CS Executive · Corporate Accounting and Financial Management · Cash Flows
As defined in AS 3 and Ind AS 7, 'cash flows' are:
Cash flows are inflows and outflows of cash and cash equivalents, as defined in both AS 3 and Ind AS 7. Cash equivalents are included in the definition, so excluding them or equating cash flows with adjusted profit is incorrect.
- AInflows and outflows of cash and cash equivalentsCorrect
- BOnly the net profit adjusted for non-cash items
- CInflows and outflows of cash only, excluding cash equivalents
- DChanges in working capital during the year
Explanation
Both AS 3 and Ind AS 7 define cash flows as inflows and outflows of cash and cash equivalents. The option excluding cash equivalents is wrong because equivalents are part of the definition. Net profit adjusted for non-cash items is only a step in the indirect method, not the definition.
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