Interest expense/paid and FCFF.

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TomHealey

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Hi everyone,
I’m a little bit confused regarding FCFF calculation and interest expense/paid. I have real company’s cash flow statement (IFRS) and it accounts interest as follow:
  1. interest expense in CFO (adjustments/positive value).
  2. interest paid in CFO (adjustments/negative value).
  3. Interest on loans and borrowings in CFF (negative value).
  4. Other interests in CFF (negative value).
Since under IFRS interest paid can be in CFO or CFF, why it is in CFO and CFF (no 2 and 3, 4 are interest paid)?
My best understanding so far is:
Interest expense is not the same as interest paid, former comes from income statement so it is accrual based, whlist interest paid is just cash outflow regarding operating activities other than debt service (because this is already under CFF - borrowings and most likely finance lease). Interest expense is positive value so it is increase in interest payable across two periods of balance sheet.
Thus, when calculating FCFF, I should take only interest paid from CFO, right?
Unfortunately, in auditors report there is neither additional info or footnote on this.
Thanks in advance!
Regards!
 
Is this the balance sheet of a financial institution or a manufacturing company?
 
IAS 7.31 clearly states that interest and dividends received and paid may be classified as either operating, investing, or financing cash flows, provided that they are classified consistently from period to period.
In your example it seems that interests are classified as CFO and CFF. Have you looked in the notes on further specifications regarding the interest payments and receipts?
Regards,
Oscar
 
Hi,
yes, I have looked. There is no additional information on this. So to sums up (I guess I made small error in first post):
  1. Interest paid in CFO (negative value) is most likely other operational expenses paid (could be I guess interest for other form of financing that stated in CFF?), since the same position related to loan and borrowings are under CFF, this is the only one explanation.
  2. Interest expenses (accrual based) is interest incurred -amortized bond premium + amortized bond discount; and not interest payable across two periods.
As you have said IAS 7.31 is clear about that. I have talked to friend from audit company, and without detailed data from given firm, we cannot deduct more than this.
Thanks for reply!
KR
Tom
 
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