Which one of the following is related to the Cash Flow Statement?

Correct option is D

Ind AS-7 (Statement of Cash Flows)is the Indian Accounting Standard that specifically deals with the preparation and presentation of cash flow statements. It provides guidelines for classifying cash flows into three main categories:

1. Operating Activities: Cash flows related to core business operations, such as revenue collection and expenses.

2. Investing Activities: Cash flows from the purchase and sale of assets, investments, and loans given.

3. Financing Activities: Cash flows from issuing shares, borrowing funds, and repaying financial obligations.

The purpose of Ind AS-7 is to provide information about an entity’s liquidity and financial flexibility by showing how cash is generated and used. This information is critical for investors, creditors, and analysts to assess an entity’s cash-generating ability and financial stability.

Ind AS-7 is based on IAS 7 (International Accounting Standard 7 – Statement of Cash Flows) issued by the International Accounting Standards Board (IASB). It applies to all entities that prepare financial statements under Ind AS in India.

Information Booster:

• Ind AS-7 replaces AS-3 (Cash Flow Statements), aligning Indian accounting standards with global IFRS practices.

• The standard allows companies to prepare cash flow statements using either the direct method (preferred) or the indirect method(widely used).

• Ind AS-7 requires a clear distinction between cash and cash equivalents, ensuring accurate reporting of liquid assets.

• Cash equivalents include highly liquid short-term investments that are readily convertible to cash with insignificant risk of changes in value.

• The cash flow statement helps in assessing an entity's liquidity, solvency, and financial adaptability.

• Compliance with Ind AS-7 is mandatory for listed companies and large private companies following Ind AS.

Additional Knowledge:

Ind AS-2 (Inventories)

• Ind AS-2 focuses on the valuation of inventories (raw materials, work-in-progress, and finished goods).

• It specifies acceptable cost calculation methods like FIFO (First-In, First-Out) and Weighted Average Cost.

• It does not deal with cash flows but rather with inventory valuation and recognition in financial statements.

Ind AS-3 (No Longer Applicable in India)

• Ind AS-3 was an older standard for cash flow statements, but it was replaced by Ind AS-7.

• Many people still associate cash flow statements with Ind AS-3 due to its previous application, but the correct standard under the current Ind AS framework is Ind AS-7.

Ind AS-16 (Property, Plant & Equipment - PPE)

• Ind AS-16 provides accounting treatment for tangible fixed assets like land, buildings, and machinery.

• It covers initial recognition, depreciation, revaluation, and disposal of PPE.

• Although asset purchases affect cash flow (investing activities), Ind AS-16 does not deal with the preparation of cash flow statements.