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

Himalaya Textiles Ltd, a manufacturing company (not a financial entity), prepares its statement of cash flows under Ind AS 7. During the year it paid dividends of Rs 12 lakh to its equity shareholders. The finance head suggests showing the dividend as an operating outflow, as permitted under IAS 7. How should the dividend paid be classified under Ind AS 7?

Dividend paid must be shown as a financing activity under Ind AS 7. Unlike IAS 7, which lets an entity treat it as an operating item, Ind AS 7 gives no such choice, so Himalaya Textiles cannot report the Rs 12 lakh dividend as an operating outflow.

  1. AAs an operating activity, because the company is not a financial entity
  2. BAs a financing activity only, since Ind AS 7 gives no option to show it elsewhereCorrect
  3. CAs an investing activity, because it is a distribution of profit
  4. DAs either operating or financing activity, at the company's choice

Explanation

The comparison with IAS 7 notes that IAS 7 allows dividend paid to be shown as an operating item, but Ind AS 7 requires it to be classified as part of financing activity only (paragraph 34). The option to choose operating is therefore not available, so the suggestion of the finance head is wrong.

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