Consolidated cash flows - part 1

In this lesson

1. 0:00 Consolidated cash flows: Key principles
2. 0:34 Acquiring a subsidiary: Cash flow treatment
3. 1:46 Acquisition example: Calculating net cash outflow
4. 2:35 Disposing of a subsidiary: Cash flow treatment
5. 3:27 Disposal example: Calculating net proceeds
6. 4:28 Assets and liabilities: Acquisition and disposal adjustments
7. 5:25 PPE movements: Working through a consolidation example

About this lesson

This is a key technique for SBR and Advanced Financial Reporting papers, where examiners test your ability to consolidate not just balance sheets and income statements, but also cash movements. The core principle is simple: only include cash flows external to the group, using consolidated accounts rather than single company figures. When you acquire a subsidiary, you calculate net cash outflow by taking the cash paid for shares and netting off the subsidiary's opening cash balance. When you dispose of a subsidiary, you do the reverse—netting the cash proceeds from selling shares against the subsidiary's closing cash balance. Both appear as single line items under investing activities. You'll also learn how to handle assets and liabilities of acquired or disposed subsidiaries. When a subsidiary joins the group, you add its assets and liabilities to your consolidated figures; when it leaves, you deduct them. This affects how you calculate movements in working capital and fixed assets in your cash flow statement. The worked examples show you how to rebuild PPE balances, account for depreciation and disposals, and isolate the actual cash spent on new equipment purchases.

Duration: 7m