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Ias 7
This document summarizes IAS-7 Cash Flow Statements. The standard requires entities to prepare a statement of cash flows that classifies cash flows during a period into operating, investing, and financing activities. It defines key terms and outlines how to present and report cash flows from these three activities, including using the direct or indirect method. Cash flows from interest, dividends, taxes, and acquisitions/disposals must be separately classified and disclosed.
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Ias 7
- 1. IAS-7 Cash FlowStatements (Revised 1992)
- 2. Objective: It is usefulto assess the ability to generate cash and needs to utilize the cash flows. The objective of IAS 7 is to require the presentation 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 according to operating, investing, and financing activities.
- 3. Scope: Applicable to alland to be prepared as financial statement every year with other financial statements.
- 4. Definition: 1. Cash-(Cash &demand deposits) 2. Cash equivalents- (liquid investment with insignificant risk of change in value). 3. Cash flows. 4. Operating Activities. 5. Investing Activities. 6. Financing Activities.
- 5. Presentation of Cashflow Statement : In the sequence of three activities mentioned above. (Actual Cash Flow Statement)
- 6. Operating Activities: 1. Cashin flow from sales of goods & services. 2. Cash flow from other revenues. 3. Cash out flow to supplies of goods & services. 4. Cash payments to and on behalf of employees. 5. Cash inflow & outflow related to insurance. 6. Cash inflow & outflow of tax. 7. Cash inflow & outflow from contracts related to dealing or trading purpose.
- 7. Investing Activities: 1. Cashpayment to get non current assets including capitalized development cost. 2. Cash receipts from sale of non current assets. 3. Cash payments to acquire equity or debt instruments of other enterprises & interests in joint ventures. 4. Cash receipts from sale of (3) 5. Cash advances & loans made to other parties. 6. Cash receipts from repayment of (5) 7. Cash payment for futures, forwards, options & swaps. 8. Cash receipt from sale of 7
- 8. Financing Activities: 1. Cashinflow from issue of shares or other equity instruments. 2. Cash outflow to acquire or redeem shares. 3. Cash inflow from short or long term borrowings. 4. Cash repayments of amounts borrowed 5. Lease related payments.
- 9. Reporting Cash flowsfrom Operating Activities An enterprise should report cash flows from operating activities using either of the following method: • Direct method • Indirect method
- 10. Direct Method In thismethod major classes of gross cash receipts and payments are disclosed
- 11. Indirect Method In thismethod net profit or loss is adjusted for: • Non cash transactions, • Deferrals and accruals and • Items of income or expense related to investing and financing activities
- 12. Reporting Cash flowsfrom investing and financing activities Investing and financing activities are recorded in the same way both in indirect and direct methods.
- 13. Investing & FinancingActivities - Reporting Cash flows on Net Basis: On behalf of customers, when cash flows reflect the activities of customer rather than of enterprise. Where turnover is quick, the amounts are large and maturities are short.
- 14. Examples of 1: 1.Bank accounts of customers 2. Commission based transaction 3. Funds held for customers by an investment enterprise
- 15. Examples of 2: •Principal amounts relating to credit card customers • The purchase and sale of investments • Other short term borrowings having 3- months or lesser maturity
- 16. Foreign Currency Cashflows: At the date of cash flow the exchange rate should be applied & in the currency of enterprise the amount should be reported. It should be done following IAS-21-Effects of changes in foreign exchange rate.
- 17. Extraordinary Items: Cash flowsrelated to extraordinary items related to three activities should be shown under three heads separately and appropriately.
- 18. Interest & Dividend: Thecash flows from interest & dividends should be disclosed separately. Each should be classified in each of three categories.
- 19. Taxes on Income: Shouldbe classified as cash flows from operating activities.
- 20. Acquisition & Disposalof Subsidiaries: Should be classified in investing activities. Further the total amount of each inflow from disposal and outflow from acquisition should be mentioned Cash/Cash equivalents and other assets should also be separately mentioned.
- 21. Non-Cash Transaction: These shouldnot be disclosed in cash flow statement but elsewhere to show relevant information.
- 22. Components of Cash& Cash Equivalents: These should be disclosed and a reconciliation of the amounts should be shown in the cash flow statement with equal items in balance sheet.
- 23. Other disclosure An enterpriseshould disclose the amount of cash and cash equivalents that are not available for use by the group.