Finding tax paid, asset purchases and dividends paid
How to work out tax paid, payments for property, plant and equipment and dividends paid for a cash flow statement when the records do not show them.
By Achekam · · 4 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
The cash flow statement has three lines that cause more review notes than the rest put together: income taxes paid, purchases of property, plant and equipment, and dividends paid. The client's ledger rarely has an account called "tax paid". Asset purchases are mixed up with leases, credit purchases and disposals. Dividends declared and dividends paid fall into different years.
Each of these figures is usually found the same way, by rebuilding the movement on a balance and seeing what is left. The method is reliable when the inputs are right, and it is a good test of the rest of the statements, because a strange balancing figure usually points to a mistake somewhere else.
Why these lines are usually worked out, not looked up
ACCA's article on cash flow statements explains that cash flows such as tax paid, payments for property, plant and equipment and dividends paid are usually calculated as the balancing figure when the opening balance is reconciled to the closing balance using the non-cash movements.
The principle: start with the opening balance, add or deduct everything that changed it without cash moving, compare with the closing balance, and the difference is the cash. The skill lies in finding every non-cash movement. Miss one, and it lands in the cash figure.
Tax paid
ACCA notes that, under both the direct and indirect methods, income taxes paid are presented as a cash outflow from operating activities.
Work it through in words. Start with the tax owed at the start of the year. Add the current tax charge in profit or loss for the year. Deduct the tax owed at the end of the year. What is left is the tax paid.
Points that trip people up:
- Deferred tax. If the charge used includes deferred tax, either include the opening and closing deferred tax balances in the reconciliation or use only the current tax charge. Mixing the two produces a wrong answer.
- Refunds receivable. Where the client was owed tax at either date, treat that balance as a negative liability.
- Tax on items outside profit or loss. Tax recognised in other comprehensive income or equity is another non-cash movement on the balance.
- Prior-year adjustments. Under- or over-provisions from earlier years are part of the year's charge and belong in the reconciliation.
Payments for property, plant and equipment
ACCA's article places investing cash flows on non-current assets: buying property, plant and equipment, proceeds from disposals, and dividends and interest received.
The reconciliation runs on carrying amounts. Start with the opening carrying amount. Deduct the depreciation for the year and the carrying amount of assets disposed of. Add any revaluation increase and deduct any impairment. Compare with the closing carrying amount. The difference is additions.
Additions are not yet cash. Before the figure goes into investing activities:
- deduct assets acquired under leases, which arrive without an equivalent cash payment;
- deduct purchases still unpaid at year end, and add last year's unpaid purchases settled this year;
- deduct assets received in exchange for shares or other non-cash consideration.
Disposal proceeds come from a separate reconciliation: the carrying amount of assets sold, plus any profit or less any loss on disposal.
Dividends paid
ACCA lists dividends paid to shareholders among financing cash flows, alongside new borrowings, repayments of debt including any interest paid, and share issue proceeds.
Start with dividends payable at the start of the year. Add dividends declared during the year, which come from the statement of changes in equity. Deduct dividends payable at the end of the year. The rest is dividends paid. If the client has no dividends payable at either date, dividends paid equals dividends declared, but check the minutes and the bank statement rather than assuming.
Watch for dividends settled by setting them off against a shareholder's loan account. No cash moved, so they are not cash flows; they are non-cash transactions to explain in the notes.
Using the figures in Achekam's Studio
In Achekam's Studio, the cash flow statement's current-year column is worked out from the change in balances, and staff can type their own figure for any line, which then takes priority. Comparatives can come from a person's figures, last year's issued statements or a prior-year set that a person reviews.
That combination suits this work. The change-in-balances figure is a sound first draft. Where the reconciliation above shows a different answer, because of a lease addition, an unpaid asset purchase or a dividend set off against a loan, the preparer types the worked figure for that line and keeps the working paper that supports it.
Depreciation is one input that deserves a check before the reconciliation is trusted. Achekam does not calculate depreciation; it presents the charge from the trial balance and flags when that charge does not agree with the movement in accumulated depreciation. If the flag is raised, resolve it first: a mismatch there will flow straight into the asset purchases figure. Where a correction is needed, staff can post a year-end adjusting entry, and an entry that turns out wrong is reversed with a record of who and why rather than deleted.
A check before the statement goes to review
- Does each balancing figure have a working that starts from the audited or reviewed opening balance?
- Have leases, credit purchases and set-offs been taken out of the cash lines?
- Does the tax paid figure use current and deferred tax consistently?
- Do disposal proceeds agree to the bank statement or the sale agreement?
- Are typed figures in the Studio supported by a working paper the reviewer can open?
From profit to cash under the indirect method covers the operating section that sits above these lines, and the property, plant and equipment note shows how the same reconciliation is presented to readers. When a balancing figure looks odd, treat it as a question about the balance sheet, not a number to force.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
