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Indian Accounting Standard (Ind AS) 7
Statement of Cash Flows
(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which
have equal authority. Paragraphs in bold type indicate the main principles.)
Information about the cash flows of an entity is useful in providing users of financial statements
with a basis to assess the ability of the entity to generate cash and cash equivalents and the needs
of the entity to utilise those cash flows. The economic decisions that are taken by users require
an evaluation of the ability of an entity to generate cash and cash equivalents and the timing and
certainty of their generation.
The objective of this Standard is to require the provision 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 from operating, investing and financing activities.
1 An entity shall prepare a statement of cash flows in accordance with the
requirements of this Standard and shall present it as an integral part of its financial
statements for each period for which financial statements are presented.
2 [Refer Appendix 1]
3 Users of an entity’s financial statements are interested in how the entity generates and
uses cash and cash equivalents. This is the case regardless of the nature of the entity’s
activities and irrespective of whether cash can be viewed as the product of the entity, as
may be the case with a financial institution. Entities need cash for essentially the same
reasons however different their principal revenue-producing activities might be. They
need cash to conduct their operations, to pay their obligations, and to provide returns to
their investors. Accordingly, this Standard requires all entities to present a statement of
Benefits of cash flow information
4 A statement of cash flows, when used in conjunction with the rest of the financial
statements, provides information that enables users to evaluate the changes in net assets
of an entity, its financial structure (including its liquidity and solvency) and its ability to
affect the amounts and timing of cash flows in order to adapt to changing circumstances
and opportunities. Cash flow information is useful in assessing the ability of the entity to
generate cash and cash equivalents and enables users to develop models to assess and
compare the present value of the future cash flows of different entities. It also enhances
the comparability of the reporting of operating performance by different entities because
it eliminates the effects of using different accounting treatments for the same transactions
5 Historical cash flow information is often used as an indicator of the amount, timing and
certainty of future cash flows. It is also useful in checking the accuracy of past
assessments of future cash flows and in examining the relationship between profitability
and net cash flow and the impact of changing prices.
6 The following terms are used in this Standard with the meanings specified:
Cash comprises cash on hand and demand deposits.
Cash equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an insignificant risk
of changes in value.
Cash flows are inflows and outflows of cash and cash equivalents.
Operating activities are the principal revenue-producing activities of the entity and
other activities that are not investing or financing activities.
Investing activities are the acquisition and disposal of long-term assets and other
investments not included in cash equivalents.
Financing activities are activities that result in changes in the size and composition
of the contributed equity and borrowings of the entity.
Cash and cash equivalents
7 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 less from the date of
acquisition. Equity investments are excluded from cash equivalents unless they are, in
substance, cash equivalents, for example in the case of preference shares acquired within
a short period of their maturity and with a specified redemption date.
8 Bank borrowings are generally considered to be financing activities. However, 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 the bank balance often fluctuates
from being positive to overdrawn.
9 Cash flows exclude movements between items that constitute cash or cash equivalents
because these components are part of the cash management of an entity rather than part
of its operating, investing and financing activities. Cash management includes the
investment of excess cash in cash equivalents.
Presentation of a statement of cash flows
10 The statement of cash flows shall report cash flows during the period classified by
operating, investing and financing activities.
11 An entity presents its cash flows from operating, investing and financing activities in a
manner which is most appropriate to its business. Classification by activity provides
information that allows users to assess the impact of those activities on the financial
position of the entity and the amount of its cash and cash equivalents. This information
may also be used to evaluate the relationships among those activities.
12 A single transaction may include cash flows that are classified differently. For example,
when the instalment paid in respect of an item of Property, Plant and Equipment
acquired on deferred payment basis includes interest, the interest element is classified
under financing activities and the loan element is classified under investing activities.
13 The amount of cash flows arising from operating activities is a key indicator of the extent
to which the operations of the entity have generated sufficient cash flows to repay loans,
maintain the operating capability of the entity, pay dividends and make new investments
without recourse to external sources of financing. Information about the specific
components of historical operating cash flows is useful, in conjunction with other
information, in forecasting future operating cash flows.
14 Cash flows from operating activities are primarily derived from the principal revenue-
producing activities of the entity. Therefore, they generally result from the transactions
and other events that enter into the determination of profit or loss. Examples of cash
flows from operating activities are:
(a) cash receipts from the sale of goods and the rendering of services;
(b) cash receipts from royalties, fees, commissions and other revenue;
(c) cash payments to suppliers for goods and services;
(d) cash payments to and on behalf of employees;
(e) cash receipts and cash payments of an insurance entity for premiums and claims,
annuities and other policy benefits;
(f) cash payments or refunds of income taxes unless they can be specifically
identified with financing and investing activities; and
(g) cash receipts and payments from contracts held for dealing or trading purposes.
Some transactions, such as the sale of an item of plant, may give rise to a gain or loss that
is included in recognised profit or loss. The cash flows relating to such transactions are
cash flows from investing activities. However, 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.
15 An entity may hold securities and loans for dealing or trading purposes, in which case
they are similar to inventory acquired specifically for resale. Therefore, cash flows
arising from the purchase and sale of dealing or trading securities are classified as
operating activities. Similarly, cash advances and loans made by financial institutions are
usually classified as operating activities since they relate to the main revenue-producing
activity of that entity.
16 The separate disclosure of cash flows arising from investing activities is important
because the cash flows represent the extent to which expenditures have been made for
resources intended to generate future income and cash flows. Only expenditures that
result in a recognized asset in the balance sheet are eligible for classification as investing
activities. Examples of cash flows arising from investing activities are:
(a) cash payments to acquire property, plant and equipment, intangibles and other
long-term assets. These payments include those relating to capitalised
development costs and self-constructed property, plant and equipment;
(b) cash receipts from sales of property, plant and equipment, intangibles and other
(c) cash payments to acquire equity or debt instruments of other entities and interests
in joint ventures (other than payments for those instruments considered to be cash
equivalents or those held for dealing or trading purposes);
(d) cash receipts from sales of equity or debt instruments of other entities and
interests in joint ventures (other than receipts for those instruments considered to
be cash equivalents and those held for dealing or trading purposes);
(e) cash advances and loans made to other parties (other than advances and loans
made by a financial institution);
(f) cash receipts from the repayment of advances and loans made to other parties
(other than advances and loans of a financial institution);
(g) cash payments for futures contracts, forward contracts, option contracts and swap
contracts except when the contracts are held for dealing or trading purposes, or
the payments are classified as financing activities; and
(h) cash receipts from futures contracts, forward contracts, option contracts and swap
contracts except when the contracts are held for dealing or trading purposes, or
the receipts are classified as financing activities.
When a contract is accounted for as a hedge of an identifiable position the cash flows of
the contract are classified in the same manner as the cash flows of the position being
17 The separate disclosure of cash flows arising from financing activities is important
because it is useful in predicting claims on future cash flows by providers of capital to the
entity. Examples of cash flows arising from financing activities are:
(a) cash proceeds from issuing shares or other equity instruments;
(b) cash payments to owners to acquire or redeem the entity’s shares;
(c) cash proceeds from issuing debentures, loans, notes, bonds, mortgages and other
short-term or long-term borrowings;
(d) cash repayments of amounts borrowed; and
(e) cash payments by a lessee for the reduction of the outstanding liability relating to
a finance lease.
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 cash 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 other items in the statement of
profit and loss for:
(i) changes during the period in inventories and operating receivables and
(ii) other non-cash items; and
(iii) other items for which the cash effects are investing or financing cash
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 activities 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
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 reported on a net basis.
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 in 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 maturity 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.
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
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 changes 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 Appendix 1]
30 [Refer Appendix 1]
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, there 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. However, 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
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.
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 transaction. 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.
Investments in subsidiaries, associates and joint ventures
37 When accounting for an investment in an associate, a joint venture 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 that reports its interest in an associate or a joint venture using the equity
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.
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.
40A An investment entity, as defined in Ind AS 110, Consolidated Financial Statements,
need not apply paragraphs 40(c) or 40(d) to an investment in a subsidiary that is required
to be measured at fair value through profit or loss.
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
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 , 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.
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 parent of a subsidiary’s equity instruments, are
accounted for as equity transactions (see Ind AS 110), unless the subsidiary is held by
an investment entity and is required to be measured at fair value through profit or loss.
Accordingly, the resulting cash flows are classified in the same way as other transactions
with owners described in paragraph 17.
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 structure of an entity. The exclusion of non-
cash 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.
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
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
48 An entity shall disclose, together with a commentary by management, the amount of
significant cash and cash equivalent balances held by the entity that are not
available for use by the group1.
49 There are various circumstances in which cash and cash equivalent balances held by an
entity are not available for use by the group2. Examples include cash and cash equivalent
balances held by a subsidiary that operates in a country where exchange controls or other
legal restrictions apply when the balances are not available for general use by the parent
or other subsidiaries.
50 Additional information may be relevant to users in understanding the financial position
and liquidity of an entity. Disclosure of this information, together with a commentary by
management, is encouraged and may include:
1 The requirements shall be equally applicable to the entities in case of separate financial statements also. 2 Ibid.
(a) 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;
(b) [Refer Appendix 1]
(c) the aggregate amount of cash flows that represent increases in operating capacity
separately from those cash flows that are required to maintain operating capacity;
(d) the amount of the cash flows arising from the operating, investing and financing
activities of each reportable segment (see Ind AS 108, Operating Segments).
51 The separate disclosure of cash flows that represent increases in operating capacity and
cash flows that are required to maintain operating capacity is useful in enabling the user
to determine whether the entity is investing adequately in the maintenance of its
operating capacity. An entity that does not invest adequately in the maintenance of its
operating capacity may be prejudicing future profitability for the sake of current liquidity
and distributions to owners.
52 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.
Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is
only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 7 and the
corresponding International Accounting Standard (IAS) 7, Statement of Cash Flows, issued by the
International Accounting Standards Board.
Comparison with IAS 7, Statement of Cash Flows
Ind AS 7 differs from International Accounting Standard (IAS) 7, Statement of Cash Flows, in
the following major respects:
1. In case of other than financial entities, IAS 7 gives an option to classify the interest paid
and interest and dividends received as item of operating cash flows. Ind AS 7 does not
provide such an option and requires these item to be classified as item of financing
activity and investing activity, respectively (refer to the paragraph 33).
2. IAS 7 gives an option to classify the dividend paid as an item of operating activity.
However, Ind AS 7 requires it to be classified as a part of financing activity only (refer
3. Different terminology is used in this standard, eg, the term ‘balance sheet’ is used instead
of ‘Statement of financial position’ and ‘Statement of profit and loss’ is used instead of
‘Statement of comprehensive income’.
4. Paragraph 2 of IAS 7 which states that IAS 7 supersedes the earlier version IAS 7 is
deleted in Ind AS 7 as this is not relevant in Ind AS 7. However, paragraph number 2 is
retained in Ind AS 7 to maintain consistency with paragraph numbers of IAS 7.
5. The following paragraph numbers appear as ‘Deleted’ in IAS 7. In order to maintain
consistency with paragraph numbers of IAS 7, the paragraph numbers are retained in Ind
(i) paragraph 29
(ii) paragraph 30
(iii) paragraph 50(b)