Strategic Business Reporting (International) · Group accounting including statements of cash flows

How to Prepare a Consolidated Statement of Cash Flows

Updated 11 October 2026 · Fact-checked

A consolidated statement of cash flows shows the cash movements of the whole group under IAS 7. Start from group profit, adjust for non-cash items, working capital, interest and tax, then add investing and financing flows. Show acquisitions net of cash acquired, associate dividends received, and dividends paid to NCI. Reconcile to opening and closing cash.

Understand Consolidated Statement of Cash Flows

A group statement of cash flows is built like a single-entity one. IAS 7 splits cash flows into operating, investing and financing activities. The group is treated as one economic entity, so only cash flows with outsiders appear. Cash moving between group companies cancels out.

The group adds a few extra items. You must handle the non-controlling interest (NCI), associates, and any acquisition or disposal of a subsidiary. You also deal with foreign exchange on overseas subsidiaries. Each is a balancing-figure job. You rebuild a ledger account, put in what you know, and solve for the cash.

The NCI is part of the group's equity. So dividends paid to NCI shareholders are cash leaving the group. You find them by rebuilding the NCI balance: opening NCI + NCI share of profit + NCI share of OCI + NCI arising on acquisition + NCI recognised when the parent sells shares to NCI without losing control − NCI derecognised when the parent buys shares from NCI without a change of control − NCI removed on disposal − closing NCI = dividends paid to NCI. Leave out the transaction terms if the question has no change in holdings. If it does, include them, or the balancing figure for dividends will be wrong. The cash paid to or received from NCI for those shares is a separate financing flow, not a dividend. IAS 7 lets you show dividends paid as operating or financing. Financing is a common presentation. Follow the policy stated in the question, and be consistent.

An associate is equity accounted, so the group's profit includes its share of the associate's profit. That is not cash. You deduct it in the operating reconciliation. You then show only the dividends actually received, usually as an investing inflow unless the question states a different policy. Again, find them by rebuilding the investment in associate account.

For a subsidiary bought or sold, the cash flow is shown in investing activities, net of the cash and cash equivalents acquired or disposed of. Shares issued as consideration are non-cash and are excluded. The subsidiary's assets and liabilities acquired are also removed from working capital movements, because the group did not generate those changes from its own operations.

Key rules to remember

Dividends paid to NCI: Dividends to NCI = Opening NCI + NCI share of profit + NCI share of OCI + NCI arising on acquisition + NCI recognised on selling shares to NCI (no loss of control) − NCI derecognised on buying shares from NCI (no change of control) − NCI removed on disposal − Closing NCI; Show as a financing outflow, a common presentation, or as operating if that is the stated policy. Follow the policy in the question. The cash paid or received for shares bought from or sold to NCI is a separate financing flow, not part of the dividend.
Dividends received from associate: Dividends received = Opening investment + Share of associate profit (+ share of OCI) − Closing investment; Deduct the share of profit in operating activities. Show the dividend received in investing activities (or operating, if policy says so).
Acquisition of subsidiary: Net outflow = Cash consideration paid − Cash and cash equivalents acquired; Investing activity. Exclude shares issued. Deferred or contingent consideration is not cash until paid.
Disposal of subsidiary: Net inflow = Cash proceeds − Cash and cash equivalents disposed of; Investing activity. If the subsidiary had an overdraft, the net inflow is higher than the proceeds.
Working capital movement with acquisitions: Movement from trading = Closing balance − Opening balance − Balance acquired + Balance disposed of; Apply this to each balance separately: inventory, receivables and payables. A subsidiary acquired adds its balance to the closing figure, so subtract it. A subsidiary disposed of removes its balance from the closing figure, so add it back. An increase in an asset is a cash outflow. An increase in a liability is a cash inflow.
Tax paid: Tax paid = Opening tax liability (current and deferred) + Charge for the year + Tax liabilities acquired with a subsidiary − Tax liabilities disposed of with a subsidiary − Closing tax liability (current and deferred); Rebuild the liability account for current and deferred tax together. Include the charge from profit or loss and any tax in OCI. Balances acquired or disposed of did not arise from the group's own payments.
Associate profit adjustment: Operating reconciliation: deduct share of profit of associate; The share of associate profit is included in profit before tax, so it must be deducted in the operating reconciliation. Only the dividend received is shown as cash.
Equity transactions with NCI: Buying or selling shares in a subsidiary without gaining or losing control = financing activity; Under IFRS 10 these are equity transactions, so the cash flow is financing.
Foreign exchange: Foreign subsidiary cash flows are translated at the rates on the dates of the flows (an average rate is allowed if a reasonable approximation). The effect of exchange rate changes on cash held is a separate reconciling item.; It is not an operating, investing or financing cash flow.

How to solve Consolidated Statement of Cash Flows questions

Use the same order every time. Do the workings first, then assemble the statement. Marks go to correct workings, even if you slip on the layout.

1Read the requirement and note the group's policy for interest and dividends (operating, investing or financing). Note the acquisition or disposal date and the form of consideration.
2Define cash and cash equivalents. Include overdrafts repayable on demand if they form part of cash management. Work out opening and closing cash.
3Start the operating section with profit before tax. Add back depreciation, amortisation, impairment (including goodwill), finance costs and losses on disposal. Deduct investment income, gains on disposal and share of associate profit (it is included in profit before tax but is not cash).
4Do the working capital workings for inventory, receivables and payables. Strip out balances acquired or disposed of with a subsidiary. Then deduct interest and tax paid, found by rebuilding the liability accounts (tax paid: opening liability, current and deferred + charge + tax liabilities acquired with a subsidiary − tax liabilities disposed of − closing liability).
5Do the investing workings: property, plant and equipment (opening + additions + acquired by subsidiary − depreciation − disposals = closing), the acquisition or disposal of the subsidiary net of cash, and dividends received from the associate.
6Do the financing workings: proceeds from share issues and borrowings, repayment of debt and lease liabilities, dividends paid to parent shareholders, and dividends paid to NCI.
7Assemble the statement. Check that net movement plus opening cash equals closing cash. Any difference is usually foreign exchange or a missed non-cash item.
8Add a short note on non-cash items, such as shares issued on acquisition, if the requirement asks for discussion.

Quickest way: Four group balancing figures first

When to use it: Use this when time is short and the question gives group statements of financial position and profit or loss with a few notes.

Write four T-accounts or one-line rebuilds at once: NCI, investment in associate, tax, and property, plant and equipment.
Solve each for the unknown cash figure: dividends to NCI, dividends from associate, tax paid, and purchases of property, plant and equipment.
Calculate the acquisition or disposal figure: cash paid less cash acquired, and the subsidiary's working capital balances to strip out.
Fill in the standard operating adjustments from the profit or loss account.
Complete the statement and prove it to the change in cash. Spend any spare time on the requested narrative.

Common mistakes in Consolidated Statement of Cash Flows

Showing the full cash consideration for a subsidiary without deducting cash acquired.
Students copy the purchase price from the note and forget the subsidiary's bank balance joins the group.
Fix: Always show the investing figure as consideration paid in cash less cash and cash equivalents acquired. Write the two numbers on separate lines in your working.
Including shares issued as consideration in financing or investing.
The share capital increase looks like a cash raising.
Fix: Shares issued to buy a subsidiary are non-cash. Exclude them from both sections, and use only the cash element.
Using the NCI share of profit as the dividend or ignoring NCI OCI.
Students see the NCI share of profit in the income statement and treat it as the amount paid out. They forget that the dividend is only the balancing figure in the NCI account, after profit, OCI and any acquisition, disposal or change-in-holding effects.
Fix: Rebuild the NCI balance: opening NCI + NCI profit + NCI OCI + NCI on acquisition + NCI recognised on selling shares to NCI − NCI derecognised on buying shares from NCI − NCI on disposal − closing NCI. The remaining difference is the dividend.
Leaving the share of associate profit in operating cash flow and showing no dividend received.
Equity accounting hides that the profit was not received in cash.
Fix: Deduct the share of profit in the operating reconciliation. Then compute dividends received from the investment in associate account and show them as an inflow.
Taking the full working capital movement from the statement of financial position when a subsidiary was acquired or disposed of.
Students compare closing and opening group balances directly.
Fix: Adjust for balances acquired or disposed of. Closing less opening less acquired plus disposed of gives the movement that reflects trading.
Treating the exchange difference on cash held as an operating flow.
It appears in profit or loss or OCI and looks like trading.
Fix: Show the effect of exchange rate changes on cash as a separate line in the reconciliation of opening to closing cash.

Worked examples

Example 1

A group's statement of financial position shows NCI of $40m at the start of the year and $47m at the end. Profit for the year attributable to NCI was $14m, and there was no NCI OCI or change in holdings. The investment in associate was $30m at the start and $36m at the end. The share of the associate's profit after tax was $9m, with no OCI. Calculate the dividends paid to NCI and the dividends received from the associate, and state where each appears in the statement of cash flows.

Show the solution

NCI account: opening 40 + profit 14 = 54. Closing is 47.
Dividends paid to NCI = 54 − 47 = $7m.
Associate account: opening 30 + share of profit 9 = 39. Closing is 36.
Dividends received = 39 − 36 = $3m.
Presentation: the $9m share of profit is deducted in the operating reconciliation. The $3m dividend received is an investing inflow. The $7m NCI dividend is a financing outflow, consistent with a policy of showing dividends paid in financing.

Answer: Dividends paid to NCI are $7m (financing outflow). Dividends received from the associate are $3m (investing inflow). The $9m share of associate profit is deducted in the operating reconciliation.

Example 2

During the year, Parent bought 80% of Sub for $50m cash plus 4m new shares in Parent with a fair value of $8m. Sub had cash and cash equivalents of $6m at the acquisition date and inventory of $15m. Group inventory was $100m at the start of the year and $120m at the end. Calculate the cash flow for the acquisition and the inventory movement used in the operating section.

Show the solution

The cash consideration is $50m. The $8m shares issued are non-cash, so exclude them.
Cash acquired with Sub is $6m.
Net investing outflow = 50 − 6 = $44m.
Inventory movement: closing 120 − opening 100 − acquired 15 = $5m increase from trading.
An increase in inventory is a cash outflow, so $5m is deducted in the operating section.

Answer: The investing outflow is $44m, shown as 'Acquisition of subsidiary, net of cash acquired'. The $8m share issue is non-cash. The inventory adjustment in operating cash flow is a $5m deduction.

Exam tips

Show every working clearly with labels. Markers award marks for the method, including balancing-figure accounts, even when later numbers are wrong.
State your policy for interest and dividends at the top, then apply it consistently. IAS 7 allows a choice: interest and dividends received can be operating or investing, and interest and dividends paid can be operating or financing. If the question states a policy, follow it.
Look for hidden non-cash items: shares issued for an acquisition, leases taken on, goodwill impairment and deferred consideration. Exclude them from the cash flows.
Expect a written part on why cash flow differs from profit, or on how the group's cash flow reflects its strategy. Link your numbers to a clear comment for the professional skills marks.
If an overseas subsidiary is included, show the effect of exchange rate changes on cash as a separate reconciling line. Do not bury it in operating flows.

Practice questions from Group accounting including statements of cash flows

Consolidated Statement of Cash Flows in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Consolidated Statement of Cash Flows: frequently asked questions

Where do dividends paid to non-controlling interests go in the group statement of cash flows?

They are shown as a cash outflow to shareholders of the group. IAS 7 allows dividends paid to be classified as financing or operating. Financing is a common presentation, but follow the policy stated in the question. Calculate the figure from the NCI balance.

How is the acquisition of a subsidiary shown in a consolidated statement of cash flows?

It is an investing activity, shown as cash paid less cash and cash equivalents acquired. Shares issued as consideration are non-cash and excluded. You also remove the subsidiary's assets and liabilities acquired from working capital movements.

How do I treat an associate in the group cash flow?

Deduct the group's share of the associate's profit in the operating reconciliation, because it is not cash. Then show only dividends actually received. Work these out from the investment in associate account.

Are purchases of extra shares in a subsidiary investing or financing?

If control is already held and does not change, the transaction is an equity transaction with owners under IFRS 10. IAS 7 requires the cash flow to be classified as financing. A purchase that gains control is an acquisition and sits in investing.

How are foreign exchange differences shown in the group statement of cash flows?

Cash flows of a foreign subsidiary are translated at the exchange rates on the dates of the flows, or an approximate average. The effect of rate changes on cash held is shown as a separate reconciling item, not as an operating, investing or financing flow.