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CS Executive · Corporate Accounting and Financial Management · Cash Flows

Sundaram Textiles Ltd changes its policy for determining components of cash and cash equivalents, for example by reclassifying a financial instrument earlier treated as part of its investment portfolio. How does Ind AS 7 require the effect of this change to be reported?

The effect of a change in policy for determining components of cash and cash equivalents is reported under Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors. It is not treated as an operating or financing cash flow, since no actual cash movement occurs from the reclassification.

  1. AIn accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and ErrorsCorrect
  2. BAs an extraordinary item in financing activities
  3. CBy adjusting only the opening cash balance without any disclosure
  4. DAs an operating cash inflow in the current year

Explanation

Ind AS 7 says the effect of a change in policy for determining components of cash and cash equivalents is reported in accordance with Ind AS 8. It is not shown as a financing or operating cash flow, because the change is one of policy and not an actual cash movement. Quietly adjusting the opening balance without Ind AS 8 treatment is also wrong.

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