale. For example, investments rose from ₦40m to ₦50m after a fair value gain of ₦4m and the sale of investments with a carrying amount of ₦6m for ₦9m. Purchases were ₦50m − ₦40m − ₦4m + ₦6m = ₦12m and proceeds ₦9m (a gain of ₦3m, deducted in the operating section).

If interest and dividends received are classified as investing, cash received = income for the year + opening receivable − closing receivable. With income of ₦12m, an opening receivable of ₦2m and a closing receivable of ₦3m, cash received is ₦11m. The income is deducted in the operating reconciliation, because it is shown in investing activities.

A financing example from comparative statements

A company has these balances (₦ million). Share capital 300 and 360; share premium 120 and 200; retained earnings 210 and 330; loans repayable after more than 12 months 500 and 430; loans repayable within 12 months 60 and 45. Profit for the year after tax was ₦190m. The three financing items are:

• Shares.
  (₦360m + ₦200m) − (₦300m + ₦120m) = ₦560m − ₦420m = ₦140m received.
• Loans.
  Opening ₦500m + ₦60m = ₦560m; closing ₦430m + ₦45m = ₦475m; repayment of ₦85m.
  Both the long-term and the current portion are included.
• Dividends.
  ₦210m + ₦190m − ₦330m = ₦70m paid.

Net cash from financing activities is ₦140m − ₦85m − ₦70m = −₦15m. A transfer from the revaluation reserve to retained earnings (excess depreciation on revalued assets) is a non-cash movement in retained earnings. If ₦5m was transferred and closing retained earnings were ₦335m, dividends paid = ₦210m + ₦190m + ₦5m − ₦335m = ₦70m.

The ideas in more depth

Why gross figures for financing

A company that borrows ₦25 million and repays ₦20 million has done two things that users want to see: raised new finance and settled old finance. Netting them to ₦5 million hides both.

Why work from the balance and not the cash book

The cash account has thousands of entries. Opening and closing balances of the other statements give the net effect, and subtracting the non-cash movements leaves cash as the balancing item.

Sources and references

• International Accounting Standard (IAS) 7 Statement of Cash Flows: investing and financing activities, gross and net reporting, non-cash transactions and changes in liabilities from financing activities; IFRS 18 for amendments from 2027.

These points are stated as at 5 November 2026.

Worked examples

1. Purchases.
   ₦291m − ₦300m + ₦30m + ₦39m = ₦60m.
2. Proceeds.
   ₦39m + ₦16m = ₦55m.

1. Share issue.
   ₦20m + ₦20m = ₦40m received.
2. Dividends.
   ₦234m + ₦88m − ₦287m = ₦35m paid.

1. Purchases.
   ₦430m − ₦400m − ₦15m + ₦45m + ₦18m = ₦78m.
2. Share issue.
   ₦40m − ₦10m = ₦30m.

1. Additions.
   ₦180m − ₦150m + ₦60m = ₦90m.
2. Cash paid.
   ₦90m − (₦9m − ₦4m) = ₦85m.
3. Carrying amount sold.
   ₦60m − ₦45m = ₦15m; gain ₦18m − ₦15m = ₦3m; proceeds ₦18m under investing.

1. Shares. ₦140m received. Loans. ₦85m repaid. Dividends. ₦70m paid.
2. Net.
   ₦140m − ₦85m − ₦70m = −₦15m.

How to answer in the exam

• Write the workings first: property, plant and equipment, share capital, loans, dividends, interest, tax, working capital.
• Strip out non-cash items in each working: depreciation, revaluation, bonus issues, shares for assets.
• Show gross financing flows if the question gives them.
• Finish with the check that closing cash agrees to the statement of financial position.

Common mistakes in the exam

• Using the movement in carrying amount as the cash paid for purchases, ignoring depreciation and disposals.
• Treating a bonus issue or revaluation as cash.
• Including both the gain on disposal and the full proceeds.
• Netting loan proceeds and repayments.
• Taking the dividend declared as the dividend paid.
• Putting a lease or share-based purchase of an asset in the statement instead of the notes.

Quick revision

• Property, plant and equipment cash = closing − opening + depreciation + disposals − revaluation; proceeds = carrying amount + gain.
• Shares: increase in capital and premium less bonus issues. Dividends: opening retained earnings + profit − closing retained earnings.
• Loans gross; lease principal is financing.
• Non-cash transactions are disclosed.

Practice questions

These are original questions written in the style of the Institute’s exams. Try each one before you open the answer. Section A is a recall check, because the paper itself is written.

Recall check: multiple choice

Section B style: written questions

A further written question

Model answers

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