Overview of Ind AS 7 Statement of Cash Flows
The objective of Ind AS 7 is to require the provision of information about the historical changes in cash and cash equivalents of an entity by means of a statement of cash flows which classifies cash flows during the period from operating, investing and financing activities.
Cash comprises cash on hand and demand deposits.
Cash equivalents are short term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
An investment normally qualifies as a cash equivalent only when it has a short maturity of, say, 3 months or less from the date of acquisition.
Presentation of a Statement of Cash Flow
The statement of cash flows shall report cash flows during the period classified by operating, investing and financing activities.
Principal revenue-producing activities and other activities that are not investing or financing activities.
Acquisition and disposal of long-term assets and other investments not included in cash equivalents.
Activities that result in changes in the size and composition of the contributed equity and borrowings of the entity.
Reporting methods (Cash flow from operating activities)
Major classes of gross cash receipts and payments in respect of operating activities are presented.
Profit/Loss is adjusted for effects of transactions of non-cash nature, deferrals or accruals of past or future operating cash receipts or payments, and income and expense items associated with investing or financing cash flows.
Reporting of foreign currency cash flow
Cash flow arising from transactions in a foreign currency
To be recorded in the functional currency of the entity using the exchange rate between the functional currency and the foreign currency at the date of cash flow
Effects of changes in exchange rates on cash and cash equivalents held in a foreign currency”
To be reported as a separate part of the reconciliation of the changes in cash and cash equivalents at the beginning and the end of the period
Unrealised gains and losses arising from changes in foreign currency exchange rates are not cash flows.
Classification of Interest and Dividends
- Interest Paid – Financing Activities
- Interest Received – Investing Activities
- Dividend Paid – Financing Activities
- Dividend Received – Investing Activities
- Interest Paid – Operating Activities
- Interest Received – Operating Activities
- Dividend Paid – Financing Activities
- Dividend Received – Operating Activities
Taxes on income
Cash flows arising from taxes on income shall be separately disclosed and shall be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities.
Changes in ownership interests in subsidiaries and other businesses
The aggregate cash flows arising from obtaining or losing control of subsidiaries or other businesses shall be presented separately and classified as investing activities.
Non-cash transactions (i.e., investing and financing transactions that do not require the use of cash or cash equivalents) shall be excluded from a statement of cash flows. Such transactions shall be disclosed elsewhere in the financial statements in a way that provides all the relevant information about these investing and financing activities.
Changes in liabilities arising from financing activities
An entity shall provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.
Components of cash and cash equivalents
An entity shall disclose the components of cash and cash equivalents and shall present a reconciliation of the amounts in its statement of cash flows with the equivalent items reported in the balance sheet.
An entity shall disclose, together with a commentary by management, the amount of significant cash and cash equivalent balances held by the entity that are not available for use by the group in its consolidated as well as separate financial statements.