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Thread: 03 - Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard (3) - Statement of Cash Flows

  1. #11
    IND-AS
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    Thumbs up Reporting cash flows from operating activities of Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard(3) - Statement of Cash Flows

    Reporting cash flows from operating activities of Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard(3)


    Statement of Cash Flows


    Reporting cash flows from operating activities

    18. An entity shall report cash flows from operating activities using either:

    (a) the direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed; or

    (b) the indirect method, whereby profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows.

    19. Entities are encouraged to report cash flows from operating activities using 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. Under the direct method, information about major classes of gross ca sh 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 ot her items in the statement of profit and loss for:

    (i) changes during the period in inventories and operating receivables and payables;
    (ii) other non-cash items; and
    (iii) other items for which the cash effects are investing or financing cash flows.

    20. Under the indirect method, the net cash flow from operating activities is determined by adjusting profit or loss for the effects of:

    (a) changes during the period in inventories and operating receivables and payables;

    (b) non-cash items such as depreciation, provisions, deferred taxes, unrealised foreign 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 acti vities 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.


  2. #12
    IND-AS
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    Thumbs up Reporting cash flows from investing and financing activities of Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard(3)

    Reporting cash flows from investing and financing activities of Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard(3)


    Statement of Cash Flows



    Reporting cash flows from investing and financing activities


    21. An entity shall report separately major classes of gross cash receipts and gross cash payments arising from investing and financing activities, except to the extent that cash flows described in paragraphs 22 and 24 are repor ted on a net basis.


  3. #13
    IND-AS
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    Thumbs up Reporting cash flows on a net basis of Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard(3) - Statement of Cash Flows

    Reporting cash flows on a net basis of Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard(3)


    Statement of Cash Flows



    Reporting cash flows on a net basis

    22. Cash flows arising from the following operating, investing or financing activities may be reported on a net basis:

    (a) cash receipts and payments on behalf of customers when the cash flows reflect the activities of the 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 i n 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 referred to in paragraph 22(b) are advances made for, and the repayment of:

    (a) principal amounts relating to credit card customers;
    (b) the purchase and sale of investments; and
    (c) other short-term borrowings, for example, those which have a m aturity period of three months or less.

    24. Cash flows arising from each of the following activities of a financial institution may be reported on a net basis:

    (a) cash receipts and payments for the acceptance and repayment of deposits with a fixed maturity date;

    (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.



  4. #14
    IND-AS
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    Thumbs up Foreign currency cash flows of Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard (3) - Statement of Cash Flows

    Foreign currency cash flows of Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard (3)


    Statement of Cash Flows



    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 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.

    27. Cash flows denominated in a foreign currency are reported in a manner consistent with Ind AS 21 The Effects of Changes in Foreign Exchange Rates . This permits the use of an exchange rate that approximates the actual rate. For example, a weighted average exchange rate for a period may be used for recording foreign currency transactions 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 change s 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 statement of cash flows in order to reconcile cash and cash equivalents at the beginning and the end of the period. This amount is presented separately from cash flows from operating, investing and financing activities and includes the differences, if any, had those cash flows been reported at end of period exchange rates.

    29. [Refer to Appendix 1]

    30. [Refer to Appendix 1]



  5. #15
    IND-AS
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    Thumbs up Interest and dividends of Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard (3) - Statement of Cash Flows

    Interest and dividends of Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard (3)


    Statement of Cash Flows



    Interest and dividends

    31. 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 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 statement of cash flows whether it has been recognised as an expense in profit or loss or capitalised in accordance with Ind AS 23 Borrowing Costs.

    33. Interest paid and interest and dividends received are usually classified as operating cash flows for a financial institution. However, th ere is no consensus on the classification of these cash flows for other entities. Some argue that interest paid and interest and dividends received may be classified as operating cash flows because they enter into the determination of profit or loss. Howev er, 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 that dividends paid should be classified as cash flows from financing activities because they are cost of obtaining financial resources


  6. #16
    IND-AS
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    Thumbs up Taxes on income of Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard (3) - Statement of Cash Flows

    Taxes on income of Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard (3)


    Statement of Cash Flows



    Taxes on income

    35. Cash flows arising from taxes on income shall be separately disclosed and shall be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities.

    36. Taxes on income arise on transactions that give rise to cash flows that are classified as operating, investing or financing activities in a statement of cash flows. 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 transa ction. 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 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.


  7. #17
    IND-AS
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    Thumbs up Investments in subsidiaries, associates and joint ventures of Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard (3)

    Investments in subsidiaries, associates and joint ventures of Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard (3)


    Statement of Cash Flows


    Investments in subsidiaries, associates and joint ventures

    37. When accounting for an investment in an associate or a subsidiary accounted for by use of the equity or cost method, an investor restricts its reporting in the statement of cash flows to the cash flows between itself and the investee, for example, to dividends and advances.

    38. An entity which reports its interest in a jointly controlled entity (see Ind AS 31 Interests in Joint Ventures) using proportionate consolidation, includes in its consolidated statement of cash flows its proportionate share of the jointly controlled entity’s cash flows. An entity which reports such an interest using the equity method includes in its statement of cash flows the cash flows in respect of its investments in the jointly controlled entity, and di stributions and other payments or receipts between it and the jointly controlled entity.


  8. #18
    IND-AS
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    Thumbs up Changes in ownership interests in subsidiaries and other businesses of Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard (3)

    Changes in ownership interests in subsidiaries and other businesses of Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard (3)


    Statement of Cash Flows



    Changes in ownership interests in subsidiaries and other businesses

    39. The aggregate cash flows arising from obtaining or losing control of subsidiaries or other businesses shall be presented separately and classified as investing activities.

    40. 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:

    (a) the total consideration paid or received;
    (b) the portion of the consideration consisting of cash and cash equivalents;

    (c) the amount of cash and cash equivalents in the subsidiaries or other businesses over which control is obtained or lost; 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.

    41. The separate presentation of the cash flow effects of obtaining or losing control of subsidiaries or other businesses as single line items, together with the separate disclosure of the amounts of assets and liabilities acquired or disposed of, helps to distinguish those cash flows from the cash flows arising from the other operating, investing and financing activities. The cash flow effects of losing control are not deducted from those of obtaining control.

    42. The aggregate amount of the cash paid or received as consideration for obtaining or losing control of subsidiaries or other businesses is reported in the statement of cash flows 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.

    42B. Changes in ownership interests in a subsidiary that do not result in a loss of control, such as the subsequent purchase or sale by a paren t of a subsidiary’s equity instruments, are accounted for as equity transactions (see Ind AS 27, Consolidated and Separate Financial Statements). Accordingly, the resulting cash flows are classified in the same way as other transactions with owners describ ed in paragraph 17.


  9. #19
    IND-AS
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    Thumbs up Non-cash transactions of Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard (3) - Statement of Cash Flows

    Non-cash transactions of Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard (3)


    Statement of Cash Flows


    Non-cash transactions

    43. Investing and financing transactions that do not require the use of cash or cash equivalents shall be excluded from a statement of cash flows. 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 struc ture of an entity. The exclusion of noncash transactions from the statement of cash flows is consistent with the objective of a statement of cash flows as these items do not involve cash flows in the current period.

    Examples of non-cash transactions are:

    (a) the acquisition of assets either by assuming directly related liabilities or by means of a finance lease;

    (b) the acquisition of an entity by means of an equity issue; and

    (c) the conversion of debt to equity.


  10. #20
    IND-AS
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    Thumbs up Components of cash and cash equivalents of Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard (3) - Statement of Cash Flows

    Components of cash and cash equivalents of Indian Accounting Standard (Ind AS) 7 - Earlier Accounting standard (3)


    Statement of Cash Flows


    Components of cash and cash equivalents

    45. 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.

    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 previously considered to be part of an entity’s investment portfolio, is reported in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors.


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