In this unit, we discuss the Statement of Accounting Standard 18, 19 and 20. We will look at the definitions of terms in some of the Standards and state some of the provisions contained in the Standard. We’ll also look at the computation for deferred tax.



A statement of cash flows provides information about cash receipts and payments of an enterprise over a given period. It indicates the pattern of cash generation and utilization. It reveals how cash is generated from operations or through new capital raised and how payments are made for taxes, dividends, new investments and debts. It is designed to shed light on an enterprise’s financial strength.


The following terms are used in this statement with the meanings specified:

(a) Cash comprises cash on hand and demand deposits denominated in naira and foreign currencies.

(b) Cash equivalents are short-term, highly liquid investments that are readily convertible to known amount of cash and which are subject to an insignificant risk of charges in value.

(c) Cash flows are inflows and outflows of cash and cash equivalents.

Preparation and Format

(a) A reporting enterprise should prepare a statement of cash flows in line with the provisions of this standard as an integral part of its financial statements.

(b) The statement of cash flows should include all cash inflows and outflows of the enterprise during a reporting period. It should however, exclude cash flows arising from the purchase and liquidation of cash equivalents.

(c) An enterprise should report its cash flows according to the activity which gave rise to them and the cash flows should be grouped under the broad headings of operating activities, investing activities and financing activities.

(d) An enterprise should use either the direct or indirect method in preparing its statement of cash flows. However, the direct method is preferred.

(e) The statement of cash flows should report gross cash flows except in the instances where net cash flows would be more relevant and meaningful,

(i) where the enterprise is, in substance, holding or disbursing cash on behalf of its customer; and

(ii) where turnover of investments and loans is rapid and the total volume of transactions is large.

Interest paid and received

(a) Interest paid should be classified as cash flow from financing activities while interest received should be classified as cash flow from investing activities. The interest element of  finance lease rental payments should be shown separately by the lessee.

(b) Interest received or paid should be reported gross of taxes. Interest capitalised should also be reported in the statement of cash flows.

Dividends Paid and Received

(a) Dividends received should be classified as cash flows from investing activities except in cases where the investor-company has significant control over the investee-company and holds at least 20 percent of the equity. In such cases, dividends received should be classified as cash flows from operating activities.

(b) Dividends paid and other distributions to owners should be classified as cash flows from  financing activities.

Foreign Currency Cash Flows

Cash flows resulting from currency transactions should be translated using the rates applicable at the time they occur. A weighted average exchange rate for a period should be used for translation if the result is substantially the same as if the rates applicable at the dates of the cash flows were used.


(a) The total amount of income taxes paid should be classified as operating cash outflows and should be separately disclosed.

(b) The net amount paid or received with respect to value added tax and other sales taxes should be shown separately as cash flows from operating activities.

(c) Taxes paid or refunds received in respect of capital profits such as capital gains tax should be  reported in line with the underlying transactions giving rise to them.

Exceptional and Extraordinary Items

Cash flows in respect of exceptional items whose effects are included in the profit and loss account, should be reported under appropriate headings- operating, investing and financing activities- according to the nature of each item. There should be sufficient disclosure of the nature of each item, by way of note to the financial statements.

Acquisition and Disposal of Entities

The cash flow of effects of acquisitions and disposals of subsidiaries and other business units should be classified as investing activities and presented separately in the statement of cash flows. The details required should be presented in aggregate for all entities acquired or disposed off during the financial year.

Major Non-Cash Transactions

Non-cash transactions of a reporting entity should not be incorporated in the statement of cash flows. However, such transactions should be disclosed in the notes to the financial statements in a way that provides all the relevant information about their cash flow implications

Cash flows to be highlighted

The following, however classified, shall be disclosed separately in the statement of cash flows:

  • Interest received;
  • Dividends received;
  • Interest paid;
  • Dividend paid; and
  • Income taxes paid.

Reporting Cash Flows of Financial Institutions

Financial institutions should prepare a statement of cash flows as part of their financial statements.

However, such organization should report cash flows from operations on a net basis. For instance, rather than reporting the gross amount of fresh loans and loan repayments, the net increase or decrease in loans should be reported.


Where necessary, an enterprise should show by way of note, a reconciliation of the amounts in its statements of cash flows with equivalent items reported in the profit and loss account and the balance sheet. It should also show by way of note a reconciliation of cash flows from operating activities to operating profit or loss after income tax as reported in the profit and loss account.

Finally, the statement of cash flows should include a reconciliation of the increase and decrease in cash and cash equivalents during the reporting period with the operating and closing balances.


For illustrations on the preparation of cash flow statements, please refer to ACC 311 of your course material.


What is cash and cash equivalent?


The following terms are used in this statement with the meanings specified:

 (a) Accounting profit/loss: This is the aggregate profit and loss for the period as reported in the income statement including exceptional and extraordinary items.

 (b) Capital gains: These are gains arising on the disposal of a chargeable asset.

 (c) Deferred tax: This is tax (liabilities or assets) attributable to timing differences.

 (d) Deferred tax assets: These are the amount of taxes recoverable in future periods which are attributable to the following:

(i) Deductible temporary difference such as unused capital allowance;

(ii) Carry forwards of unused tax losses; and

(iii) Carry forwards of unused tax credits.

 (e) Deferred tax liabilities: These are the taxes payable in future accounting periods attributable to timing differences.

(f) Input tax (VAT): This is the tax paid on goods and services purchased.

 (g) Input tax credit: This is the credit provided on incurring qualifying capital expenditure by a taxpayer. It serves as a credit against the tax payable by such taxpayer in the relevant year.

 (h) Output tax (VAT): This is the tax collected by a taxable person from other parties for goods and services supplied.

 (i) Permanent differences: These are differences between taxable and accounting income for a period, that are not expected to reserve in subsequent periods.

(j) Tax expense/tax income: This is the total of current and deferred taxes charged against or credited to the income of the accounting period.

(k) Temporary differences: These are the differences between the amount an asset or a liability is carried in the balance sheet and its tax base. Temporary differences may be either:

(i) taxable differences, that will result in taxable amount in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled; or

(ii) deductible differences that will result in amount that are deductible in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled.

(l) The tax based of an asset or liability: This is the amount attributed to that asset or liability for tax purpose.

(m) Timing difference: These are differences between the accounting income and taxable income which arise because the periods in which some items of revenue and expense are received or take place are included in taxable income. Such differences originate in one period and are expected to reverse in one or other subsequent periods. While all timing differences are temporary differences, not all temporary differences that arise when:

(i) the carrying amount of an asset or liability on initial recognition differs from its tax base;

(ii) non-monetary asset and liability are restated under financial reporting in an inflationary environment; and

(iii) the non-monetary assets and liabilities of a foreign operation that is integral to the operations of the reporting entity are translated at historical exchange rates.

(n) Value-added tax (VAT): This is a tax payable on supply of taxable goods and services. The tax  crystallizes as goods and services pass from one person to another in the production and distribution chain.

(o) Withholding tax: This is an advance payment of tax on income by deduction at source.


What do you understand by temporary difference?


Deferred Taxes

(a) Deferred taxes should be computed using the liability method.

(b) Only the timing differences that are expected to reverse during the period allowed by the tax law should be considered in computing deferred taxes for treatment either as an asset or as a charge to the deferred tax account.

(c) Full provision should be made for deferred taxes.

(d) Deferred taxes relating to ordinary activities should be shown as part of the tax on profit or loss resulting from ordinary activities.

(e) Deferred tax relating to extraordinary activities should be shown as part of the tax on extraordinary activities.

Capital Gains Tax (CGT)

(a) CGT should be included in the tax expense for the period.

(b) Where CGT relates to a disposal treated as an extraordinary item, it should be stated as  deduction from the item.

Withholding Tax

The tax credit should be used as set-off against income tax payable. Where the tax credit is considered irrecoverable, it should be written off as part of the tax charge for the year.

Value added tax (VAT) and payment of foreign taxes

For the accounting treatment of VAT and payment of foreign tax, please refer to the standard.

Disclosure Requirements

Tax should be recognised as an expense (income) and included in the profit and loss account for the accounting period as a separate line item. The following components of tax expense (income) should be disclosed by way of notes:

  1. Company income tax;
  2. Petroleum profits tax;
  3. Capital gains tax;
  4. Education tax;
  5. Deferred tax; and
  6. Taxes on extraordinary items and prior year adjustment (income or expenses) should be deducted from or added to the related items and disclosed by way of notes.

Deferred taxes, other than those relating to extraordinary items or prior year adjustments, should be shown separately from the items and disclosed by way of notes. Deferred taxes figures should be presented in the balance sheet separately.

In the case of liability, they should be shown between long-term and current liabilities and, in the case of assets, between fixed and current assets. Tax assets and liabilities should be disclosed separately in the balance sheet. Movements in these accounts should be shown by way of notes as follows:

(a) Current Taxes

(i) balances at the beginning of the period;

(ii) tax charge or credit for the period;

(iii) payments made during the period;

(iv) tax credits received during the period; and

(v) balance at the end of the period.

(b) Deferred Taxes

(i) balance at the beginning of the period;

(ii) current year provision (reversal); and

(iii) balance at the end of the period.

The tax effect relating to the increase in the carrying value of a revalued asset should be determined and charged or credited directly to equity.

(c) Capital Gains Tax

Where provision is not made for capital gains tax because of roll over relief, the fact of non-provision and the amount of capital gains tax involved should be disclosed.


  1. The following is the summary of the fixed assets of Niger ltd for the years, 20X4 to 20X8 and the residual values of the assets in those years.





You are required to:

Using only the information given above, compute the deferred taxation for the years 20X4 to 20X8 and the amounts to be charged to the profit and loss account for the years. Assume an average tax rate of 30%.





Summary of the Provisions of SAS 20 are as follows.

(a) A company need not publish abridged financial statements. If it does, however, such financial statements should comply with this standard.

(b) Abridged financial statements should carry a declaration that:

(i) they are abridged financial statements;

(ii) the financial statements and specific disclosures included in them have been derived from the full financial statements of the company;

(iii) the abridged financial statements cannot be expected to provide as full an understanding of the financial performance, financial position, and financial and investing activities of the organization as full financial statements; and

(iv) copies of the full financial statements can be obtained from the registrar of the company.

(c) A company whose financial statements for a period are qualified by its auditors, should not published abridged financial statements for that period.

(d) Abridged financial statements must include the following, as in the full financial statements:

(i) accounting policies;

ii)profit and loss account for the financial year;

(iii) balance sheet as at the end of the financial year;

(iv) Statement of cash flow for the financial year;

(v) notes in relation to exceptional and extraordinary items;

(vi) five-year financial summary; and

(vii) Any other information necessary to ensure that the abridged financial statements are consistent with the full accounts and reports for the year.

(e) Other information to be included in an abridged financial statements are:

(i) notice of annual general meeting;

(ii) names of directors during the year and their shareholdings;

(iii) report of audit committee which should confirm that the auditors’ report is unqualified.

(iv) financial highlights (result at a glance); and

(v) dividends paid or proposed and date of payment.

Disclosures Requirements

(a) The following items should be disclosed:

(i) material events occurring after the balance sheet date; and

(ii) where there is a change in accounting policy or estimates from those used in the preceding financial year which has a material effect in the current financial year or is expected to have a material effect in a subsequent financial year, the information about such change in accordance with SAS No. 6: On Extraordinary items and Prior Year Adjustments.

(b) Where a company is a parent company, this statement applies to the consolidated financial Statements of the company, and the accompanying notes, and does not require that the parent company’s own financial information be provided.

(c) Comparative information

Information for the preceding corresponding financial year which corresponds to the disclosures made in accordance with this standard for current financial year must be disclosed.


What should be disclosed in abridged financial statement?


Complementing the balance sheet and income statement, the cash flow statement (CFS), a mandatory part of a company’s financial reports since 1987, records the amounts of cash and cash equivalents entering and leaving a company. The CFS allows investors to understand how a company’s operations are running, where its money is coming from, and how it is being spent.


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