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Ind As 7: Statement of Cash Flows: Key Points

1. The document discusses the key aspects of preparing a statement of cash flows as per Ind AS 7. It defines cash equivalents as highly liquid investments that can be converted into cash within 3 months. 2. It explains that the cash flow statement has 3 sections - operating, investing and financing activities. Operating activities involve day-to-day business cash flows, investing activities involve purchase/sale of long term assets, and financing activities involve equity/debt cash flows. 3. The cash flow statement can be prepared using either the direct or indirect method. The direct method shows cash flows from operating items directly, while the indirect method reconciles net income to cash flows from operations.

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Dinesh Kumar
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183 views

Ind As 7: Statement of Cash Flows: Key Points

1. The document discusses the key aspects of preparing a statement of cash flows as per Ind AS 7. It defines cash equivalents as highly liquid investments that can be converted into cash within 3 months. 2. It explains that the cash flow statement has 3 sections - operating, investing and financing activities. Operating activities involve day-to-day business cash flows, investing activities involve purchase/sale of long term assets, and financing activities involve equity/debt cash flows. 3. The cash flow statement can be prepared using either the direct or indirect method. The direct method shows cash flows from operating items directly, while the indirect method reconciles net income to cash flows from operations.

Uploaded by

Dinesh Kumar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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IND AS 7 : STATEMENT OF CASH FLOWS

3
IND AS 7 : STATEMENT OF CASH FLOWS

(I) Cash Equivalents


Cash Equivalents mean investment which are marketable, highly liquid and which
can be converted into determinable amounts of cash within a short period of time.

KEY POINTS

1. Time Frame: A cash equivalent should have a maturity of less than 3 months
from the date of Acquisition (and not the Balance Sheet Date)
2. Equity Investment are highly volatile and do not have a maturity date and
hence can never be a part of cash Equivalents
3. In case of Open Ended Bonds, an investor can directly redeem whenever he
desires. The maturity date in such cases would be depended on the intention
of the investor
4. Bank Overdraft

Bank Overdraft

Part of Cash
Part of Financing
Management
Activities
Activities

Cash Flow from


Cash Equivalents Financing

When there are In case Bank Overdraft


fluctuating balances has a continuous negative
between positive and balance i.e. Permanent
negative i.e. Temporary Overdraft

In the Balance Sheet, Bank Overdraft will be shown as Short Term Borrowings
(irrespective of whether it is shown as a Cash Equivalent or Financing Item in the Cash
Flow).

10 CA BHAVIK CHOKSHI
IND AS 7 : STATEMENT OF CASH FLOWS

5. Forex Gain / Loss on Foreign Currency Cash: The gain / loss would be shown
as reconciliation between opening and closing cash and cash equivalent.

(II) Cash Flow Statement (CFS):


(1) CFS is a part of the core financial statements and it needs to be prepared by
all entities CFS is a vertical statement form presentation of the cash / bank
account and is governed by IND AS 7.

Classification of Cash Flows:

CASH FLOW

OPERATING INVESTING OPERATING

Involves cash flows arising Involves the purchase and Cash Flows pertaining to the
from the day to day course sale of long term assets sources of finance [equity
of operation / buisiness [ PPE / INTANGIBLE] and shares / preference shars
these cash flows are other investments. shares / debentures issued]
revenue in nature. eg. PPE purchased. eg. loan taken
eg. cash sales

KEY POINTS

1. Interest paid / dividend paid along with their attached taxes would be financing
in nature since this cash flows are on equity shares / debentures issued (which
are financing in nature).
2. Similarly, dividend income / interest income on investments and their attached
taxes would be investing in nature.

Cash flow from operations can be prepared using


a. Direct Method OR
b. Indirect Method

[The selection of the method depends upon the data given in the questions]
Irrespective of the method selected for operations, the working for investing and
financing cash flows remains the same.

(III) Indirect Method


Under Indirect Method, we start at PBT and the following adjustments are to be
made:

CA BHAVIK CHOKSHI 11
IND AS 7 : STATEMENT OF CASH FLOWS

a b
Non-Cash
(Depreciation) Non-operating
(Interest, Loss
on FA)

c d
Operating
assets / liabilities Tax Paid
adjustment (Changes
in Current Assets
– Opposite Impact,
Changes in Current
Liabilities – Same
Impact)

Under Direct Method, we directly take the operating items from the P/L and the Cash
Paid / Received for these items is found by directly adjusting the individual operating
assets / liabilities.

(Refer Q. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17,18)

Sample format of CFS [Direct Method] Illustrative X Ltd.


Cash flow statement for the year ended
Particulars ₹ ₹
Cash flow from Operating
activities
Cash Sales x
Cash collected from debtor x
Commission income x
(-) cash purchase (x)
(-) cash paid to creditor (x)
(-) cash paid for expenses (x)
(-) tax paid (x)
Cash flow from operations (A) xx

Cash flow from investing activities


Interest income x
Dividend income x
Sale of PPE / intangible / investment x

12 CA BHAVIK CHOKSHI
IND AS 7 : STATEMENT OF CASH FLOWS

(-) assets purchased (x)


(-) investment purchased (x)
(-) c
 apital gains tax / tax on Interest / (x)
dividend income
Cash flow from investing (B) xx

Cash flow from financing activities 


Issue of preference shares / equity
shares / debentures / loan taken
(-) Repayment of bonds x
(-) Buyback of ES / Redemption of PS (x)
(-) Dividend / Interest paid (x)
(-) tax paid on the above (x)
Cash flow from financing (c) (x) xx

Net increase / decrease in cash & xx


CE[A+B+C]
(+) opening cash and CE xx
Closing cash & CE xx

Cash Flow from Operations (INDIRECT METHOD)


Particulars ` `
Net Profit After Tax. xx
(Incase not available, take in difference in reserves)
(+) Tax expenses. xx
Profit before tax xx
Non cash adjustment
(+) Depreciation xx
(+) Amortization xx
Non-operating adjustment
(+) Interest expenses xx
(-) Interest / Dividend income (xx)
(+) Loss on sale of PPE / intangible / investments xx
(-) Gain on sale of PPE / intangibles / investments (xx)
Operating Assets / Liabilities Adjustment (Debtors / Creditors
/ Accrued expenses / prepaid expenses / Inventories, etc)
[Rule : CA: lnverse / CL: Direct]
(-) INCREASE CA INVERSE (xx)
(+) DECREASE CA xx

CA BHAVIK CHOKSHI 13
IND AS 7 : STATEMENT OF CASH FLOWS

(+) INCREASE CL xx
(-) DECREASE CL DIRECT (xx)
[Do not include interest payable / interest receivable / provision for
tax / dividend payable in the above workings, they will be adjusted
along with the relevant paid / interest receive / tax period / dividend
paid in the appropriate heading]
(-) Tax Paid xx
CFO (xx) xx

14 CA BHAVIK CHOKSHI

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