Cash flows from discontinued operations – Detailed Examples
IAS 7 requires an entity to include all of its cash flows in the statement of cash flows, including those generated from both continuing and discontinued activities.
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations requires an entity to disclose its net cash flows derived from operating, investing and financing activities in respect of discontinued operations. There are two ways in which this can be achieved:
===1) Presentation in the statement of cash flows
Net cash flows from each type of activity (operating, investing and financing) derived from discontinued operations are presented separately in the statement of cash flows.
===2) Presentation in a note
Cash flows from discontinued operations are included together with cash flows from continuing operations in each line 
item in the statement of cash flows. The net cash flows relating to each type of activity (operating, investing and financing) derived from discontinued operations are then disclosed separately in a note to the financial statements.
When a disposal group that meets the definition of a discontinued operation is classified as held for sale in the current period, and has not been realised/disposed of at the entity’s reporting date, the closing balance of cash and cash equivalents presented in the statement of cash flows will not reconcile to the cash and cash equivalents balances that are included in the statement of financial position at the reporting date.
This is because the cash and cash equivalents related to the disposal group are subsumed into the assets and liabilities of the disposal group and presented within the single line item in the statement of financial position.
1. Case – Discontinued operations not disposed of at the entity’s reporting date |
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Basic assumptions
Information extracted from Entity A’s statement of financial position is as follows:
¹ Includes cash and cash equivalents of CU30 Additional information Assets and liabilities directly related to the food sector disposal group as at 31 December 20X2 were as follows:
As at 31 December 20X3, Entity A had met the requirements in IFRS 5 meaning that the food sector disposal group was classified as a discontinued operation. As a result, the assets and liabilities of the food sector disposal group were presented separately from the other assets and liabilities of entity A in its statement of financial position. However, the assets and liabilities of the food sector disposal group were not presented separately in the statement of financial position for the comparative period (IFRS 5.40). In order to present a statement of cash flows for the year ended 31 December 20X3, which separates the continuing operations and the discontinued operations (either in the primary statement or in the notes), Entity A needs the opening balances of assets and liabilities of the disposal group (which comprises the discontinued operation) as at 31 December 20X2. Entity A – Statement of Cash Flows for the year ended 31 December 20X3
a) Depreciation of property, plant and equipment – continuing operations
The opening balance is calculated by deducting the amount of property, plant and equipment which relates to the discontinued operations on 31 December 20X2 (CU140) from the opening balance of entity A’s property, plant and equipment at that date (CU200). b) Profit from discontinued operations The profit from discontinued operations is adjusted to avoid double counting. The cash movement of 100 is obtained from the additional information above. c) Increase in inventories – continuing operations
The opening balance at 1 January 20X3 (excluding discontinued operations) is calculated by deducting the amount of inventories relating to the discontinued operations as at 31 December 20X2 (CU50) from the opening balance of Entity A’s inventories (CU160) at the same date. d) Increase in trade payables – continuing operations
The opening balance (excluding discontinued operations)is calculated by deducting the balance of trade payables which relates to the discontinued operations as at 31 December 20X2 (CU120) from the balance of total trade payables of Entity A as at the same date (CU280). Statement of cash flows vs. Statement of financial position
The differences in the amounts for the net (decrease) in cash and cash equivalents, and in the closing balance of cash and cash equivalents, is because cash and cash equivalents of CU30 related to the food sector disposal group are included within the single line item Assets in disposal groups classified as held for sale in the statement of financial position. |
CU120 from investing activities
2. Case – Discontinued operations disposed of in full during the reporting period |
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Extracts from Entity B’s statement of financial position as at 31 December 20X2 and 20X3 are as follows:
Additional context:
Alternative 1 – presentation of discontinued operations in the statement of cash flows
a) Profit for the period The profit for the period is equal to the change in equity before distributions. This is calculated as equity as at 31 December 20X3 of CU4,550 plus dividends paid of CU140, less the opening balance of equity of CU3,170. b) Depreciation of property, plant and equipment (PP&E)
c) Profit from discontinued operations
(i) Consideration received of CU1,300 less the closing net assets of the discontinued operations of CU1,050 (see additional information above). (ii) Equal to the change in net assets of the discontinued operation, calculated as closing net assets of CU1,050 less opening net assets (assets of CU900 less liabilities of CU490). d) Net cash generated from discontinued operations In this case, it has been assumed that all operating activities had ceased by 1 January 20X3. Consequently, the only cash flows that would be expected to be received would be the collection of trade receivables and other receivable balances. The additional information above notes that cash receipts of CU480 were received from the settlement of trade receivables. e) Net cash generated from investing activities – discontinued operations These are comprised of proceeds from the disposal of operations (CU1,300) plus cash received from the sale of property, plant and equipment (CU440) f) Net cash used in financing – discontinued operations This relates to the repayment of the loan of CU320. g) Increase in cash and cash equivalents attributable to the discontinued operations that have been disposed of This comprises all cash flows attributable to the discontinued operation up to the point at which it was disposed of, but does not include cash flows attributable to cash receipts from the sale of the discontinued operation. The amount is therefore the cash inflow from the decrease in accounts receivable (CU480) plus cash proceeds from the sale of property, plant and equipment (CU440) less the cash outflow associated with the repayment of the loan (CU320). Statement of cash flows vs. Statement of financial position
The amounts included in both primary statements are the same, because at the reporting period end there is no discontinued operation to be presented separately in the statement of financial position. Alternative 2 – presentation of discontinued b) Depreciation of property, plant and equipment operations in the notes (PP&E)
a) Profit for the period The profit for the period is equal to the change in equity before distributions. This is calculated as equity as at 31 December 20X3 of CU4,550 plus dividends paid of CU140, less the opening balance of equity of CU3,170. b) Depreciation of property, plant and equipment (PP&E)
c) Profit from discontinued operations
(i) Consideration received of CU1,300 less the closing net assets of the discontinued operations of CU1,050 (see additional information above). (ii) Equal to the change in net assets of the discontinued operation, calculated as closing net assets of CU1,050 less opening net assets (assets of CU900 less liabilities of CU490). d) Increase in cash and cash equivalents attributable to the discontinued operations that have been disposed of This is comprised of all cash flow attributable to the discontinued operation up to the point at which it was disposed of, but does not include cash flows attributable to cash receipts from the sale of the discontinued operation. The amount is therefore the cash inflow from the decrease in accounts receivable (CU480) plus cash proceeds from the sale of property, plant and equipment (CU440) less the cash outflow associated with the repayment of the loan (CU320). Notes to the financial statements (extract) Note [x] – Discontinued operations (extract) The statement of cash flows includes the following amounts relating to discontinued operations:
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