Ias 7

IAS-7 Cash Flow Statements

(Revised 1992)

Objective:

It is useful to 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.

Scope:

Applicable to all and to be prepared as financial statement every year with other financial statements.

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.

Presentation of Cash flow Statement :

In the sequence of three activities mentioned above.

(Actual Cash Flow Statement)

Operating Activities:1. Cash in 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.

Investing Activities:1. Cash payment 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

Financing Activities:

1. Cash inflow 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.

Reporting Cash flows from Operating Activities

An enterprise should report cash flows from operating activities using either of the following method:

• Direct method• Indirect method

Direct Method

In this method major classes of gross cash receipts and payments are disclosed

Indirect Method

In this method 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

Reporting Cash flows from investing and financing activities

Investing and financing activities are recorded in the same way both in indirect and direct methods.

Investing & Financing Activities - 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.

Examples of 1:

1. Bank accounts of customers

2. Commission based transaction

3. Funds held for customers by an investment enterprise

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

Foreign Currency Cash flows:

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.

Extraordinary Items:

Cash flows related to extraordinary items related to three activities should be shown under three heads separately and appropriately.

Interest & Dividend:

The cash flows from interest & dividends should be disclosed separately. Each should be classified in each of three categories.

Taxes on Income:Should be classified as cash flows from

operating activities.

Acquisition & Disposal of 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.

Non-Cash Transaction:

These should not be disclosed in cash flow statement but elsewhere to show relevant information.

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.

Other disclosure

An enterprise should disclose the amount of cash and cash equivalents that are not available for use by the group.