I A S - 7 STATEMENT OF CASH FLOWS PRESENTED BY:  CA  DHEERAJ AGRAWAL Contact no.  9958895675
<ul><li>Indian scenario: at present </li></ul><ul><li>In India, the provision of  IAS-7  “   Statement of Cash Flows”  are...
IAS-7 <ul><li>Applicability </li></ul><ul><li>All enterprises that prepare financial statements in conformity with IFRSs a...
IAS-7 <ul><li>Objectives  of IAS-7 </li></ul><ul><li>The objective of IAS -7 is to require the presentation of information...
IAS-7 <ul><li>Cash and cash equivalents: it comprise… </li></ul><ul><li>Cash on hand </li></ul><ul><li>Demand deposits :  ...
IAS-7 <ul><li>Cash  Flows from operating activities: </li></ul><ul><li>Operating activities are the main revenue –producin...
IAS-7 <ul><li>Cash  Flows from investing activities: </li></ul><ul><li>Investing activities are the  acquisition and dispo...
IAS-7 <ul><li>Cash  Flows from financing activities: </li></ul><ul><li>Financing activities are the  activities that alter...
IAS-7 <ul><li>Accounting Framework: </li></ul><ul><li>Presentation of cash flows </li></ul>
IAS-7 <ul><li>Cash flows from operating Activities  can be  </li></ul><ul><li>calculated by using two mentods:- </li></ul>...
IAS-7 <ul><li>Indirect method  (most common in practice) </li></ul><ul><li>The Indirect method adjust accrual basis net pr...
Guidance notes on IAS-7 <ul><li>The exchange rates used for translation of transactions  denominated in a foreign currency...
Guidance notes on IAS-7 <ul><li>Cash flows from investing and financing activities should be recorded gross by major class...
COMPARISION OF  IFRS/IAS-7 WITH AS-3 IFRS/IAS-7 INDIAN GAAP/AS-3 Cash Flow statement Applicability No exemption. Cash flow...
Comparison IFRS/IAS-7 INDIAN GAAP/AS-3 Cash flow associated with extraordinary items Separate disclosure is prohibited.  T...
Comparison IFRS/IAS-7 INDIAN GAAP/AS-3 Additional disclosures in CFS IAS 7 deals with issues relating to disclosure in cas...
Comparison IFRS/IAS-7 INDIAN GAAP/AS-3 Other disclosures  <ul><li>IAS 7 also encourages disclosure of the following items:...
KEY DIFFERENCES: IAS-7 & AS-3 (existing):- FACTORS IAS-7 AS-3 APPLICABILITY No exemption Exemption for SMEs CASH & CASH EQ...
Differences between  IAS-7  & Exposure Draft on AS-3 “Statement of cash flows (revised)”  issued by ICAI :- <ul><li>ICAI i...
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IAS-7

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PRESENTATION OF IAS-7 " Statement of Cash Flows"

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IAS-7

  1. 1. I A S - 7 STATEMENT OF CASH FLOWS PRESENTED BY: CA DHEERAJ AGRAWAL Contact no. 9958895675
  2. 2. <ul><li>Indian scenario: at present </li></ul><ul><li>In India, the provision of IAS-7 “ Statement of Cash Flows” are covered by AS-3 “ Cash Flow Statement ” issued by ICAI*. </li></ul><ul><ul><li>*Exposure draft of AS-3 (Revised) has been issued by ICAI which is in line with IAS-7 and will be effective from 1.4.2011. </li></ul></ul>As per clause 32 of Listing agreement the company shall provide a cash flow statement along with Balance Sheet and Profit and Loss a/c. The cash flow will be prepared in accordance with the Accounting Standard on Cash Flows (AS-3) issued by the Institute of Chartered Accountants of India, and the Cash Flows shall be presented only under indirect method as given in AS-3. It is mandatory on all Level-I companies on or after 01.04.2001.
  3. 3. IAS-7 <ul><li>Applicability </li></ul><ul><li>All enterprises that prepare financial statements in conformity with IFRSs are required to present a statement of cash flows. </li></ul><ul><li>In India, the corresponding revised AS-3 will be in force from 1.4.2011. </li></ul>
  4. 4. IAS-7 <ul><li>Objectives of IAS-7 </li></ul><ul><li>The objective of IAS -7 is to require the presentation of information about the historical changes in cash and cash equivalents of an enterprises by means of a statement of cash flows, which classifies cash flows during the period according to Operating , Investing and Financing activities . </li></ul>
  5. 5. IAS-7 <ul><li>Cash and cash equivalents: it comprise… </li></ul><ul><li>Cash on hand </li></ul><ul><li>Demand deposits : from banks & other financial institutions </li></ul><ul><li>Short term highly liquidated investment that are readily convertible to a known amount of cash and that are subject to an insignificant risk of changes in value. (guidance note indicates that an investment normally meets the definition of a cash equivalents when it has a maturity of 3 months or less from the date of acquisition) </li></ul><ul><li>Equity investment are normally excluded, unless they are, in substance , cash equivalents. </li></ul><ul><li>Bank Overdrafts : which are repayable on demand and which form an integral part of an enterprise’s cash management are also included as a component of cash and cash equivalents. </li></ul>
  6. 6. IAS-7 <ul><li>Cash Flows from operating activities: </li></ul><ul><li>Operating activities are the main revenue –producing activities of the enterprises that are not investing or financial activities. </li></ul><ul><li>Some example of operating activities: </li></ul><ul><li>Cash received from customers from sale of goods or service provided </li></ul><ul><li>Cash paid to suppliers towards purchase of goods or services </li></ul><ul><li>Cash paid to employees towards salary wages and for others claims </li></ul><ul><li>Interest/Dividend paid (in case non-financial institututions IAS-7 provide an option to consider the same as operating or financing, but it should be consistently followed during the entire period) </li></ul><ul><li>Taxes paid (unless they can be specifically identified with Financing or investing activities) </li></ul>
  7. 7. IAS-7 <ul><li>Cash Flows from investing activities: </li></ul><ul><li>Investing activities are the acquisition and disposal of long term assets and other investments that are not considered to be cash & cash equivalents. </li></ul><ul><li>Some example of investing activities:- </li></ul><ul><li>Sale /Purchase of fixed assets </li></ul><ul><li>Investing in long term investments </li></ul><ul><li>Investment /acquisition/disposal of subsidiaries/JVs/ Associates </li></ul><ul><li>Interest /dividends received on deposits/investments. (IAS-7 provide an option to consider the same under operating activities also.) </li></ul>
  8. 8. IAS-7 <ul><li>Cash Flows from financing activities: </li></ul><ul><li>Financing activities are the activities that alter the equity capital and borrowing structure of the enterprise. </li></ul><ul><li>Some example of Financing activities:- </li></ul><ul><li>Issue of shares/debentures </li></ul><ul><li>Buy back of equity shares </li></ul><ul><li>Redemption of preference shares/debenture </li></ul><ul><li>Long term loans which are not Cash & cash Equivalent and payment thereof </li></ul><ul><li>Interest/dividends paid on Loans/ to shareholders. </li></ul>
  9. 9. IAS-7 <ul><li>Accounting Framework: </li></ul><ul><li>Presentation of cash flows </li></ul>
  10. 10. IAS-7 <ul><li>Cash flows from operating Activities can be </li></ul><ul><li>calculated by using two mentods:- </li></ul><ul><li>Direct method </li></ul><ul><li>Indirect method (acceptable but preferred) </li></ul><ul><li>The direct method shows each major class of gross receipts & cash payments. The operating cash flows section of the statements of cash flows under the direct method would appear something like this :- </li></ul>Cash receipts from customers xxx Cash paid to suppliers xxx Cash paid to employees xxx Cash paid for others operating expenses xxx Interest paid xxx Income tax paid xxx NET CASH FLOWS FROM OPERATING ACTIVITIES XXXX
  11. 11. IAS-7 <ul><li>Indirect method (most common in practice) </li></ul><ul><li>The Indirect method adjust accrual basis net profits or loss for the effects of non cash transactions. Cash flows section of the statement of cash flows under indirect method would appear something like this :- </li></ul>Profit before Interest and Income Taxes   xxx Add back Deprciation   xxx Add back amortisation of Goodwill   xxx Increase in receivables   xxx Decrease in Inventories   xxx Increase in Trade Payables   xxx Interest expense xxx   Less: Interest accrued but not yet paid xxx   Interest paid   xxx Income tax paid   xxx Net cash flows from Operating Activities   xxxx
  12. 12. Guidance notes on IAS-7 <ul><li>The exchange rates used for translation of transactions denominated in a foreign currency and cash flows of a foreign subsidiary should be the rate in effect at the date of cash flows (i.e. Transaction date rate). </li></ul><ul><li>As regards the cash flows of associates and JVs, where the equity method is used, the statements of cash flows should report cash flows only between the investor and investee ( e.g. Advance taken or given, dividend paid or received). But where proportionate consolidation is used, the cash flow statement should include the venturer’s share of cash flows of investee. </li></ul><ul><li>Aggregate cash flows relating to acquisitions and disposal of subsidiaries and other business units should be presented separately and classified as investing activities with specified additional disclosures . </li></ul>
  13. 13. Guidance notes on IAS-7 <ul><li>Cash flows from investing and financing activities should be recorded gross by major class of cash receipts and major class of cash payments except for the following cases, which may be reported on a net basis: </li></ul><ul><ul><li>Cash receipts & payments on behalf of customers (e.g. receipts and repayments of demand deposits by banks) </li></ul></ul><ul><ul><li>Cash receipts and payments of the items in which the turnover is quick, the amounts are large and maturities are short (e.g. charges and collection from credit card customers) </li></ul></ul><ul><ul><li>Cash receipts and payments relating to fixed maturity deposits. </li></ul></ul><ul><li>Investing and financing transaction which do not require the use of cash should be excluded from the statements of cash flows, but they should be separately disclosed elsewhere in the financial statements (e.g. acquisition of an enterprise by means of issue of equity shares, conversion of debts to equity.) </li></ul><ul><li>The amount of cash and cash equivalents held by enterprise that is not available for use by the group should be disclosed, together with a commentary by management on same. </li></ul>
  14. 14. COMPARISION OF IFRS/IAS-7 WITH AS-3 IFRS/IAS-7 INDIAN GAAP/AS-3 Cash Flow statement Applicability No exemption. Cash flow is not mandatory for SME’s. Cash and Cash Equivalents Cash comprises not only cash on hand but also demand deposits with banks or other financial institutions. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value. An investment normally qualifies as a cash equivalent only when it has a maturity of three months or less from its acquisition date. Bank borrowings are normally part of financing activities.  Nonetheless, bank overdrafts that are repayable on demand and that form an integral part of an entity’s cash management are included in cash equivalents.  Cash comprises cash on hand and demand deposits with banks. There is no stipulation in AS 3 for classification of bank overdrafts. Changes in balance of cash flows are classified as short term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. Format and content of cash flow The cash flow statement may be prepared using either the direct method (cash flows derived from aggregating cash receipts and payments associated with operating activities) or the indirect method (cash flows derived from adjusting net income for transactions of a non-cash nature such as depreciation). The latter is more common in practice. The cash flow should be classified into operating, investing and financing cash flow. Similar to IFRS.  However, in case of listed companies SEBI permits only indirect method.
  15. 15. Comparison IFRS/IAS-7 INDIAN GAAP/AS-3 Cash flow associated with extraordinary items Separate disclosure is prohibited.  The concept of extra-ordinary items has been made redundant under IFRS. The cash flows associated with extraordinary items should be classified as arising from operating, investing or financing activities as appropriate and separately disclosed. Disclosure of Interest paid Operating in case of financing enterprise. For other enterprises, it should be disclosed as operating or financing Operating in case of financing enterprise. For other enterprises, it should be disclosed as financing. Disclosure of dividend paid Operating or financing Financing Disclosure of dividend/interest received Operating in case of financing enterprise. Operating or investing in case of other enterprises Operating in case of financing enterprise. Investing in case of other enterprises Disclosure of taxes paid Operating – unless specific identification with financing or investing Similar to IFRS Foreign currency transaction  Cash flows denominated in a foreign currency and cash flows of a foreign subsidiary should be translated into the parent’s reporting currency using the exchange rate at the date of the cash flow or an appropriate weighted average rate, i.e. that used for income statement purposes. Unrealised gains and losses for the period on cash and cash equivalents balances denominated in a foreign currency, should be reported as a reconciling item in the cash flow statement, separate from operating, investing and financing activities. Similar to IFRS
  16. 16. Comparison IFRS/IAS-7 INDIAN GAAP/AS-3 Additional disclosures in CFS IAS 7 deals with issues relating to disclosure in cash flow statement in CFS like undistributed profits of associate and minority interests, foreign exchange cash flows of foreign subsidiary. No such requirement under AS 3 Acquisition of subsidiaries  IAS 7 requires further disclosure on cash and cash equivalents of acquired subsidiary and all other assets acquired. No such requirement under AS 3 Reconciliation Requires a reconciliation of net profit or loss to net cash flows from operating activities under only the indirect method. Enterprises must reconcile the components of cash and cash equivalents to the amounts presented on the balance sheet. That requirement implies that the total of cash and cash equivalents presented in the cash flow statement need not agree to a single line item, “cash and cash equivalents,” in the balance sheet. Similar to IFRS Cash restriction  Requires that an enterprise disclose “together with a commentary by management, the amount of significant cash and cash equivalent balances held by the enterprise that are not available for use by the group.” Similar to IFRS
  17. 17. Comparison IFRS/IAS-7 INDIAN GAAP/AS-3 Other disclosures  <ul><li>IAS 7 also encourages disclosure of the following items: </li></ul><ul><li>The amount of undrawn borrowing facilities that may be available for future operating activities and to settle capital commitments, indicating any restrictions on the use of the facilities. </li></ul><ul><li>The aggregate amount of cash flows that represent increases in operating capacity separately from those cash flows that are required to maintain operating capacity. </li></ul><ul><li>The aggregate amounts of the cash flows from operating, investing, and financing activities related to interests in joint ventures reported using proportionate consolidation. </li></ul><ul><li>The amount of the cash flows arising from the operating, investing, and financing activities of each reported industry and geographical segment. </li></ul>AS 3 modeled on IAS 7 also requires the above disclosure, except that set out in the last two bullet points.  Segment cash flow disclosure are however encouraged under AS 17. 
  18. 18. KEY DIFFERENCES: IAS-7 & AS-3 (existing):- FACTORS IAS-7 AS-3 APPLICABILITY No exemption Exemption for SMEs CASH & CASH EQUIVALENT Bank overdrafts that are repayable on demand and that form an integral part of an entity’s cash management are to be treated as a component of cash/cash equivalents under IAS 7. AS 3 is silent INTEREST/ DIVIDENDS PAID/RECEIVED In case of entities whose principal activities is not financing, IAS 7 allows interest and dividend received to be classified either under Operating Activities or Investing Activities. IAS 7 allows interest paid to be classified either under Operating Activities or Financing Activities. In case of entities whose principal activities are not financing, AS 3 mandates disclosure of interest and dividend received under Investing Activities only. AS 3 mandates disclosure of interest paid under Financing Activities only. EXTRA ORDINARY ITEMS IAS 7 prohibits separate disclosure of items as extraordinary items in Cash Flow Statements. AS 3 requires disclosure of extraordinary items. CONSOLIDATED FINACIAL STATEMENTS IAS 7 deals with cash flows of consolidated financial statements. AS 3 does not deal with cash flows relating to consolidated financial statements. CASH & CASH EQUIVALENT OF SUBSIDIARY IAS 7 requires further disclosure on cash and cash equivalents of acquired subsidiary and all other assets acquired. No such requirement under AS 3.
  19. 19. Differences between IAS-7 & Exposure Draft on AS-3 “Statement of cash flows (revised)” issued by ICAI :- <ul><li>ICAI is in the process of Revision of its Existing AS-3 in Line with IAS-7 to compliance with IFRS and has issued the exposure draft on AS-3 “ statement of cash flows(revised) which is nothing but IAS-7 only. But, still in some cases ICAI has taken different views:- </li></ul>ITEMS IFRS/IAS-7 INDIAN GAAP/AS-3 INTEREST PAID FINANCIAL ENTERPRISE :- OPERATING FINANCIAL ENTERPRISE :- OPERATING OTHERS: OPERATING OR FINANCING OTHERS: FINANCING INTEREST RECEIVED FINANCIAL ENTERPRISE :- OPERATING FINANCIAL ENTERPRISE :- OPERATING OTHERS: OPERATING OR INVESTING OTHERS: INVESTING DIVIDENDS PAID OPERATING OR FINANCING FINANCING DIVIDENDS RECEIVED FINANCIAL ENTERPRISE :- OPERATING FINANCIAL ENTERPRISE :- OPERATING OTHERS: OPERATING OR INVESTING OTHERS: INVESTING
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