CA Final · Financial Reporting

Ind AS 7 Statement of Cash Flows: formula sheet

Full chapter guide

Key formulas

Cash: Cash = cash on hand + demand deposits; Demand deposits are those withdrawable without penalty or notice, such as current account balances with banks.
Cash equivalents: Short-term + highly liquid + readily convertible to known amount of cash + insignificant risk of change in value; All four conditions must hold. The purpose is meeting short-term cash commitments. Maturity is normally three months or less from the date of acquisition.
Bank overdraft: Overdraft repayable on demand and integral to cash management → part of cash and cash equivalents; Otherwise bank borrowings are financing activities.
Closing cash and cash equivalents: Opening cash and cash equivalents + net increase (or − net decrease) in cash and cash equivalents = Closing cash and cash equivalents; The closing figure must reconcile with the amounts in the balance sheet, after including overdrafts that qualify.
Three activities: Operating = principal revenue-producing and other activities; Investing = long-term assets and other investments; Financing = equity and borrowings; Classify by the nature of the activity, not by the label in the ledger.
Operating activities: Principal revenue-producing activities + all activities that are not investing or financing; Residual category. Includes cash receipts from customers, payments to suppliers and employees, and usually income tax paid.
Investing activities: Cash paid for or received from long-term assets and investments not treated as cash equivalents; Only expenditure resulting in a recognised asset is investing. Example: purchase of PPE is an outflow, sale of PPE is an inflow.
Financing activities: Cash flows that change contributed equity and borrowings; Includes share issue, buyback, loan proceeds and repayments, and principal repayment of lease liabilities.
Interest and dividends: Disclose separately and classify consistently. Non-financial entity (common): interest and dividends paid = financing; interest and dividends received = investing. Financial entity (usual): interest paid and interest and dividends received = operating; dividends paid = financing; Ind AS 7 does not fix the treatment. The entity chooses a classification and applies it consistently from period to period.
Income taxes: Separate disclosure; operating unless specifically identified with investing or financing; If tax on a transaction can be identified with investing or financing, show it there. Otherwise allocate to operating.
Non-cash transactions: Excluded from the cash flow statement; disclosed elsewhere; Example: acquiring an asset by issuing shares or taking a finance lease. No cash moves, so no cash flow line.
Interest capitalised: Total interest paid is disclosed whether expensed or capitalised; Total interest paid during the period is disclosed in the cash flow statement, whether it is expensed or capitalised. Its classification follows the entity's consistent policy. Cash interest capitalised into an asset's cost may be shown as investing, as part of the expenditure on the asset, or as financing.
Indirect method: operating profit before working capital changes: Net profit before tax + Depreciation and amortisation + Finance costs + Impairment/provisions (non-cash) + Loss on sale of assets − Interest and dividend income − Profit on sale of assets ± Other non-cash items; Add back expenses that are non-cash or belong to investing/financing. Deduct income that belongs to investing/financing.
Working capital adjustments: Increase in current assets → deduct; Decrease in current assets → add; Increase in current liabilities → add; Decrease in current liabilities → deduct; Use operating items only: inventories, trade receivables, trade payables, other operating assets and liabilities.
Net cash from operating activities (indirect): Cash generated from operations − Income taxes paid; Income tax paid is shown under operating activities unless it can be specifically identified with investing or financing.
Direct method: cash receipts from customers: Revenue from operations − Increase in trade receivables (or + decrease); Adjust for opening and closing receivables. Ignore bad debts if given as written off, and adjust separately if relevant.
Direct method: cash paid to suppliers: Purchases − Increase in trade payables (or + decrease); Purchases = Cost of goods sold + Closing inventory − Opening inventory.
Reconciliation check: Net cash from operating activities (direct) = Net cash from operating activities (indirect); Use this to check your answer when both can be computed.
Primary classification (para 10): Net change in cash = Operating + Investing + Financing cash flows (+ effect of exchange rate changes on cash); Opening cash and cash equivalents plus this total gives closing cash and cash equivalents.
Default presentation of investing and financing flows (para 21): Major classes of gross receipts and gross payments shown separately; Net is the exception, allowed only for the para 22 cases below (and the extra items for financial institutions).
Net basis case (a) (para 22(a)): Receipts and payments on behalf of customers, where the flow reflects the customer's activity; Example: rent collected for owners and passed on, an operating flow. Only the entity's own fee or commission is its own cash flow.
Net basis case (b) (para 22(b)): Quick turnover + large amounts + short maturities; Examples: credit card customer balances, purchase and sale of investments, other short-term borrowings with maturity of three months or less.
Foreign currency cash flow: Functional currency amount = Foreign currency amount × exchange rate on the date of the cash flow; A weighted average rate may be used if it approximates the actual rates.
Effect of exchange rate on cash held: Effect = Closing foreign currency balance × closing rate − (Opening foreign currency balance × opening rate + net foreign currency cash flows translated at the dates of flow or average rates); This is the difference between translating the foreign currency cash flows at the dates of flow (or average rates) and translating the closing balance at the closing rate. If there were no flows during the period, it reduces to balance × (closing rate − opening rate). Shown separately from operating, investing and financing. Not an operating item.
Non-cash transactions: Investing or financing transactions with no cash movement are excluded and disclosed elsewhere; Examples: asset acquired under a lease, debt converted to equity, entity acquired by issuing shares.
Cash equivalent test: Short-term + highly liquid + known amount of cash + insignificant risk of value change; Normally three months or less from the date of acquisition. Repayable-on-demand overdrafts that are part of cash management are included.
Required disclosures on cash: Components of cash and cash equivalents + reconciliation to balance sheet + policy on composition; Also disclose significant balances that the group cannot use, with management's commentary.
Acquisition of subsidiary or business: Investing outflow = Cash consideration paid − Cash and cash equivalents acquired; Show as a separate investing line. Include only consideration paid in cash in the period.
Disposal of subsidiary or business: Investing inflow = Cash consideration received − Cash and cash equivalents of the subsidiary disposed of; If cash disposed of exceeds cash received, the net amount is an outflow. Deferred consideration not yet received is excluded.
Change in ownership without loss of control: Cash paid or received for the stake = Financing activity; Applies to buying more shares from, or selling some shares to, non-controlling interests while control stays.
Equity-accounted investee in the indirect method: Operating adjustment = Profit before tax − Share of profit of associate or JV (add back share of loss); The share of profit is non-cash. Under Ind AS 7, dividends actually received are classified as investing cash flows. Interest and dividends paid are financing.
Investment in associate or JV: Cash paid to acquire or received on sale of the investment = Investing activity; Loans and advances to or from the investee follow their own nature.
Required disclosures: Total consideration; cash part; cash held by the entity; other assets and liabilities by category; Give them in aggregate, for both obtaining and losing control.
Closing balance of a financing liability: Closing = Opening + Cash inflows − Cash outflows ± Non-cash changes; Non-cash changes include forex difference, fair value change, new leases, amortisation of transaction costs and acquisition or loss of control of subsidiaries.
Financing cash flow of a liability: Net financing cash flow = Proceeds from borrowings − Repayments; This must agree to the cash flow column of the reconciliation. Under Ind AS 7, interest paid and dividends paid by a non-financial entity are also financing cash flows. Keep them out of this figure unless the question includes them.
Disclosure rule: Disclose changes from cash flows and non-cash changes for liabilities (and related assets) whose cash flows are classified as financing; No prescribed format, but the opening-to-closing reconciliation must be traceable to the balance sheet and cash flow statement.
Comparative figures: Reconciliation to be given for the current period and the comparative period as required for the financial statements; Give comparatives in line with Ind AS 1 requirements for the notes.

Quick revision

Ind AS 7 applies to all entities that prepare financial statements under Ind AS, and the statement is part of a complete set.
Cash equivalents are short-term, highly liquid investments readily convertible to known cash amounts and subject to insignificant risk of change in value.
An investment normally qualifies as a cash equivalent only if its original maturity is three months or less from the date of acquisition.
Bank overdrafts repayable on demand that form an integral part of cash management are included in cash and cash equivalents.
Operating activities are the main revenue-producing activities and others that are not investing or financing.
Investing covers acquisition and disposal of long-term assets and investments not in cash equivalents.
Financing covers changes in owners' capital and borrowings.
Under the indirect method, start with profit or loss and adjust for non-cash items, accruals and items shown under investing or financing.
Cash flows from interest and dividends are disclosed separately. Under Ind AS 7, interest paid and dividends paid are financing activities, and interest and dividends received are investing activities. Apply this consistently.
Income taxes paid are generally operating, unless they can be specifically identified with investing or financing activities.
Cash flows on obtaining or losing control of a subsidiary are shown separately under investing activities.
Disclose changes in liabilities arising from financing activities, including both cash and non-cash changes.

Common mistakes

Treating every bank overdraft as a financing item. Fix: Check two conditions: repayable on demand and integral to cash management. If both are met, include it in cash and cash equivalents.
Counting a fixed deposit as a cash equivalent just because it is a bank deposit. Fix: Test the original maturity from acquisition, and the purpose. A deposit with a long original maturity is an investing item, not a cash equivalent.
Treating depreciation or provisions as cash flows in the classification. Fix: Remember they are non-cash. They appear only as adjustments to profit in the indirect method, never as an investing or financing item.
Ignoring the entity's stated policy on interest and dividends, or changing the classification from one period to the next. Fix: Ind AS 7 does not fix the treatment, but the entity must classify consistently and disclose interest and dividends separately. Follow the policy given in the case. If none is given, a non-financial entity commonly shows interest and dividends paid as financing and interest and dividends received as investing. A financial entity usually shows interest paid and interest and dividends received as operating, and dividends paid as financing.
Adding depreciation but forgetting to add back finance cost or to deduct interest income Fix: Scan every item in the profit statement and ask: is it non-cash, investing or financing? If yes, adjust it.
Wrong sign on working capital changes Fix: Think cash: more receivables means customers have not paid, so cash is lower. More payables means you have kept cash, so cash is higher.
Netting a loan raised against a loan repaid in the financing section. Fix: Show both gross lines unless the loan is a short-term borrowing with maturity of three months or less, or another net-basis case applies.
Including shares issued for an asset, or debt converted into equity, as a cash inflow and outflow. Fix: Exclude the transaction because no cash moved, and disclose it elsewhere in the financial statements with all relevant information.
Showing the full purchase price as the investing outflow Fix: Always deduct the cash and cash equivalents acquired from the cash consideration.
Including shares issued or deferred consideration in the cash figure Fix: Use only the cash actually paid or received in the period. Disclose the rest as non-cash.

Exam tips

Write the full definition of cash equivalents and then test each item against it. Marks are given for stating the conditions.
In case-scenario MCQs, look for the maturity at the date of acquisition and for the words repayable on demand and integral to cash management in an overdraft.
Do not leave out the purpose test: cash equivalents are held for short-term commitments, not for investment.
Use the provision-facts-conclusion layout in written answers, with one short line for each item.
Remember the objective and scope in a line: information about historical changes in cash and cash equivalents, classified into operating, investing and financing activities, for Ind AS entities.
Before you draw up the table, check whether the entity is financial or non-financial. Then apply the policy the case states for interest and dividends, or the common treatment for that type of entity if none is stated.
In case-scenario MCQs, check first whether the entity is a financial institution, since a financial entity usually treats interest paid and interest and dividends received as operating.
Look for traps: non-cash items, capitalised interest and tax linked to a specific sale. Total interest paid is disclosed even when part of it is capitalised, and its classification follows the entity's consistent policy. Read each line of the case for these.