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CA Final · Financial Reporting · Ind AS 7 Statement of Cash Flows

Godavari Finance Ltd is an entity whose cash flows are being reviewed for the year. The CFO asks what 'cash flows' means under Ind AS 7, to decide whether a purchase of a short-term investment readily convertible to cash should be treated as a cash flow. Which definition applies?

Under Ind AS 7, cash flows are inflows and outflows of cash and cash equivalents. The definition does not extend to all current assets or to borrowings, and it is not limited to cash alone, so it covers both cash and cash equivalents.

  1. AInflows and outflows of cash only, excluding cash equivalents
  2. BInflows and outflows of cash and cash equivalentsCorrect
  3. CInflows and outflows of cash and all current assets
  4. DInflows and outflows of cash, cash equivalents and short-term borrowings

Explanation

Ind AS 7 defines cash flows as inflows and outflows of cash and cash equivalents. Hence movements between cash and cash equivalents are not cash flows of the entity, while the other options either narrow or widen the definition beyond the text.

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