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Financial Reporting · Ind AS 7 Statement of Cash Flows

Ind AS 7: Changes in Liabilities from Financing and Differences from IAS 7

Updated 5 October 2026 · Fact-checked

Ind AS 7 requires an entity to disclose changes in liabilities arising from financing activities, covering both cash and non-cash changes, so users can evaluate them. Solve by listing each such liability, starting with the opening balance, adding cash flows and non-cash items (acquisitions, forex, fair value changes), and agreeing to the closing balance.

Understand Changes in Liabilities from Financing and Ind AS vs IAS 7 Differences

Users of financial statements want to know how an entity funds itself. The cash flow statement shows only the cash part of borrowing and repayment. The balance sheet shows closing debt. Neither explains the gap between opening and closing debt.

To close this gap, Ind AS 7 requires disclosures that let users evaluate changes in liabilities arising from financing activities. These are liabilities whose cash flows are, or will be, classified as financing activities. Think of borrowings, lease liabilities and debentures. The requirement also covers changes in related financial assets, such as assets that hedge those liabilities, if their cash flows are included in financing activities.

The disclosure must include both changes from cash flows and non-cash changes. Typical non-cash changes are: changes from obtaining or losing control of subsidiaries or other businesses, the effect of changes in foreign exchange rates, changes in fair values, and other changes such as new leases or amortisation of transaction costs. Cash changes are shown as the financing cash flows in the statement.

The standard does not prescribe a format. A tabular reconciliation of opening to closing balances is the usual way, and it is often called a net debt reconciliation. The reconciliation items must tie to the cash flow statement and the balance sheet. Where the entity discloses the change together with changes in other assets and liabilities, it must show the financing liability changes separately from the rest.

The second part of this topic is the comparison of Ind AS 7 with IAS 7. The two follow the same structure, and the financing liabilities disclosure is the same in both. But they are not identical. Know these points:

  • Interest and dividends (key substantive difference): IAS 7 lets an entity choose the class for interest and dividends and apply it consistently. Ind AS 7 removes that choice. For a non-financial entity, dividends paid and interest paid are classified as financing cash flows, and interest and dividends received are classified as investing cash flows. For a financial entity, interest is usually an operating cash flow.
  • Terminology (minor point): Ind AS 7 uses the terms of Indian law and Ind AS, such as "balance sheet" and "statement of profit and loss", where IAS 7 uses "statement of financial position" and "statement of profit or loss and other comprehensive income". The substance of this point is the same.
  • Other differences: The Appendix to Ind AS 7 lists the differences from IAS 7. Besides the interest and dividends classification, it covers other items, such as the treatment of bank overdrafts. Quote these from the Appendix of the standard, not from memory.

In an answer, say that Ind AS 7 follows the structure of IAS 7 and that the financing liabilities disclosure is the same. Then lead with the interest and dividends difference, because it is the key substantive one. Then mention the other Appendix differences, including bank overdrafts, and the terminology points briefly.

Key rules to remember

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.

How to solve Changes in Liabilities from Financing and Ind AS vs IAS 7 Differences questions

Use this method for any question that asks for the disclosure or a reconciliation.

  1. 1Identify the liabilities whose cash flows are classified as financing activities: term loans, debentures, lease liabilities, and similar items. Exclude trade payables and other operating items.
  2. 2Write the opening balance of each liability from the prior balance sheet.
  3. 3Pull the cash flow items from the question: proceeds and repayments. Show inflows as plus and outflows as minus.
  4. 4Identify non-cash items: forex difference on foreign currency loans, new leases (right-of-use additions), amortisation of transaction costs or discount, fair value changes and business acquisitions.
  5. 5Add everything to reach the closing balance, and check it equals the balance sheet figure. Any gap means an item is missing.
  6. 6Where the question asks for the comparison with IAS 7, say the two share the same structure and the same financing liabilities disclosure. Then state the key difference: Ind AS 7 removes the IAS 7 option, so for a non-financial entity interest and dividends paid are financing and interest and dividends received are investing. Add the other Appendix differences, such as bank overdrafts, and the terminology points briefly.
  7. 7Present the table with clear columns: opening, cash flows, non-cash changes (by type), closing.

Quickest way: Row-by-row roll-forward

When to use it: Use when the question gives a set of balances and movements and asks for the reconciliation or a missing figure.

  1. Draw one row per liability and columns for opening, cash, non-cash, closing.
  2. Fill the known columns first and find the missing number as a balancing figure.
  3. Check that the total of the cash column equals the financing cash flow in the statement.
  4. Write one line on what each non-cash change is, because marks go for naming it.

Common mistakes in Changes in Liabilities from Financing and Ind AS vs IAS 7 Differences

  • Showing only the cash movement of borrowings and ignoring non-cash changes.

    Students think the disclosure is just the financing section of the cash flow statement.

    Fix: Always add a separate column for non-cash changes: forex, fair value, new leases, amortisation and acquisitions.

  • Including trade payables or other operating liabilities in the reconciliation.

    Any liability looks like debt.

    Fix: Include only liabilities whose cash flows are classified as financing activities.

  • Treating new lease liability as a cash inflow.

    A lease creates a liability, so students book it like a loan.

    Fix: A new lease is a non-cash addition. Only lease payments of principal are cash flows.

  • Not agreeing the closing balance to the balance sheet.

    Students stop once the movements are listed.

    Fix: Always tie the total of opening plus movements to the closing figure and look for the missing item if there is a gap.

  • Writing that Ind AS 7 and IAS 7 are the same on interest and dividends, or that the differences are only terminology.

    The standards look converged, and students remember only the terminology differences.

    Fix: State the removed option: under Ind AS 7, for a non-financial entity, interest and dividends paid are financing and interest and dividends received are investing. Then add the other Appendix differences, such as bank overdrafts.

Worked examples

Example 1

Case: Meridian Ltd (an Ind AS company) had term loan of ₹50,00,000 and lease liability of ₹10,00,000 on 1 April 2026. During the year it raised a new term loan of ₹20,00,000 and repaid ₹8,00,000 of the old loan. It paid lease principal of ₹2,00,000 and entered a new lease with a liability of ₹4,00,000. A foreign currency loan portion of the term loan increased by ₹1,00,000 due to exchange loss. Prepare the reconciliation of liabilities from financing activities.

Show the solution
  1. Term loan: opening ₹50,00,000.
  2. Cash flows: +₹20,00,000 proceeds − ₹8,00,000 repayment = net +₹12,00,000.
  3. Non-cash: forex loss +₹1,00,000.
  4. Closing term loan = 50,00,000 + 12,00,000 + 1,00,000 = ₹63,00,000.
  5. Lease liability: opening ₹10,00,000.
  6. Cash flows: −₹2,00,000 principal paid.
  7. Non-cash: new lease +₹4,00,000.
  8. Closing lease liability = 10,00,000 − 2,00,000 + 4,00,000 = ₹12,00,000.
  9. Cash column total = 12,00,000 − 2,00,000 = ₹10,00,000 net inflow. This must agree to the financing cash flows for these liabilities in the cash flow statement.
  10. Non-cash column total = 1,00,000 + 4,00,000 = ₹5,00,000.
  11. Total opening = 50,00,000 + 10,00,000 = ₹60,00,000. Total closing = 63,00,000 + 12,00,000 = ₹75,00,000.
  12. Check: 60,00,000 + 10,00,000 (cash) + 5,00,000 (non-cash) = ₹75,00,000, which equals the total closing balance.

Answer: Term loan closes at ₹63,00,000 and lease liability at ₹12,00,000, a total of ₹75,00,000. Opening total is ₹60,00,000. The cash column totals ₹10,00,000 (term loan +₹12,00,000, lease −₹2,00,000) and the non-cash column totals ₹5,00,000 (forex +₹1,00,000, new lease +₹4,00,000).

Example 2

Case: A student asks whether Ind AS 7 is the same as IAS 7 and what the examiner expects you to write. Draft a short answer on the position and the points of difference.

Show the solution
  1. State that Ind AS 7 follows the same structure and principles as IAS 7, but is not identical to it.
  2. Say the disclosure of changes in liabilities arising from financing activities is in both standards, with cash and non-cash changes.
  3. Give the key substantive difference: IAS 7 lets an entity choose the class for interest and dividends, but Ind AS 7 removes that option. For a non-financial entity, dividends paid and interest paid are financing cash flows, and interest and dividends received are investing cash flows. For a financial entity, interest is usually operating.
  4. Say the Appendix to Ind AS 7 notes the other differences from IAS 7, such as the treatment of bank overdrafts, and quote them from the Appendix.
  5. Mention terminology as a minor point: Ind AS 7 uses "balance sheet" and "statement of profit and loss", the terms used in Indian law and Ind AS, where IAS 7 uses "statement of financial position" and "statement of profit or loss and other comprehensive income".

Answer: Ind AS 7 follows the structure of IAS 7 and has the same financing liabilities disclosure, but it differs in substance on interest and dividends. IAS 7 gives a choice of class. Ind AS 7 removes it: for a non-financial entity, interest and dividends paid are financing cash flows, and interest and dividends received are investing cash flows. The Appendix to Ind AS 7 notes other differences, such as the treatment of bank overdrafts, and there are minor terminology differences such as "balance sheet" and "statement of profit and loss".

Exam tips

  • Practise the roll-forward table until you can set it up in two minutes. It is the typical MCQ and written question.
  • In case MCQs, check whether an item is cash or non-cash before choosing an answer. New leases and forex are traps.
  • For the IAS 7 comparison, answer in the format: Ind AS position, IAS position, reason. Lead with interest and dividends, where Ind AS 7 removes the IAS 7 option, and then add the other Appendix differences. Keep it short.
  • Show the check that closing equals the balance sheet figure. It shows the examiner your working is complete.

Practice questions from Ind AS 7 Statement of Cash Flows

Changes in Liabilities from Financing and Ind AS vs IAS 7 Differences: frequently asked questions

What does Ind AS 7 require for financing liabilities?

It requires disclosures that let users evaluate changes in liabilities arising from financing activities, including both cash and non-cash changes. No format is prescribed, but a reconciliation table is usual.

What are examples of non-cash changes?

Common examples are the effect of exchange rate changes, changes in fair values, new leases and acquisition or loss of control of subsidiaries. Amortisation of transaction costs also falls here.

Is a net debt reconciliation mandatory?

The standard does not set a specific format, so a net debt reconciliation is not named as mandatory. You need to disclose the changes in a way that separates financing liabilities from other items.

How different is Ind AS 7 from IAS 7?

The two share the same structure, and the financing liabilities disclosure is the same. The key substantive difference is interest and dividends. IAS 7 gives a choice of class, but Ind AS 7 removes it. For a non-financial entity, interest and dividends paid are financing, and interest and dividends received are investing. The Appendix to Ind AS 7 lists other differences, such as the treatment of bank overdrafts, plus minor terminology points.