Memo

Section 1 Objective:
(A) The main objective of the discussion paper is to identify the accounting issues and gaps between the
Accounting Standard 3 & Ind As 7.
(B) To ensure that the Accounting Standard 3 is in same lines with Ind As 7.

Section 2 Accounting Gaaps & Issues
Sr No. Particulars AS 3 Ind As 7 Recommended
Change
Reason
1 Extraordinary
Items
Impact: High
As per Para 28 of
AS 3, The cash
flows associated
with extraordinary
items should be
classified as arising
from operating,
investing or
financing activities
as appropriate and
separately
disclosed.
As per Para 4.2 of
AS 5, Extraordinary
items are income
or expenses that
arise from events
or transactions
that are clearly
distinct from the
ordinary activities
of the enterprise
and, therefore, are
not expected to
recur frequently or
regularly
There is no such
requirement under Ind
As, as there is no
concept of the
extraordinary items
under Ind As
The requirements
laid down in Para
28 of AS 3, shall be
removed to being
it in line with the
Ind As 7.
The Schedule 3
of The
Companies Act
2013, there is
a separate
disclosure
requirements
relating to the
extraordinary
items in
Statement of
Profit or Loss.
The companies
act has not
defined
extraordinary
items as the
analogy would
be drawn from
AS 5.
Since the Ind
As were
notified after
01.04.2014,
the Ind As will
prevail over
the Schedule 3
of the
companies act,
as the
subsequent
amendment in
the laws will
prevail over
the old
provisions
2 Cash flows
from
Operating
Activities –
Direct Method
Impact: High
As per Para 19 of
AS 3,
The direct method
provides
information which
may be useful in
estimating future
cash flows and
As per Para 19 of Ind
As 7,
Entities are
encouraged to report
cash flows from
operating activities
using the direct
method. The direct
The AS 3 states
that, the use of
direct method
over indirect
method. It does
not specifically
states that,
entities are
As per
companies act
2013, every
company
needs to
prepare a cash
flow
statements as

Change
Reason
which is not
available under
the indirect
method and is,
therefore,
considered more
appropriate than
the indirect
method.
method provides
information which
may be useful in
estimating future cash
flows and which is not
available under the
indirect method.
encouraged to
report cash flows
from operating
activities using the
direct method
a part of its
financial
statements.
Earlier the
listed
companies
prepared CFS
as per Clause
32 of Listing
Agreement,
The Cash Flow
Statement will
be prepared in
accordance
with the
Accounting
Standard on
Cash Flow
Statement (AS-
3) issued by
the Institute of
Chartered
Accountants of
India, and the
Cash Flow
Statement
shall be
presented only
under the
Indirect
Method as
given in AS-3".
Therefore, the
unlisted
entities have
an option to
prepare CFS
using direct
method under
Ind As 7, which
is not available
under AS 3.
3 Consolidation
of Accounts –
Cash & Cash
Equivalents
Joint Venture
Impact: High
As per Para 36 of
AS 3, When
accounting for an
investment in an
associate or a
subsidiary
As 7, An entity that
reports its interest in
an associate or a joint
venture using the
equity
Since the
companies under
Ind As will apply
the equity method
of accounting for
interest in
associate & joint
Under IGAAP,
the cash and
cash
equivalent to
the extent of
the investor
share in the

Change
Reason
or a joint venture,
an investor
restricts its
reporting in the
cash flow
statement to the
cash flows
between itself and
the investee/joint
venture, for
example, cash
flows relating to
dividends and
advances.
As per AS 23, the
investment in
associate is
accounted using
equity method of
accounting.
As per AS 27, the
investment in joint
venture is
accounted as per
the proportionate
equity method
under which the
portion of the
income statement
of the entity is
included in the
consolidated profit
for the year, which
is the base for the
Cash flow from
Operating
Activities & the
portion of the cash
and cash
equivalent is also
included in the
consolidated cash
flow statement.
Generally,
companies add
back the profits of
associates in the
method includes in its
statement of cash
flows the cash flows in
respect of its
investments
in the associate or
joint venture, and
distributions and other
payments or receipts
between it and the
associate or joint
venture.
As per Ind As 28 & Ind
As 111, the equity
method of accounting
is applicable in
accounting for interest
in the associate & joint
venture.
ventures, the
investors share in
the profits (net of
tax) will be added
back to the Profit
for the year under
operating
activities.
In IGAAP, the
consolidated profit
for the year for
joint ventures
would include the
portion of the
items of profit or
loss in joint
venture which is
not added back as
the proportionate
consolidation
method of
accounting.
joint venture is
a part of the
consolidated
cash & cash
equivalent in
CFS.
While under
the Ind As, the
entity will
apply the
equity method
of accounting
in which there
would be not
impact on cash
and cash
equivalent in
CFS.

Change
Reason
profit for the year
under cash flow
from operating
activities.
4 Consolidation
of Accounts –
Change in
ownership
interest that
do not result
in loss of the
control
Impact: High
No Guidance
under AS 3
As per Para 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 ,
unless the subsidiary is
held by an investment
entity, as defined in
Ind AS 110, and is
required to be
measured at fair value
through profit or loss.
Guidance relating
to changes in
ownership
interests in a
subsidiary that do
not result
in a loss of control
should be
incorporated in AS
3.
AS 3 covers the
guidance only
in the situation
where there is
a loss of
control in the
subsidiary. The
guidance shall
be provided
for the cases
where there is
change in
ownership
interest that
does not result
in disposal of
the subsidiary.
5 Consolidation
of Accounts –
Disclosure of
the amount
received or
paid on
disposal or
obtaining the
control over
subsidiary
Impact: High
No Guidance
under AS 3
As per Para 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.
Guidance relating
to the
presentation of
the cash paid or
received as
consideration net
of the cash and
cash equivalents
acquired or
disposed of as part
of such
transactions,
should be
incorporated in
the AS 3
At the
consolidated
level, the cash
& cash
equivalents of
the subsidiary
are
consolidated
as a cash &
cash
equivalents of
the parent
entity.
Therefore,
when there is
an disposal of
an subsidiary
the cash &
cash
equivalent
which the
parent
company
received is to
be reported
net of the cash
and cash

Change
Reason
equivalents of
the subsidiary
6 Consolidation
of Accounts –
Additional
Disclosures of
obtaining and
losing control
of subsidiaries
or other
businesses
Impact: High
An enterprise
should disclose, in
aggregate, in
respect of both
acquisition and
disposal of
subsidiaries or
other business
units during
the period each of
the following:
(a) the total
purchase or
disposal
consideration; and
(b) the portion of
the purchase or
disposal
consideration
discharged
by means of cash
and cash
equivalents
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.
Additional
disclosures relating
to point (c) and (d)
are not available
under AS 3.
Ind As 7 provides
for exemption to
Investment
entities from
disclosure
requirements of
point (c ) and (d).
To align the AS
3 with Ind As 7,
the additional
disclosures
relating to
point (c) and
(d) shall be
incorporated
in AS 3.
7 Cash and Cash
Equivalent -
Bank
Overdraft
Impact: High
Bank Overdraft is
not considered as
a cash and cash
equivalent under
AS 3.
As per Para 8 of Ind As
7, where bank
overdrafts which are
repayable on demand
form an integral part
of an entity's cash
management, bank
overdrafts are
included as a
component of cash
and cash equivalents.
A characteristic of
such banking
arrangements is that
Guidance for Bank
Overdraft shall be
provided under AS
3. The other
banking
arrangements
which can be cash
and cash
equivalent is
Packing Credit in
Foreign Currency
(PCFC) accounts.
The bank
overdraft is
generally
disclosed as an
current liability
under IGAAP,
there the
effect on cash
flow is
considered as
a difference
between the
current year
balance and
previous year

Change
Reason
the bank balance
often fluctuates from
being positive to
overdrawn.
balance. It may
be possible
that, the
previous year
balance is
credit balance
and current
year it is debit
balance.
Therefore, it
brings
variability in
cash flow
statement.
Therefore, it
shall be
considered as
a separate
item under
cash and cash
equivalent.
8 Cash & Cash
Equivalents –
Amortize Cost
Instruments
or
FVTOCI
Instruments
Impact: High
Cash equivalents
are held for the
purpose of
meeting short-
term cash
commitments
rather than for
investment or
other purposes.
For an investment
to qualify as a cash
equivalent, it must
be readily
convertible to a
known amount of
cash and be
subject to an
insignificant risk of
changes in value.
Therefore, an
investment
normally qualifies
as a cash
equivalent only
when it
has a short
maturity of, say,
three months or
Same Guidance as per
AS 3
Guidance is
needed to be
provided with
reference to which
class of the
financial asset shall
form part of cash
and cash
equivalent as per
Ind As 7 & AS 3.
As per Ind As
109, the
financial asset
shall be
classified on
the basis of
(a) the entity’s
business
model for
managing the
financial assets
and
(b) the
contractual
cash flow
characteristics
of the financial
asset.
As per Ind As
109, the
financial asset
is classified
under three
heads:
(a)Amortize
Cost
(b) FVTOCI

Change
Reason
less from the date
of acquisition.
Investments in
shares are
excluded from
cash equivalents
unless they are, in
substance, cash
equivalents; for
example,
preference shares
of a company
acquired shortly
before their
specified
redemption date
(provided there is
only
an insignificant risk
of failure of the
company to repay
the amount at
maturity).
(C) FVTPL
The standard
uses the term
“insignificant
risk of changes
in value”.
The
instruments
which are
classified
under
Amortize cost
are included in
the Cash and
Cash
Equivalents as
the risk of
changes in Fair
Value is
significant in
instruments
classified as
FVTOCI &
FVTPL
9 Acquisition of
the assets held
for rental to
others
Impact: High
No Guidance Cash payments to
manufacture or
acquire assets held for
rental to others and
subsequently held for
sale as described in
paragraph 68A of Ind
AS 16, Property, Plant
and Equipment, are
cash flows from
operating activities.
The cash receipts from
rents and subsequent
sales of such assets
are also cash flows
from operating
activities.
The said guidance
shall be
incorporated in AS
3.
Under the
IGAAP, the
cash outflows
for the assets
which are used
for rentals are
classified as an
Investing
Activity.
The Ind As 7
requires the
same shall be
disclosed as
operating
Activity
10 Securitization
of Receivables-
(Originator)
Cash Flow
from Transfer
of Receivables
No Guidance
Under IGAAP, the
companies
disclose the same
under Operating
Activities. The
No Guidance
Under Ind As 109, the
derecognition criteria
of the financial asset is
different from the AS
13.
The originator will
classify the
transfer as under:
Recourse Transfer:

Change
Reason
Impact: High
difference
between the
current year &
previous year in
debtor balances
will be adjusted in
Cash flow from
operating
activities.
Therefore, treatment
of the cash flows will
depend on the
transfer of the risk and
rewards and control
over the financial
asset.
Cash Flow from
Operating
Activities
Non-Recourse
Transfer
Cash Flow from
financing activities
11 Securitization
of Receivables
(Originator)
Cash Outflow
from
Subscription of
Pass Through
Certificate
(PTC)
Impact: High
No Guidance
Under IGAAP, the
companies
disclose the same
under Investing
Activities.
No Guidance The originator will
classify the Cash
Outflow from
Subscription of
Pass Through
Certificate (PTC) as
an Financing
Activity
12 Foreign
Currency Cash
Flows
Impact: Low
Cash flows arising
from transactions
in a foreign
currency should
be recorded in an
enterprise’s
reporting currency
by applying to the
foreign
currency amount
the exchange rate
between the
reporting currency
and
the foreign
currency at the
date of the cash
flow
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.
The word
“reporting
currency” shall be
changed to
“functional
currency”
Functional
currency is the
currency of the
primary economic
environment in
which the entity
operates.
Presentation
currency is the
currency in which
the financial
statements are
presented
There is no
concept of the
functional
currency under
IGAAP.
In the scenario
where the
functional
currency of the
entity is
different from
the reporting
currency, then
the cash flows
would an
substantial
impact on cash
flows.
The situation is
very rare in
context of
Indian
Scenario
13 Rate
Regulated
Entities
No Guidance No Guidance As per Guidance
Note on
Accounting for
Rate Regulated
Guidance is
required
whether to
take the Profit

Change
Reason
Impact: High
Activities issued by
ICAI, the
regulatory income
is disclosed
separately in Profit
or Loss before Tax
Expenses.
Profit Before Tax
(PBT) and Rate
Regulated
Activities (RRA)
(Add) Regulatory
Income/Expense
PBT
Less: Tax Expense
before tax
including
regulatory
income or
excluding the r
regulatory
income.
The companies
which are not
covered in
Phase 1 will
follow the
Guidance
Note.
Therefore,
clarity is
required in this
area.
14 Disclosures –
Segmental
Cash flows
Impact: Low
No Guidance
under AS 3
As 7, The disclosure of
segmental cash flows
enables users to
obtain a better
understanding of
the relationship
between the cash
flows of the business
as a whole and those
of its component parts
and the availability
and variability of
segmental cash flows
In India, the
segment reporting
is applicable to
listed entities only.
Therefore, merit of
the disclosure
requirements shall
be considered
when applying the
same to AS 3.
Since the
disclosure is
based on the
segments
identified by
the entity.
This disclosure
will only apply
when the
Segment
reporting is
applicable to
the companies.
.
15 Disclosures –
Undrawn
Borrowing
Facility
Impact: Low
No Guidance
under AS 3
As 7, 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 these
facilities
As per Ind As 7,
the entity is
“encouraged” to
disclose the
requirements of
Para 50.
It is not a
mandatory
Disclosure.
Therefore,
merit of the
disclosure
requirements
shall be
considered
when applying
the same to AS
3.

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