CA FINAL

IND AS 7 - STATEMENT OF
17 CASH FLOW

(1) Definitions
The following terms are used in this Standard with the meanings specified:
(a) Cash comprises cash on hand and demand deposits.
(b) 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. (has a short maturity of, Say, 3 months
or less from the date of acquisition){Generally Equity Investments are
excluded from cash equivalents}
(c) Cash flows are inflows and outflows of cash and cash equivalents.
(d) Operating activities are the principal revenue-producing activities of the
entity and other activities that are not investing or financing activities.
(e) Investing activities are the acquisition and disposal of long-term assets and
other investments not included in cash equivalents.
(f) Financing activities are activities that result in changes in the size and
composition of the contributed equity and borrowings of the entity.
(g) Bank borrowing are generally considered to be financing activities.
However, where bank overdrafts which are repayable on demand form an
integral part of an entity’s cash management, bank overdrafts are included as
a component of cash and cash equivalents.* However, Bank overdraft facility
or cash credit which are not repayable on demand are financing activities.
Balance sheet
Current liability: IND AS – 7
- Current OD balance  Cash & Cash Equivalent.
- Bank OD/CC (not repayable on demand)  Financing Activities.
(h) Cash Management: Cash flows exclude movements between items that
constitute cash or cash equivalents because these components are part of the
cash management of an entity rather than part of its operating, investing and
financing activities.

(2) Presentation of a statement of cash flows

The statement of cash flows shall report cash flows during the period classified by
operating, investing and financing activities.

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IND AS 7 - STATEMENT OF
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(3) Reporting cash flows from operating activities

Reporting cash flows from operating activities

Operating activities are the principal revenue producing activities
of the entity other than investing or financing activities.

Reporting

Under Direct method Under Indirect method

Whereby major classes Whereby profit or loss is adjusted for

of gross cash receipts
and gross cash Payments
are disclosed
• non-cash transactions
• any deferrals or accruals of past
or future operating cash receipts
or payments
• items of income or expense
associated with investing or
financing cash flows.

Entities are encouraged to follow the direct method. The direct method
provides information which may be useful in estimating future cash
flows and which is not available under the indirect method.

Properties built for let out:

Cash payments to manufacture or acquire assets held for rental to others and
subsequently held for sale are cash flows from operating activities.
The cash receipts from rents and subsequently sales of such assets are also cash flows
from operating activities.

Operations of financial companies and Banks:

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.
Cash advances and loans made by financial institutions are usually classified as operating
activities since they relate to the main revenue producing activity of that entity.

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Examples
(a) Cash receipts from the sale of goods and the rendering 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.
(g) Cash receipts and payments from contracts held for dealing or trading purposes.
(h) Cash flows arising from the purchase and sale of dealing or trading securities.
(i) Cash advances and loans made by financial institutions since they relate to their
main revenue producing activity.
Cash Flow from Operating Activities by Indirect Method
PBT XX
Adjustment for XX
Non cash Item(Operating) XX
Non-Operating Item (IA or FA) XX
Operating profit before working capital changes XX
(-) Increase in Operating Current Assets XX
(+) Decrease in Operating Current Assets XX
(+) Increase in Operating Current Liabilities XX
(-) Decrease in Operating Current Liabilities XX
Cash generated from Operating Activities XX
(-) Income tax paid(Net) XX
Cash Flow from Operating Activities(Net) XXX
NOTE: Prov. For Tax and Advance Tax (TDS) should not be considered for Working
Capital changes as Income Tax payment (net) is shown as a separate item

(4) Reporting cash flows from investing and financing activities

Investing activities are the acquisition and disposal of long-term assets and other
investments not included in cash equivalents
An entity shall report Separately major classes of gross cash receipts and gross cash
payments arising from investing activities.

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Examples
(a) Cash payments to acquire property, plant and equipment, intangibles and other
long- term assets. These payments include those relating to capitalized
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 cash
equivalents or those held for dealing or trading purposes)
(d) Cash receipts from sales of equity or debt instruments of other entities and
interests in joint ventures (other than receipts for those instruments considered to
be cash equivalents and those held for dealing or trading purposes)
(e) Cash advances and loans made to other parties (other than advances and loans
made by a financial institution)
(f) Cash receipts from the advances and loans made to other parties (other than
advances and loans of a financial institution)

Reporting cash flows from Financing activities

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

An entity shall report Separately major classes of gross cash receipts and gross cash
payments arising from Financing activities.

Examples
(a) Cash proceeds from issuing shares or 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 lease.

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(5) Reporting cash flows on a net basis

Reporting cash flows on a net basis. (General)

Cash flows arising from operating, investing or financing activities may

be reported on a net basis

Cash receipts and payments on behalf Cash receipts and payments for items
of customers when the cash flows in which the turnover is quick, the
reflect the activities of the customer amounts are large, and the maturities
rather than those of the entity are short

(a) Funds held for customers by an (a) Principal amounts relating to credit
investment entity. card customers
(b) Rents collected on behalf of, and (b) The purchase and sale of investments
paid over to, the owners of
properties
(c) The acceptance and repayment of
demand deposits of a bank

(6) 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.

Reporting Foreign currency cash flows

Arising from transactions in a foreign currency Of a foreign subsidiary

Recorded in an entity’s functional currency

(Cash flows of a foreign subsidiary
X
(Foreign currency Amount) (Exchange rate between the
X functional currency and the
(Exchange rate between the functional foreign currency at the date of
currency and the foreign currency at the the cash flow)
date of the cash flow)
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(7) Interest and dividends

Cash flows from interest and dividends received and paid shall each be disclosed
separately. Cash flows arising from interest paid and interest and dividends
received in the case of a financial institution should be classified as cash flows
arising from operating activities. In the case of other entities, cash flows arising
from interest & dividends paid should be classified as cash flows from financing
activities while interest and dividends received should be classified as cash flows
from investing activities.

Reporting Interest and dividends Paid/Received.

Particulars Other Companies Financial Institution

Interest received Investing activities Operating activities
Interest paid Financing activities Operating activities
Dividend received Investing activities Operating activities
Dividend paid Financing activities Financing activities

(8) Taxes on income

Reporting Cash flows arising from Taxes on income

When it is practicable to identify When it is impracticable to identify

Tax cash flow is classified as an Shall be classified as cash flows

from operating activities
Operating, investing or
Financing activity as appropriate
Example:
Dividend Distribution Tax paid
Financing Activity.
TDS on Interest Received or Dividend
Received Investing Activity.
Tax Paid on Long Term Capital Gain
Investing Activity.

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Illustration 1
X Limited has paid an advance tax amounting to ` 5,30,000 during the current year. Out
of the above paid tax, ` 30,000 is paid for tax on long term capital gains. Under which
activity the above said tax be classified in the cash flow statements of X Limited?

Solution
Cash flows arising from taxes on income should be classified as cash flows from
operating activities unless they can be specifically identified with financing and
investing activities. In the case of X Limited, the tax amount of ` 30,000 is specifically
related with investing activities.
` 5,00,000 to be shown under operating activities ` 30,000 to be shown under investing
activities.

(9) Investments in subsidiaries, associates and joint ventures

Reporting Changes in ownership interests in subsidiaries

and other businesses

Cash flows arising from From changes in ownership

Obtaining/ Losing control of interests in a subsidiary that do not
subsidiaries or other businesses result in a loss of control

Shall be classified as investing Shall be classified as cash flows

from financing activities.
activities. (Net off Cash & Cash
Equivalent)
Shall be presented Separately.
The cash flow effects of losing
control are not deducted from those
of obtaining control

An entity shall disclose, in aggregate, in respect of both obtaining and losing control of
subsidiaries or other businesses during the period each of the following:
(I) the total consideration paid or received;
(II) the portion of the consideration consisting of cash and cash equivalents;
(III) the amount of cash and cash equivalents in the subsidiaries or other businesses
over which control is obtained or lost; and
(IV) 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.

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(10) Futures contracts, Forward contracts, Option contracts, and swap contracts:

Reporting cash flows from Futures contracts, Forward

contracts, Option contracts, and swap contracts

The Contract is not held for Trading The Contract is held for Trading

Normally classified as Cash Flow

Shall be classified as cash flows
from Investing Activity. (Unless it is
from Operating activities.
for Financing Activity)

Example: Arbitrage profits, but if such contracts are held for dealing or trading
purposes then they are covered as Cash Flow from Operating Activity.

(11) Non-cash transactions

Such transactions shall be disclosed elsewhere in the financial statements in away
that provides all the relevant information about the investing and financing
activities which are non-cash in nature.
Examples:
(a) Conversion of Debenture into Equity
(b) Lease on Commencement of lease term
(c) Acquisition of Asset or Business by Issue of shares or debentures.
Identifiable Net Assets {INA}(including cash) ---------------------Dr
Goodwill --------------------------------------Dr
To share capital (Non Cash) To Cash (Cash)
To Gain on Bargain Purchase
To Gain on Bargain Purchase

Investment Activity = Cash paid – Cash Received included in INA

Illustration 2
X Limited acquires fixed asset of ` 10,00,000 from Y Limited by accepting the liabilities
of` 8,00,000 of Y Limited and balance amount it paid in cash. How X Limited will treat
all those items in its cash flow statements?
Solution
Investing and financing transactions that do not require the use of cash and cash
equivalents shall be excluded from a statement of cash flows. X Limited should classify
cash payment of` 2,00,000 under investing activities. The non-cash transactions –
liabilities and asset should be disclosed in the notes to the financial statements.

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(12) 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.
Component of Cash and Cash Equivalent for Cash Flow Statement
Opening Closing
Cash in hand XX XX
Cash at Bank (current) XX XX
Short term Investment (CE) XX XX
Foreign Currency XX XX
(-) Bank OD repayable on demand XX XX
Cash & Cash Equivalent for CASH FLOW STATEMENT XXX XXX

Reconciliation of Cash and Cash Equivalent with Balance Sheet

Opening Closing
Cash & Cash Equivalent as per for Cash Flow Statement XX XX
(+) Unrealised Ex. Gain XX XX
(-) Unrealised Ex. Loss XX XX
(+) Bank OD repayable on demand XX XX
As per Balance Sheet XXX XXX

Illustration 3
An entity has bank balance in foreign currency aggregating to USD 100 (equivalent to
` 4,500) at the beginning of the year. Presuming no other transaction taking place, the
entity reported a profit before tax of ` 100 on account of exchange gain on the bank
balance in foreign currency at the end of the year. What would be the closing cash and
cash equivalents as per the balance sheet?
Solution
For the purpose of statement of cash flows, the entity shall present the following:
Amount (`)
Profit before tax 100
Less: Unrealised exchange gain (100)
Cash flow from operating activities Nil
Cash flow from investing activities Nil
Cash flow from financing activities Nil
Net increase in cash and cash equivalents during the year Nil
Add: Opening balance of cash and cash equivalents 4,500
Cash and cash equivalents as at the year-end 4,500
Reconciliation of cash and cash equivalents
Cash and cash equivalents as per statement of cash flows 4,500
Add: Unrealised gain on cash and cash equivalents 100
Cash and cash equivalents as per the balance sheet 4,600

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Question 1
During the financial year 2019-2020, Akola Limited have paid various taxes &
reproduced the below mentioned records for your perusal:
 Capital gain tax of ` 20 crore on sale of office premises at a sale consideration
of ` 100 crore.
 Income Tax of ` 3 crore on Business profits amounting ` 30 crore (assume
entire business profit as cash profit).
 Dividend Distribution Tax of ` 2 crore on payment of dividend amounting ` 20
crore to its shareholders.
 Income tax Refund of ` 1.5 crore (Refund on taxes paid in earlier periods for
business profits).
You need to determine the net cash flow from operating activities, investing
activities and financing activities of Akola Limited as per relevant Ind AS.
Solution:
Ind AS 7 inter alia states that 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 financing activities the tax cash flow is classified as an investing or
financing activity as appropriate. When tax cash flows are allocated over more than
one class of activity, the total amount of taxes paid is disclosed.
Accordingly, the transactions are analysed as follows:
Particulars Amount (in crore) Activity
Sale Consideration 100 Investing Activity
Capital Gain Tax (20) Investing Activity
Business profits 30 Operating Activity
Tax on Business profits (3) Operating Activity
Dividend Payment (20) Financing Activity
Dividend Distribution Tax (2) Financing Activity
Income Tax Refund 1.5 Operating Activity
Total Cash flow 86.5

“Behind every fearless player is a fearless coach who refused

to let them be anything but the best they can be.”

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