2. 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.
3. Scope:
Applicable to all and to be prepared as
financial statement every year with other
financial statements.
5. Presentation of Cash flow Statement :
In the sequence of three activities
mentioned above.
(Actual Cash Flow Statement)
6. 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.
7. 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
8. 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.
9. 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
10. Direct Method
In this method major classes of gross cash
receipts and payments are disclosed
11. 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
12. Reporting Cash flows from
investing and financing activities
Investing and financing activities are
recorded in the same way both in indirect
and direct methods.
13. 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.
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 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.
17. Extraordinary Items:
Cash flows related to extraordinary items
related to three activities should be shown
under three heads separately and
appropriately.
18. Interest & Dividend:
The cash flows from interest &
dividends should be disclosed
separately. Each should be classified in
each of three categories.
20. 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.
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 enterprise should disclose the amount of
cash and cash equivalents that are not
available for use by the group.
