IndAS 7 Statement of Cash Flows – Applicability, Scope, Objective

Contents

IndAS 7 Statement of Cash Flows – Applicability, Scope, ObjectiveDefinitionsOperating Activities –Investing Activities –Financing Activities –Foreign Currency Cash Flows

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IndAS 7 Statement of Cash Flows – Applicability, Scope, Objective

Applicability –

Cash flow statement is applicable to all the companies and there is no exemption available to any type of entity from preparation and presentation of the cash flow statement  but as per existing AS this statement is not mandatory for small and medium enterprises.

Scope –

An entity shall prepare a statement of cash flows in accordance with the requirement of this standard and shall present it as an integral part of its financial statements for each period for which financial statements are prepared.

Scope –

An entity shall prepare a statement of cash flows in accordance with the requirement of this standard and shall present it as an integral part of its financial statements for each period for which financial statements are prepared.

Definitions

Operating Activities –

are the principal revenue-producing activities of the entity and other activities that are not investing or financing activities.

Examples –

Cash receipts from sale of goods or rendering of services;Cash receipts from royalties, fees, commissions and other revenue;Cash payments to suppliers for goods and services

4.An entity may hold securities and loans for dealing or trading purposes, in which they are similar to inventory acquired specifically for resale. Therefore, cash flows arising from the purchase and sale of dealing or trading securities are classified as operating activities.

Notes – Cash payment to manufacture or acquire assets held for rental to others and subsequently held for sale as described in para 68A of Ind AS 16, as cash flows from operating activities. The cash receipts from rents and subsequent sales of such assets are also cash flow from operating activities.

Investing Activities –

are the acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents.

Example –

Cash payment to acquire property, plant and equipment, intangibles and other long-term assetsCash receipts from sale of property, plant and equipment, intangiblesCash payment to acquire equity or debt instrumentsCash advances and loans made to other partiesCash payment for future contracts, forward contracts, option contracts

Financing Activities –

are activities that result in changes in the size and composition of the contributed equity and borrowings of the entity.

Example –

Cash proceeds from issuing of share or other equity instrumentsCash payment to owners to acquire or redeem the equity’s sharesCash proceeds from issuing debentures, loans, notes, bonds, mortgagesCash repayments of amount borrowed andCash repayment by lessee for the reduction of the outstanding liability

Note –

Cash flows arising from the operating, investing or financing activities may be reported on net basis.

Foreign Currency Cash Flows

Cash flows arising from transactions in a foreign currency shall be recorded in an entity’s functional currency by applying to the foreign currency amount the exchange rate between the functional currency and the foreign currency at the date of the cash flow.

The cash flows of a foreign subsidiary shall be translated at the exchange rates between the functional currency and the foreign currency at the dates of the cash flows.

Note – Unrealized gains and losses arising from changes in foreign currency exchange rates are not cash.

Others

Interest & Dividend–

Cash flows from interest and dividends received and paid shall each be disclosed separately.

In case of financial institutions – cash flow arising from interest paid and interest and dividend received should be classified as cash flow arising from operating activities.

In case of other entities –

Interest paid should be classified as part of financing activities.Interest and dividend received should be classified as part of investing activities.Dividend paid should be classified as part of financing activities.

Cash flows arising from taxes on income shall be separately disclosed and shall be classified as part of operating activities unless they can be separately identified with investing and financing activities.

Investing and financial transactions that do not require the use of cash or cash equivalents shall be excluded from a statement of cash flows.

Example –

a.The acquisition of assets either by assuming directly liabilities or by means of a finance leaseb.The acquisition of an entity by means of an equity issuec.The conversion of debt into equity

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Author – ABHISHEK MITTAL