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

Kaveri Textiles Ltd, a manufacturing company (not a financial entity), prepares its financial statements under Ind AS. During the year it paid Rs 12 lakh as interest on term loans and Rs 3 lakh as dividend to its equity shareholders, and received Rs 2 lakh as interest on fixed deposits with a bank. Under Ind AS 7, how should these items be classified in the statement of cash flows?

Interest paid and dividend paid are classified under financing activities, and interest received is classified under investing activities. Ind AS 7 removes the IAS 7 option to show these items as operating cash flows for non-financial entities, and dividend paid is permitted only in financing activities.

  1. AInterest paid and dividend paid in financing activities; interest received in investing activitiesCorrect
  2. BInterest paid in operating activities; dividend paid in financing activities; interest received in investing activities
  3. CInterest paid, dividend paid and interest received all in operating activities
  4. DInterest paid in financing activities; dividend paid in operating activities; interest received in operating activities

Explanation

Per the comparison with IAS 7, Ind AS 7 gives no option for entities other than financial entities: interest paid goes to financing activities and interest received to investing activities. Dividend paid must be classified in financing activities only. The option that places interest paid in operating activities reflects the IAS 7 choice, which Ind AS 7 does not allow.

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