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CMA Intermediate · Corporate Accounting and Auditing · Cash Flow Statement

Under the indirect method of reporting cash flows from operating activities as set out in Ind AS 7, which of the following is an adjustment made to profit or loss to arrive at net cash flow from operating activities?

Unrealised foreign currency gains and losses are adjusted. Ind AS 7 lists them among non-cash items, along with depreciation, provisions, deferred taxes and undistributed profits of associates, that are adjusted against profit under the indirect method. The other items are financing or investing cash flows.

  1. AProceeds from issue of equity shares
  2. BUnrealised foreign currency gains and lossesCorrect
  3. CRepayment of long-term borrowings
  4. DPurchase of property, plant and equipment

Explanation

Ind AS 7 states that under the indirect method profit or loss is adjusted for non-cash items such as depreciation, provisions, deferred taxes, unrealised foreign currency gains and losses and undistributed profits of associates. Share issue proceeds and loan repayment are financing flows, and purchase of PPE is an investing flow, so they are not operating adjustments.

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