Ias 7

7IAS 7 International write up commonplace 7 description of property Flows This edition includes am terminusments resulting from IFRSs issued up to 31 declination 2008. IAS 7 hard notes Flow Statements was issued by the International history warnings Committee in December 1992. It replaced IAS 7 Statement of Changes in mo solveary Position (issued in October 1977). In April 2001 the International accountancy mensurations Board resolved that all Standards and Interpretations issued under previous Constitutions continued to be applicable unless and until they were revise or withdrawn.Since then, IAS 7 and its accomp whatevering documents corrobo govern been amended by the chase IFRSs IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (issued December 2003) IAS 21 The Effects of Changes in Foreign Exchange Rates (as revise in December 2003) IFRS 8 Operating Segments (issued November 2006)* IAS 23 Borrowing cost (as revise in March 2007)* IAS 1 s how of Financial Statements (as revised in September 2007)* IAS 27 Consolidated and stop Financial Statements (amended in January 2008) Improvements to IFRSs (issued May 2008). As a result of the changes in terminology make by IAS 1 in 2007, the title of IAS 7 was changed to Statement of money Flows. * effective date 1 January 2009 effective date 1 July 2009 IASCF 999 IAS 7 CONTENTS INTERNATIONAL ACCOUNTING STANDARD 7 STATEMENT OF funds FLOWSOBJECTIVE SCOPE BENEFITS OF CASH FLOW INFORMATION DEFINITIONS money and notes equals introduction OF A STATEMENT OF CASH FLOWS Operating activities commit activities Financing activities damages coverage CASH FLOWS FROM OPERATING ACTIVITIES report CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES REPORTING CASH FLOWS ON A NET BASIS FOREIGN up-to-dateness CASH FLOWS INTEREST AND DIVIDENDS TAXES ON INCOME INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES CHANGES IN will power INTERESTS IN SUBSIDIARIES AND OTHER BUSINESSES N ON-CASH TRANSACTIONS COMPONENTS OF CASH AND CASH EQUIVALENTS OTHER DISCLOSURES in effect(p) DATE APPENDICES A B Statement of hard money eats for an entity formulaer(a) than a financial initiation Statement of bills flows for a financial institution splits 13 45 69 79 1017 1315 16 17 1820 21 2224 2528 3134 3536 3738 3942B 4344 4547 4852 5355 1000 IASCF IAS 7 International Accounting Standard 7 Statement of Cash Flows (IAS 7) is set out in paragraphs 155. tout ensemble the paragraphs have equal authority but retain the IASC format of the Standard when it was adopted by the IASB.IAS 7 should be read in the circumstance of its butt, the Preface to International Financial insurance coverage Standards and the Framework for the Preparation and Presentation of Financial Statements. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a foothold for selecting and take foring method of accounting policies in the absence of explicit guidance. IASCF 10 01 IAS 7 International Accounting Standard 7 Statement of Cash Flows* Objective Information somewhat the bullion flows of an entity is effective in providing users of financial arguments with a basis to mensurate the business leader of the entity to generate gold and notes equivalents and the needs of the entity to utilise those immediate payment flows.The economic decisions that be taken by users require an evaluation of the cleverness of an entity to generate specie and change equivalents and the timing and certainty of their generation. The objective of this Standard is to require the provision of breeding about the historical changes in specie and bills equivalents of an entity by elbow room of a contention of money flows which severalizeifies notes flows during the period from run, spend and backing activities. Scope 1 An entity shall prepargon a controversy of capital flows in accordance with the requirements of this Standard and shall cave in it as an integral start out of its financial parameters for separately period for which financial narratives atomic number 18 presented. 2 3 This Standard supersedes IAS 7 Statement of Changes in Financial Position, approved in July 1977.Users of an entitys financial statements argon touched in how the entity generates and uses hard currency and notes equivalents. This is the case regardless of the nature of the entitys activities and disregardless of whether money can be viewed as the product of the entity, as whitethorn be the case with a financial institution. Entities need immediate payment for basically the same reasons however divers(prenominal) their track revenue-producing activities might be. They need change to conduct their operations, to pay their obligations, and to provide returns to their investors. Accordingly, this Standard requires all entities to present a statement of gold flows. Benefits of funds flow knowledge A statement of funds flows, when e mploy in conjunction with the rest of the financial statements, provides information that enables users to tax the changes in net pluss of an entity, its financial structure (including its liquidity and solvency) and its ability to affect the aggregates and timing of exchange flows in order to adapt to changing circumstances and opportunities. Cash flow information is useful in assessing the ability of the entity to generate notes and cash equivalents and enables users to develop models to assess and compargon the present value of the * In September 2007 the IASB amended the title of IAS 7 from Cash Flow Statements to Statement of Cash Flows as a consequence of the decree of IAS 1 Presentation of Financial Statements in 2007. 1002 IASCF IAS 7 emerging cash flows of different entities.It as well as enhances the comparability of the reporting of operational performance by different entities because it eliminates the effects of utilise different accounting treatments for th e same proceeding and events. 5 Historical cash flow information is very much used as an indicator of the amount, timing and certainty of future(a) cash flows. It is also useful in checking the accuracy of past assessments of future cash flows and in examining the relationship amidst increaseability and net cash flow and the partake of changing prices. Definitions 6 The following terms ar used in this Standard with the meanings undertake Cash comprises cash on hand and pauperism deposits.Cash equivalents argon go around-term, highly liquid investments that atomic number 18 readily convertible to cognise amounts of cash and which ar subject to an insignificant risk of changes in value. Cash flows atomic number 18 inflows and outflows of cash and cash equivalents. Operating activities are the asterisk revenue-producing activities of the entity and former(a) activities that are not put or backing activities. Investing activities are the acquisition and disposal of long -term assets and dissipate investments not include in cash equivalents. Financing activities are activities that result in changes in the size and composition of the contributed blondness and borrowings of the entity. Cash and cash equivalents Cash equivalents are held for the taper of meeting short-term cash commitments rather than for investment or separate purposes. For an investment to qualify as a cash equivalent it must(prenominal) be readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. Therefore, an investment ordinarily qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition. Equity investments are excluded from cash equivalents unless they are, in substance, cash equivalents, for example in the case of favored shares watchd within a short period of their maturity and with a specified redemption date. Bank borrowings are generally considered to be support activities.However, in some countries, bank overdrafts which are repayable on demand form an integral part of an entitys cash management. In these circumstances, bank overdrafts are included as a component of cash and cash equivalents. A trait of such banking arrangements is that the bank balance often fluctuates from being positive to overdrawn. Cash flows exclude movements between items that constitute cash or cash equivalents because these components are part of the cash management of an entity rather than part of its operational, expend and backing activities. Cash management includes the investment of excess cash in cash equivalents. 8 9 IASCF 1003 IAS 7Presentation of a statement of cash flows 10 The statement of cash flows shall report cash flows during the period categorize by run, spend and financing activities. 11 An entity presents its cash flows from operating, investing and financing activities in a behavior which is most appropriate to its busin ess. Classification by activity provides information that allows users to assess the reach of those activities on the financial position of the entity and the amount of its cash and cash equivalents. This information may also be used to evaluate the relationships among those activities. A single transaction may include cash flows that are assort ad differently.For example, when the cash quittance of a loan includes both interest and capital, the interest element may be classified as an operating activity and the capital element is classified as a financing activity. 12 Operating activities 13 The amount of cash flows arising from operating activities is a key indicator of the extent to which the operations of the entity have generated sufficient cash flows to repay loans, maintain the operating capability of the entity, pay dividends and make sassy investments without recourse to external sources of financing. Information about the specific components of historical operating cas h flows is useful, in conjunction with different information, in forecasting future operating cash flows. Cash flows from operating activities are primarily derived from the principal revenue-producing activities of the entity.Therefore, they generally result from the transactions and an other(a)(prenominal) events that enter into the determination of profit or loss. Examples of cash flows from operating activities are (a) (b) (c) (d) (e) (f) (g) cash pass from the barter of goods and the rendering of services cash receipts from royalties, fees, commissions and other revenue cash payments to suppliers for goods and services cash payments to and on behalf of employees cash receipts and cash payments of an insurance entity for premiums and claims, annuities and other polity benefits cash payments or refunds of income taxes unless they can be specifically identified with financing and investing activities and cash receipts and payments from contracts held for dealing or traffic purposes. 14Some transactions, such as the deal of an item of localize, may devolve rise to a gain or loss that is included in recognised profit or loss. The cash flows relating to such transactions are cash flows from investing activities. However, cash payments to manufacture or acquire assets held for term of a contract to others and ensuantly held for sale as described in paragraph 68A of IAS 16 Property, Plant and Equipment are cash flows from operating activities. The cash receipts from rents and subsequent sales of such assets are also cash flows from operating activities. 1004 IASCF IAS 7 15 An entity may hold securities and loans for dealing or trading purposes, in which case they are similar to inventory acquired specifically for resale.Therefore, cash flows arising from the procure and sale of dealing or trading securities are classified as operating activities. Similarly, cash advances and loans made by financial institutions are normally classified as operating a ctivities since they relate to the main revenue-producing activity of that entity. Investing activities 16 The separate disclosure of cash flows arising from investing activities is important because the cash flows act as the extent to which expenditures have been made for resources intended to generate future income and cash flows. Examples of cash flows arising from investing activities are (a) cash payments to acquire property, plant and equipment, intangibles and other long-term assets.These payments include those relating to capitalised development costs and self-constructed property, plant and equipment cash receipts from sales of property, plant and equipment, intangibles and other long-term assets cash payments to acquire fair-mindedness or debt instruments of other entities and interests in joint ventures (other than payments for those instruments considered to be cash equivalents or those held for dealing or trading purposes) cash receipts from sales of equity or debt in struments of other entities and interests in joint ventures (other than receipts for those instruments considered to be cash equivalents and those held for dealing or trading purposes) cash advances and loans made to other parties (other than advances and loans made by a financial institution) cash receipts from the quittance of advances and loans made to other parties (other than advances and loans of a financial institution) cash payments for futures contracts, ahead contracts, plectrum contracts and swap contracts draw off when the contracts are held for dealing or trading purposes, or the payments are classified as financing activities and cash receipts from futures contracts, forward contracts, option contracts and swap contracts except when the contracts are held for dealing or trading purposes, or the receipts are classified as financing activities. (b) (c) (d) (e) (f) (g) (h) When a contract is accounted for as a hedge of an identifiable position the cash flows of the co ntract are classified in the same manner as the cash flows of the position being hedged. IASCF 1005 IAS 7 Financing activities 7 The separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of capital to the entity. Examples of cash flows arising from financing activities are (a) (b) (c) (d) (e) cash proceeds from issuance shares or other equity instruments cash payments to owners to acquire or redeem the entitys shares cash proceeds from issuing debentures, loans, notes, bonds, mortgages and other short or long-term borrowings cash repayments of amounts borrowed and cash payments by a lessee for the reduction of the outstanding liability relating to a finance lease. Reporting cash flows from operating activities 8 An entity shall report cash flows from operating activities using all (a) the come up to method, whereby major classes of egregious cash receipts and blunt cash payme nts are break or the indirect method, whereby profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows. (b) 19 Entities are encouraged to report cash flows from operating activities using the direct method. The direct method provides information which may be useful in estimating future cash flows and which is not available under the indirect method.Under the direct method, information about major classes of gain cash receipts and gross cash payments may be obtained either (a) (b) from the accounting records of the entity or by adjusting sales, cost of sales (interest and similar income and interest expense and similar charges for a financial institution) and other items in the statement of comprehensive income for (i) (ii) (iii) changes during the period in inventories and operating receivables and payables other non-cash items and other items for which the cash effects are investing or financing cash flows. 20 Under the indirect method, the net cash flow from operating activities is determined by adjusting profit or loss for the effects of (a) changes during the period in inventories and operating receivables and payables 1006 IASCF IAS 7 (b) on-cash items such as depreciation, provisions, deferred taxes, unrealised unknown currency gains and losses, and undistributed profits of associates and all other items for which the cash effects are investing or financing cash flows. (c) Alternatively, the net cash flow from operating activities may be presented under the indirect method by showing the revenues and expenses bring out in the statement of comprehensive income and the changes during the period in inventories and operating receivables and payables. Reporting cash flows from investing and financing activities 21 An entity shall report apiece major classes of gross cash receipts and gross cash payments arising from investing and financing activities, except to the extent that cash flows described in paragraphs 22 and 24 are describe on a net basis. Reporting cash flows on a net basis 2 Cash flows arising from the following operating, investing or financing activities may be reported on a net basis (a) cash receipts and payments on behalf of customers when the cash flows echo the activities of the customer rather than those of the entity and cash receipts and payments for items in which the turnover is quick, the amounts are large, and the maturities are short. (b) 23 Examples of cash receipts and payments referred to in paragraph 22(a) are (a) (b) (c) the acceptance and repayment of demand deposits of a bank funds held for customers by an investment entity and rents collected on behalf of, and remunerative over to, the owners of properties. Examples of cash receipts and payments referred to in paragraph 22(b) are advances made for, and the repa yment of (a) (b) (c) 24 principal amounts relating to credit card customers the purchase and sale of investments and other short-term borrowings, for example, those which have a maturity period of three months or less.Cash flows arising from distributively of the following activities of a financial institution may be reported on a net basis (a) cash receipts and payments for the acceptance and repayment of deposits with a fixed maturity date the placement of deposits with and withdrawal of deposits from other financial institutions and (b) IASCF 1007 IAS 7 (c) cash advances and loans made to customers and the repayment of those advances and loans. Foreign currency cash flows 25 Cash flows arising from transactions in a contrary currency shall be recorded in an entitys functional currency by applying to the abroad currency amount the veer rate between the functional currency and the remote currency at the date of the cash flow. The cash flows of a foreign ancillary shall be tr anslated at the step in rates between the functional currency and the foreign currency at the dates of the cash flows. 26 7 Cash flows denominated in a foreign currency are reported in a manner uniform with IAS 21 The Effects of Changes in Foreign Exchange Rates. This permits the use of an exchange rate that approximates the actual rate. For example, a weighted average exchange rate for a period may be used for recording foreign currency transactions or the translation of the cash flows of a foreign subsidiary. However, IAS 21 does not permit use of the exchange rate at the end of the reporting period when translating the cash flows of a foreign subsidiary. unrealised gains and losses arising from changes in foreign currency exchange rates are not cash flows.However, the effect of exchange rate changes on cash and cash equivalents held or due in a foreign currency is reported in the statement of cash flows in order to gentle cash and cash equivalents at the beginning and the end of the period. This amount is presented separately from cash flows from operating, investing and financing activities and includes the differences, if any, had those cash flows been reported at end of period exchange rates. Deleted 28 29 30 Deleted Interest and dividends 31 Cash flows from interest and dividends received and gainful shall each be break danced separately. Each shall be classified in a consistent manner from period to period as either operating, investing or financing activities. 32The total amount of interest paid during a period is disclosed in the statement of cash flows whether it has been recognised as an expense in profit or loss or capitalised in accordance with IAS 23 Borrowing Costs. Interest paid and interest and dividends received are usually classified as operating cash flows for a financial institution. However, on that point is no consensus on the classification of these cash flows for other entities. Interest paid and interest and dividends receive d may be classified as operating cash flows because they enter into the determination of profit or loss. Alternatively, interest paid and interest and dividends received may be classified as financing cash flows and investing cash flows respectively, because they are costs of obtaining financial resources or returns on investments. 33 1008 IASCF IAS 7 34Dividends paid may be classified as a financing cash flow because they are a cost of obtaining financial resources. Alternatively, dividends paid may be classified as a component of cash flows from operating activities in order to advocate users to determine the ability of an entity to pay dividends out of operating cash flows. Taxes on income 35 Cash flows arising from taxes on income shall be separately disclosed and shall be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities. 36 Taxes on income arise on transactions that give rise to cash flows th at are classified as operating, investing or financing activities in a statement of cash flows.While tax expense may be readily identifiable with investing or financing activities, the related tax cash flows are often impracticable to identify and may arise in a different period from the cash flows of the underlying transaction. Therefore, taxes paid are usually classified as cash flows from operating activities. However, when it is practicable to identify the tax cash flow with an individual transaction that gives rise to cash flows that are classified as investing or financing activities the tax cash flow is classified as an investing or financing activity as appropriate. When tax cash flows are allocated over more than one class of activity, the total amount of taxes paid is disclosed. Investments in subsidiaries, associates and joint ventures 7 When accounting for an investment in an associate or a subsidiary accounted for by use of the equity or cost method, an investor restric ts its reporting in the statement of cash flows to the cash flows between itself and the investee, for example, to dividends and advances. An entity which reports its interest in a collectively pick upled entity (see IAS 31 Interests in Joint Ventures) using proportionate consolidation, includes in its consolidate statement of cash flows its proportionate share of the jointly controlled entitys cash flows. An entity which reports such an interest using the equity method includes in its statement of cash flows the cash flows in respect of its investments in the jointly controlled entity, and distributions and other payments or receipts between it and the jointly controlled entity. 38Changes in ownership interests in subsidiaries and other businesses 39 The aggregate cash flows arising from obtaining and losing control of subsidiaries or other businesses shall be presented separately and classified as investing activities. An entity shall disclose, in aggregate, in respect of both obtaining and losing control of subsidiaries or other businesses during the period each of the following (a) the total consideration paid or received 40 IASCF 1009 IAS 7 (b) (c) the portion of the consideration consisting of cash and cash equivalents the amount of cash and cash equivalents in the subsidiaries or other businesses over which control is obtained or lost and the amount of the assets and liabilities other than cash or cash equivalents in the subsidiaries or other businesses over which control is obtained or lost, summarised by each major category. (d) 41The separate presentation of the cash flow effects of obtaining or losing control of subsidiaries or other businesses as single line items, unitedly with the separate disclosure of the amounts of assets and liabilities acquired or disposed of, helps to distinguish those cash flows from the cash flows arising from the other operating, investing and financing activities. The cash flow effects of losing control are not de ducted from those of obtaining control. The aggregate amount of the cash paid or received as consideration for obtaining or losing control of subsidiaries or other businesses is reported in the statement of cash flows net of cash and cash equivalents acquired or disposed of as part of such transactions, events or changes in circumstances. Cash flows arising from changes in ownership interests in a subsidiary that do not result in a loss of control shall be classified as cash flows from financing activities.Changes in ownership interests in a subsidiary that do not result in a loss of control, such as the subsequent purchase or sale by a parent of a subsidiarys equity instruments, are accounted for as equity transactions (see IAS 27 Consolidated and Separate Financial Statements (as amended in 2008)). Accordingly, the resulting cash flows are classified in the same room as other transactions with owners described in paragraph 17. 42 42A 42B Non-cash transactions 43 Investing and fin ancing transactions that do not require the use of cash or cash equivalents shall be excluded from a statement of cash flows. Such transactions shall be disclosed elsewhere in the financial statements in a way that provides all the relevant information about these investing and financing activities. 44Many investing and financing activities do not have a direct impact on current cash flows although they do affect the capital and asset structure of an entity. The exclusion of non-cash transactions from the statement of cash flows is consistent with the objective of a statement of cash flows as these items do not ask cash flows in the current period. Examples of non-cash transactions are (a) (b) (c) the acquisition of assets either by assuming directly related liabilities or by means of a finance lease the acquisition of an entity by means of an equity issue and the conversion of debt to equity. 1010 IASCF IAS 7 Components of cash and cash equivalents 5 An entity shall disclose the components of cash and cash equivalents and shall present a reconciliation of the amounts in its statement of cash flows with the equivalent items reported in the statement of financial position. 46 In view of the variety of cash management practices and banking arrangements around the military man and in order to comply with IAS 1 Presentation of Financial Statements, an entity discloses the policy which it adopts in determining the composition of cash and cash equivalents. The effect of any change in the policy for determining components of cash and cash equivalents, for example, a change in the classification of financial instruments previously considered to be part of an entitys investment portfolio, is reported in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. 47 Other disclosures 8 An entity shall disclose, together with a commentary by management, the amount of significant cash and cash equivalent balances held by the entity that are n ot available for use by the group. 49 There are various circumstances in which cash and cash equivalent balances held by an entity are not available for use by the group. Examples include cash and cash equivalent balances held by a subsidiary that operates in a country where exchange controls or other judicial restrictions apply when the balances are not available for general use by the parent or other subsidiaries. Additional information may be relevant to users in understanding the financial position and liquidity of an entity.Disclosure of this information, together with a commentary by management, is encouraged and may include (a) the amount of undrawn borrowing facilities that may be available for future operating activities and to settle capital commitments, indicating any restrictions on the use of these facilities the aggregate amounts of the cash flows from each of operating, investing and financing activities related to interests in joint ventures reported using proportio nate consolidation the aggregate amount of cash flows that represent increases in operating force separately from those cash flows that are needful to maintain operating capacity and the amount of the cash flows arising from the operating, investing and financing activities of each reportable segment (see IFRS 8 Operating Segments). 50 (b) (c) (d) IASCF 1011 IAS 7 51The separate disclosure of cash flows that represent increases in operating capacity and cash flows that are required to maintain operating capacity is useful in enabling the user to determine whether the entity is investing adequately in the aid of its operating capacity. An entity that does not invest adequately in the maintenance of its operating capacity may be prejudicing future profitability for the interestingness of current liquidity and distributions to owners. The disclosure of divided cash flows enables users to obtain a better understanding of the relationship between the cash flows of the business as a whole and those of its component parts and the availability and variability of segmental cash flows. 52 Effective date 53 54 This Standard becomes operative for financial statements covering periods beginning on or subsequently 1 January 1994.IAS 27 (as amended in 2008) amended paragraphs 3942 and added paragraphs 42A and 42B. An entity shall apply those amendments for annual periods beginning on or after 1 July 2009. If an entity applies IAS 27 (amended 2008) for an earlier period, the amendments shall be use for that earlier period. The amendments shall be applied retrospectively. Paragraph 14 was amended by Improvements to IFRSs issued in May 2008. An entity shall apply that amendment for annual periods beginning on or after 1 January 2009. originally application is permitted. If an entity applies the amendment for an earlier period it shall disclose that fact and apply paragraph 68A of IAS 16. 55 1012 IASCF