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Statement of Cash Flows

Ind AS - 007 - B. Indian Accounting Standards (Ind AS) - Companies Law - Ind AS - 007 - Indian Accounting Standard (Ind AS) 7 (This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.) Objective Information about the cash flows of an entity is useful in providing users of financial statements with a basis to assess the ability of the entity to generate cash and cash equivalents and the n .....

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entity shall prepare a in accordance with the requirements of this Standard and shall present it as an integral part of its financial statements for each period for which financial statements are presented. 2 [Refer Appendix 1] 3 Users of an entity s financial statements are interested in how the entity generates and uses cash and cash equivalents. This is the case regardless of the nature of the entity s activities and irrespective of whether cash can be viewed as the product of the entity, as .....

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evaluate the changes in net assets of an entity, its financial structure (including its liquidity and solvency) and its ability to affect the amounts and timing of cash flows in order to adapt to changing circumstances and opportunities. Cash flow information is useful in assessing the ability of the entity to generate cash and cash equivalents and enables users to develop models to assess and compare the present value of the future cash flows of different entities. It also enhances the comparab .....

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efinitions 6 The following terms are used in this Standard with the meanings specified: Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Cash flows are inflows and outflows of cash and cash equivalents. Operating activities are the principal revenue-producing activities of the entity and other activities that are not .....

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h equivalent it must be readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition. Equity investments are excluded from cash equivalents unless they are, in substance, cash equivalents, for example in the case of preference shares acquired within a short period of their maturity and with a sp .....

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ause these components are part of the cash management of an entity rather than part of its operating, investing and financing activities. Cash management includes the investment of excess cash in cash equivalents. Presentation of a 10 The shall report cash flows during the period classified by operating, investing and financing activities. 11 An entity presents its cash flows from operating, investing and financing activities in a manner which is most appropriate to its business. Classification .....

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interest element is classified under financing activities and the loan element is classified under investing activities. Operating activities 13 The amount of cash flows arising from operating activities is a key indicator of the extent to which the operations of the entity have generated sufficient cash flows to repay loans, maintain the operating capability of the entity, pay dividends and make new investments without recourse to external sources of financing. Information about the specific co .....

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of services; (b) cash receipts from royalties, fees, commissions and other revenue; (c) cash payments to suppliers for goods and services; (d) cash payments to and on behalf of employees; (e) cash receipts and cash payments of an insurance entity for premiums and claims, annuities and other policy benefits; (f) cash payments or refunds of income taxes unless they can be specifically identified with financing and investing activities; and (g) cash receipts and payments from contracts held for dea .....

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m rents and subsequent sales of such assets are also cash flows from operating activities. 15 An entity may hold securities and loans for dealing or trading purposes, in which case 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. Similarly, cash advances and loans made by financial institutions are usually classified as operating activities since they r .....

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es are: (a) cash payments to acquire property, plant and equipment, intangibles and other long-term assets. These payments include those relating to capitalised development costs and self-constructed property, plant and equipment; (b) cash receipts from sales of property, plant and equipment, intangibles and other long-term assets; (c) cash payments to acquire equity or debt instruments of other entities and interests in joint ventures (other than payments for those instruments considered to be .....

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er than advances and loans of a financial institution); (g) cash payments for futures contracts, forward contracts, option contracts and swap contracts except when the contracts are held for dealing or trading purposes, or the payments are classified as financing activities; and (h) cash receipts from futures contracts, forward contracts, option contracts and swap contracts except when the contracts are held for dealing or trading purposes, or the receipts are classified as financing activities. .....

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other equity instruments; (b) cash payments to owners to acquire or redeem the entity s shares; (c) cash proceeds from issuing debentures, loans, notes, bonds, mortgages and other short-term or long-term borrowings; (d) cash repayments of amounts borrowed; and (e) cash payments by a lessee for the reduction of the outstanding liability relating to a finance lease. Reporting cash flows from operating activities 18 An entity shall report cash flows from operating activities using either: (a) the d .....

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des information which may be useful in estimating future cash flows and which is not available under the indirect method. Under the direct method, information about major classes of gross cash receipts and gross cash payments may be obtained either: (a) from the accounting records of the entity; or (b) by adjusting sales, cost of sales (interest and similar income and interest expense and similar charges for a financial institution) and other items in the statement of profit and loss for: (i) ch .....

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gn currency gains and losses, and undistributed profits of associates; and (c) all other items for which the cash effects are investing or financing cash flows. Alternatively, the net cash flow from operating activities may be presented under the indirect method by showing the revenues and expenses disclosed in the statement of profit and loss and the changes during the period in inventories and operating receivables and payables. Reporting cash flows from investing and financing activities 21 A .....

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customer rather than those of the entity; and (b) cash receipts and payments for items in which the turnover is quick, the amounts are large, and the maturities are short. 23 Examples of cash receipts and payments referred to in paragraph 22(a) are: (a) the acceptance and repayment of demand deposits of a bank; (b) funds held for customers by an investment entity; and (c) rents collected on behalf of, and paid over to, the owners of properties. 23A Examples of cash receipts and payments referre .....

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(b) the placement of deposits with and withdrawal of deposits from other financial institutions; and (c) cash advances and loans made to customers and the repayment of those advances and loans. Foreign currency cash flows 25 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. 26 The cash fl .....

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or the translation of the cash flows of a foreign subsidiary. However, Ind AS 21 does not permit use of the exchange rate at the end of the reporting period when translating the cash flows of a foreign subsidiary. 28 Unrealised gains and losses arising from changes in foreign currency exchange rates are not cash flows. However, the effect of exchange rate changes on cash and cash equivalents held or due in a foreign currency is reported in the in order to reconcile cash and cash equivalents at t .....

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a financial institution should be classified as cash flows arising from operating activities. In the case of other entities, cash flows arising from interest paid should be classified as cash flows from financing activities while interest and dividends received should be classified as cash flows from investing activities. Dividends paid should be classified as cash flows from financing activities. 32 The total amount of interest paid during a period is disclosed in the whether it has been recog .....

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it is more appropriate that interest paid and interest and dividends received are classified as financing cash flows and investing cash flows respectively, because they are costs of obtaining financial resources or returns on investments. 34 Some argue that dividends paid may be classified as a component of cash flows from operating activities in order to assist users to determine the ability of an entity to pay dividends out of operating cash flows. However, it is considered more appropriate th .....

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ctivities in a . While tax expense may be readily identifiable with investing or financing activities, the related tax cash flows are often impracticable to identify and may arise in a different period from the cash flows of the underlying transaction. Therefore, taxes paid are usually classified as cash flows from operating activities. However, when it is practicable to identify the tax cash flow with an individual transaction that gives rise to cash flows that are classified as investing or fi .....

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e investee, for example, to dividends and advances. 38 An entity that reports its interest in an associate or a joint venture using the equity method includes in its the cash flows in respect of its investments in the associate or joint venture, and distributions and other payments or receipts between it and the associate or joint venture. Changes in ownership interests in subsidiaries and other businesses 39 The aggregate cash flows arising from obtaining or losing control of subsidiaries or ot .....

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and (d) the amount of the assets and liabilities other than cash or cash equivalents in the subsidiaries or other businesses over which control is obtained or lost, summarised by each major category. 40A An investment entity, as defined in Ind AS 110, Consolidated Financial Statements, need not apply paragraphs 40(c) or 40(d) to an investment in a subsidiary that is required to be measured at fair value through profit or loss. 41 The separate presentation of the cash flow effects of obtaining o .....

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f subsidiaries or other businesses is reported in the net of cash and cash equivalents acquired or disposed of as part of such transactions, events or changes in circumstances. 42A Cash flows arising from changes in ownership interests in a subsidiary that do not result in a loss of control shall be classified as cash flows from financing activities , unless the subsidiary is held by an investment entity, as defined in Ind AS 110, and is required to be measured at fair value through profit or lo .....

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n-cash transactions 43 Investing and financing transactions that do not require the use of cash or cash equivalents shall be excluded from a . 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. 44 Many investing and financing activities do not have a direct impact on current cash flows although they do affect the capital and asset structure of an entity. The exclusion of no .....

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ers of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. 44B To the extent necessary to satisfy the requirement in paragraph 44A, an entity shall disclose the following changes in liabilities arising from financing activities: (a) changes from financing cash flows; (b) changes arising from obtaining or losing control of subsidiaries or other businesses; (c) the effect of changes in forei .....

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will be, included in cash flows from financing activities. 44D One way to fulfil the disclosure requirement in paragraph 44A is by providing a reconciliation between the opening and closing balances in the balance sheet for liabilities arising from financing activities, including the changes identified in paragraph 44B. Where an entity discloses such a reconciliation, it shall provide sufficient information to enable users of the financial statements to link items included in the reconciliation .....

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valent items reported in the balance sheet. 46 In view of the variety of cash management practices and banking arrangements around the world and in order to comply with Ind AS 1, Presentation of Financial Statements, an entity discloses the policy which it adopts in determining the composition of cash and cash equivalents. 47 The effect of any change in the policy for determining components of cash and cash equivalents, for example, a change in the classification of financial instruments previou .....

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use by the group2. Examples include cash and cash equivalent balances held by a subsidiary that operates in a country where exchange controls or other legal restrictions apply when the balances are not available for general use by the parent or other subsidiaries. 50 Additional information may be relevant to users in understanding the financial position and liquidity of an entity. Disclosure of this information, together with a commentary by management, is encouraged and may include: (a) the am .....

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ment (see Ind AS 108, Operating Segments). 51 The separate disclosure of cash flows that represent increases in operating capacity and cash flows that are required to maintain operating capacity is useful in enabling the user to determine whether the entity is investing adequately in the maintenance of its operating capacity. An entity that does not invest adequately in the maintenance of its operating capacity may be prejudicing future profitability for the sake of current liquidity and distrib .....

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those amendments for annual periods beginning on or after 1 April, 2017.] 1 The requirements shall be equally applicable to the entities in case of separate financial statements also. 2 Ibid. Appendix 1 Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 7 and the corresponding International Accounting Standard (IAS) 7, , issued by the International Accoun .....

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