FAQs on IND AS 7

Q: What is IND as 7?

A: IND as 7 refers to the Indian Accounting Standard (IND AS) 7, which is the standard that provides guidance on how to prepare and present cash flow statements.

Q: Who is required to comply with IND AS 7?

A: All Indian companies that are listed or in the process of getting listed on a stock exchange, or have a net worth of Rs. 250 crores or more, are required to comply with IND AS 7.

Q: What is the objective of IND AS 7?

A: The objective of IND AS 7 is to provide information about the cash inflows and outflows of an entity during a period. This information helps users of financial statements to assess the entity's ability to generate cash and cash equivalents and its needs for liquidity.

Q: What are the key requirements of IND AS 7?

A: The key requirements of IND AS 7 are as follows:

• Cash flows must be classified into operating, investing, and financing activities.
• Cash flow statements must be prepared using the indirect method, where cash flows from operating activities are calculated by adjusting net profit or loss for non-cash items and changes in working capital.
• Significant non-cash transactions must be disclosed in the notes to the financial statements.
• Cash and cash equivalents must be presented separately on the balance sheet.

Q: What are the benefits of complying with IND AS 7?

A: Complying with IND AS 7 can provide the following benefits:

• Helps users of financial statements to assess an entity's liquidity and solvency.
• Provides information about the entity's ability to generate cash and cash equivalents.
• Helps in better decision making by investors, creditors, and other stakeholders.
• Provides a uniform basis for comparing the cash flows of different entities.

Q: What is the difference between the direct and indirect method of preparing cash flow statements?

A: The direct method involves calculating the actual cash receipts and payments during the period, while the indirect method adjusts the net profit or loss for non-cash items and changes in working capital to arrive at cash flows from operating activities. The indirect method is more commonly used as it is easier to prepare and provides a more meaningful analysis of cash flows.

Q: What is the scope of IND AS 7?

A: IND AS 7 applies to all entities that prepare financial statements in accordance with IND AS. It requires such entities to present a cash flow statement as an integral part of their financial statements.

Q: Can an entity present a cash flow statement using both direct and indirect methods?

A: No, an entity must choose either the direct or indirect method for preparing its cash flow statement and must disclose its chosen method.

Q: Can an entity change its method of preparing the cash flow statement?

A: Yes, an entity can change its method of preparing the cash flow statement but it must disclose the change and provide a reconciliation of the amounts presented in the cash flow statement for the current and prior periods.

Q: What is the format for presenting the cash flow statement?

A: The cash flow statement must be presented in a prescribed format, which includes three sections for cash flows from operating, investing, and financing activities. The opening and closing balances of cash and cash equivalents must also be disclosed.

Q: Are there any exemptions or exceptions to the requirements of IND AS 7?

A: Yes, certain entities are exempt from presenting a cash flow statement under IND AS 7, such as small and medium-sized entities that are not publicly accountable. In addition, certain transactions, such as the acquisition or disposal of subsidiaries or businesses, may be exempt from classification as investing or financing activities.

Q: Can an entity present a consolidated cash flow statement?

A: Yes, an entity that prepares consolidated financial statements must present a consolidated cash flow statement that includes the cash flows of all the entities included in the consolidation. However, the cash flows of the parent and the subsidiaries must be presented separately in the statement.

Q: How does IND AS 7 define cash and cash equivalents?

A: Cash and cash equivalents are defined as cash on hand, demand deposits with banks, and short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. Examples include treasury bills, commercial paper, and money market funds.

Q: Which of the following is NOT a key requirement of IND AS 7?

a) Cash flows must be classified into operating, investing, and financing activities.

b) Cash flow statements must be prepared using the direct method.

c) Significant non-cash transactions must be disclosed in the notes to the financial statements.

d) Cash and cash equivalents must be presented separately on the balance sheet.

A: b) Cash flow statements must be prepared using the direct method. The correct method for preparing cash flow statements under IND AS 7 is the indirect method, not the direct method.

Q: Which of the following entities are required to comply with IND AS 7?

a) All Indian companies.

b) Indian companies listed or in the process of getting listed on a stock exchange.

c) Indian companies with a net worth of Rs. 250 crores or more.

d) All of the above.

A: d) All of the above. All Indian companies that prepare financial statements in accordance with IND AS are required to comply with IND AS 7. This includes Indian companies that are listed or in the process of getting listed on a stock exchange, as well as Indian companies with a net worth of Rs. 250 crores or more.

Q: Which of the following is a key objective of IND AS 7?

a) To provide information about an entity's liquidity and solvency.

b) To provide information about an entity's revenue and expenses.

c) To provide information about an entity's fixed assets and inventory.

d) To provide information about an entity's management and governance.

A: a) To provide information about an entity's liquidity and solvency. The primary objective of IND AS 7 is to provide information about an entity's cash inflows and outflows during a period, with the aim of helping users of financial statements to assess an entity's liquidity and solvency.

Q: Under IND AS 7, which of the following transactions would be classified as an investing activity?

a) Payment of dividends to shareholders.

b) Payment of interest on a loan.

c) Purchase of property, plant, and equipment.

d) Receipt of cash from customers for goods sold.

A: c) Purchase of property, plant, and equipment. Investing activities are those activities that involve the acquisition or disposal of long-term assets or investments. Therefore, the purchase of property, plant, and equipment would be classified as an investing activity under IND AS 7.

Q: Which of the following entities are exempt from presenting a cash flow statement under IND AS 7?

a) All entities are required to present a cash flow statement.

b) Small and medium-sized entities that are not publicly accountable.

c) Indian companies with a net worth of less than Rs. 250 crores.

d) Non-profit organizations.

A: b) Small and medium-sized entities that are not publicly accountable. Under IND AS 7, small and medium-sized entities that are not publicly accountable are exempt from presenting a cash flow statement. All other entities that prepare financial statements in accordance with IND AS are required to present a cash flow statement.

Q: What is the format for presenting the cash flow statement under IND AS 7?

a) There is no prescribed format for presenting the cash flow statement.

b) The statement must include sections for cash flows from operating, investing, and financing activities, as well as an analysis of changes in cash and cash equivalents.

c) The statement must include sections for cash flows from operating, investing, and financing activities, but there is no requirement to provide an analysis of changes in cash and cash equivalents.

d) The statement must include sections for cash flows from operating, investing, and financing activities, as well as a reconciliation of the opening and closing balances of cash and cash equivalents.

A: d) The statement must include sections for cash flows from operating, investing, and financing activities, as well as a reconciliation of the opening and closing balances of cash and cash equivalents. Under IND AS 7, the cash flow statement must be presented in a prescribed format that includes three sections for cash flows from operating, investing, and financing activities, as well as a reconciliation of the opening and closing balances of cash and cash equivalents.

Q: Which of the following items would be included in the cash and cash equivalents balance on the balance sheet under IND AS 7?

a) Bank overdrafts.

b) Short-term investments that are readily convertible to cash.

c) Long-term investments that are held for trading purposes.

d) All of the above.

A: b) Short-term investments that are readily convertible to cash. Cash and cash equivalents under IND AS 7 include cash on hand, demand deposits, and short-term investments that are readily convertible to cash. Bank overdrafts are not included in the cash and cash equivalents balance, as they represent negative cash balances. Long-term investments held for trading purposes would be classified as current investments, but they would not be included in the cash and cash equivalents balance.

Q: Under IND AS 7, which of the following is an example of a non-cash transaction that would be disclosed in the cash flow statement?

a) Payment of dividends to shareholders.

b) Purchase of inventory on credit.

c) Conversion of a loan into equity.

d) Issuance of bonds payable.

A: c) Conversion of a loan into equity. Non-cash transactions that have a significant effect on an entity's cash flows must be disclosed in the cash flow statement under IND AS 7. An example of such a transaction is the conversion of a loan into equity.

Q: Which of the following adjustments is made to net profit under the indirect method of preparing the cash flow statement?

a) Additions for non-operating expenses.

b) Deductions for non-operating income.

c) Deductions for non-cash expenses.

d) Additions for non-cash income.

A: c) Deductions for non-cash expenses. Under the indirect method of preparing the cash flow statement, adjustments are made to net profit for non-cash items, such as depreciation and amortization. These items are deducted from net profit in order to arrive at cash flows from operating activities.

Q: Which of the following is an example of a financing activity under IND AS 7?

a) Purchase of inventory.

b) Payment of salaries and wages.

c) Issuance of common stock.

d) Sale of property, plant, and equipment.

A: c) Issuance of common stock. Financing activities under IND AS 7 involve the receipt or repayment of funds from owners or lenders. Issuance of common stock represents an inflow of funds from owners, and therefore would be classified as a financing activity. The other options are examples of operating and investing activities.

Q: Under IND AS 7, which of the following is an example of a cash inflow from operating activities?

a) Payment of interest on a loan.

b) Payment of income tax.

c) Receipt of cash from customers for goods sold.

d) Purchase of property, plant, and equipment.

A: c) Receipt of cash from customers for goods sold. Cash inflows from operating activities are those that arise from the entity's primary business operations. Therefore, the receipt of cash from customers for goods sold would be classified as a cash inflow from operating activities under IND AS 7.

Q: Which of the following methods can be used to prepare the cash flow statement under IND AS 7?

a) Direct method only.

b) Indirect method only.

c) Both direct and indirect methods.

d) There is no prescribed method for preparing the cash flow statement under IND AS 7.

A: c) Both direct and indirect methods. Under IND AS 7, entities can use either the direct method or the indirect method to prepare the cash flow statement. The direct method provides a more detailed analysis of cash inflows and outflows from operating activities, while the indirect method starts with net profit and adjusts for non-cash items to arrive at cash flows from operating activities.

Q: Which of the following statements is true regarding the reconciliation of the opening and closing balances of cash and cash equivalents under IND AS 7?

a) The reconciliation must be presented separately from the cash flow statement.

b) The reconciliation is not required if the entity is using the direct method to prepare the cash flow statement.

c) The reconciliation must include all cash inflows and outflows for the period.

d) The reconciliation must be presented in a prescribed format.

A: d) The reconciliation must be presented in a prescribed format. Under IND AS 7, the reconciliation of the opening and closing balances of cash and cash equivalents must be presented in a prescribed format that includes a breakdown of cash and cash equivalents into their respective components, such as cash on hand and demand deposits. The reconciliation must also reconcile the opening and closing balances and provide an explanation for any significant differences.

Q: Which of the following items would be classified as an investing activity under IND AS 7?

a) Payment of dividends to shareholders.

b) Payment of interest on a loan.

c) Purchase of a building.

d) Sale of goods to customers.

A: c) Purchase of a building. Investing activities under IND AS 7 involve the acquisition or disposal of long-term assets, such as property, plant, and equipment, and investments in other entities. Therefore, the purchase of a building would be classified as an investing activity.

Q: Which of the following statements is true regarding the classification of interest and dividends received under IND AS 7?

a) Interest received must be classified as an operating activity, while dividends received must be classified as an investing activity.

b) Interest received must be classified as an investing activity, while dividends received must be classified as an operating activity.

c) Both interest and dividends received can be classified as either operating or investing activities.

d) Interest and dividends received are not separately classified under IND AS 7.

A: c) Both interest and dividends received can be classified as either operating or investing activities. Under IND AS 7, interest and dividends received can be classified as either operating or investing activities, depending on the nature of the entity's operations. For example, if the entity is primarily engaged in financial activities, interest and dividends received would be classified as operating activities. If the entity is primarily engaged in non-financial activities, they would be classified as investing activities.

Q: Under IND AS 7, which of the following statements is true regarding the presentation of the cash flow statement?

a) The cash flow statement must be presented in a prescribed format.

b) The cash flow statement must be presented as a separate statement, apart from the balance sheet and income statement.

c) The cash flow statement must include only cash flows from operating activities.

d) The cash flow statement must include a reconciliation of net profit to cash flows from operating activities.

A: b) The cash flow statement must be presented as a separate statement, apart from the balance sheet and income statement. Under IND AS 7, the cash flow statement must be presented as a separate statement, apart from the balance sheet and income statement. The statement must include cash flows from operating, investing, and financing activities, and must reconcile the opening and closing balances of cash and cash equivalents. While the presentation of the cash flow statement is not prescribed in a specific format, it must meet certain minimum requirements set out in the standard.

Q: Which of the following items would be classified as a financing activity under IND AS 7?

a) Payment of income tax.

b) Payment of dividends to shareholders.

c) Purchase of inventory.

d) Sale of goods to customers.

A: b) Payment of dividends to shareholders. Financing activities under IND AS 7 involve changes in the entity's equity and borrowings. Therefore, the payment of dividends to shareholders would be classified as a financing activity.

Q: Which of the following is an example of a non-cash transaction that would be disclosed in the notes to the cash flow statement under IND AS 7?

a) Payment of interest on a loan.

b) Sale of a long-term asset in exchange for a note receivable.

c) Payment of income tax.

d) Payment of dividends to shareholders.

A: b) Sale of a long-term asset in exchange for a note receivable. Non-cash transactions, such as the sale of a long-term asset in exchange for a note receivable, must be disclosed in the notes to the cash flow statement under IND AS 7. This is to provide additional information to users of the financial statements and to ensure that the cash flow statement accurately reflects the entity's cash inflows and outflows.

Q: Under IND AS 7, which of the following is an example of a cash outflow from financing activities?

a) Receipt of cash from customers for goods sold.

b) Payment of interest on a loan.

c) Purchase of property, plant, and equipment.

d) Payment of income tax.

A: b) Payment of interest on a loan. Cash outflows from financing activities under IND AS 7 involve the repayment of borrowings, payment of dividends, and payment of interest on borrowings. Therefore, the payment of interest on a loan would be classified as a cash outflow from financing activities.

Q: Which of the following statements is true regarding the direct method of preparing the cash flow statement under IND AS 7?

a) The direct method is the preferred method of preparing the cash flow statement.

b) The direct method requires a reconciliation of net profit to cash flows from operating activities.

c) The direct method is less time-consuming to prepare than the indirect method.

d) The direct method is more commonly used in practice than the indirect method.

A: b) The direct method requires a reconciliation of net profit to cash flows from operating activities. Under the direct method of preparing the cash flow statement, cash flows from operating activities are calculated by directly analyzing the cash receipts and payments of the entity. The direct method requires a reconciliation of net profit to cash flows from operating activities, which involves adjusting net profit for non-cash items, such as depreciation and amortization, and for changes in working capital items. The indirect method is the preferred method of preparing the cash flow statement under IND AS 7, although the direct method can also be used.

Q: Under IND AS 7, which of the following is an example of a cash inflow from investing activities?

a) Payment of dividends to shareholders.

b) Sale of property, plant, and equipment.

c) Payment of interest on a loan.

d) Payment of income tax.

A: b) Sale of property, plant, and equipment. Cash inflows from investing activities under IND AS 7 involve the sale of long-term assets, such as property, plant, and equipment, and investments in other entities. Therefore, the sale of property, plant, and equipment would be classified as a cash inflow from investing activities.

Q: Which of the following is an example of a non-operating item that would be excluded from the calculation of cash flows from operating activities under IND AS 7?

a) Depreciation and amortization.

b) Changes in working capital items.

c) Gain on sale of a long-term asset.

d) Interest expense.

A: c) Gain on sale of a long-term asset. Non-operating items, such as gains or losses on the sale of long-term assets, would be excluded from the calculation of cash flows from operating activities under IND AS 7. The calculation of cash flows from operating activities involves adjustments to net profit for non-cash items and changes in working capital items, to arrive at the entity's cash inflows and outflows from operating activities.

Q: Under IND AS 7, which of the following is an example of a cash outflow from investing activities?

a) Issuance of common stock.

b) Payment of dividends to shareholders.

c) Purchase of property, plant, and equipment.

d) Payment of income tax.

A: c) Purchase of property, plant, and equipment. Cash outflows from investing activities under IND AS 7 involve the acquisition of long-term assets, such as property, plant, and equipment, and investments in other entities. Therefore, the purchase of property, plant, and equipment would be classified as a cash outflow from investing activities.

Q: Which of the following is an example of a cash inflow from financing activities under IND AS 7?

a) Payment of interest on a loan.

b) Payment of income tax.

c) Issuance of common stock.

d) Purchase of inventory.

A: c) Issuance of common stock. Cash inflows from financing activities under IND AS 7 involve the issuance of equity instruments and borrowings. Therefore, the issuance of common stock would be classified as a cash inflow from financing activities.

Q: Under IND AS 7, which of the following is an example of a non-cash item that would be included in the calculation of cash flows from operating activities?

a) Purchase of inventory.

b) Payment of dividends to shareholders.

c) Amortization of intangible assets.

d) Sale of property, plant, and equipment.

A: c) Amortization of intangible assets. Non-cash items, such as depreciation and amortization, would be included in the calculation of cash flows from operating activities under IND AS 7. This is because these items represent the use of economic resources over time, even though no cash outflows occurred during the period.

Q: Under IND AS 7, which of the following is true about the direct method of preparing the cash flow statement?

a) It starts with net income and adjusts for non-cash items.

b) It is less time-consuming than the indirect method.

c) It is not allowed under IND AS 7.

d) It is more commonly used than the indirect method.

A: b) It is less time-consuming than the indirect method. The direct method of preparing the cash flow statement involves presenting actual cash inflows and outflows during the period, rather than starting with net income and adjusting for non-cash items. While the direct method is allowed under IND AS 7, it is generally considered more time-consuming and difficult to prepare than the indirect method.

Q: Under IND AS 7, which of the following is an example of a cash inflow from operating activities?

a) Payment of dividends to shareholders.

b) Payment of interest on a loan.

c) Sale of goods or services.

d) Purchase of property, plant, and equipment.

A: c) Sale of goods or services. Cash inflows from operating activities under IND AS 7 involve the receipts from the sale of goods or services, as well as the collection of trade receivables and other operating receipts. Therefore, the sale of goods or services would be classified as a cash inflow from operating activities.

Q: Under IND AS 7, which of the following is true about the treatment of bank overdrafts in the cash flow statement?

a) Bank overdrafts are always classified as cash inflows from financing activities.

b) Bank overdrafts are always classified as cash outflows from financing activities.

c) Bank overdrafts can be classified as cash inflows or outflows from financing activities, depending on their purpose.

d) Bank overdrafts are never included in the cash flow statement.

A: c) Bank overdrafts can be classified as cash inflows or outflows from financing activities, depending on their purpose. Bank overdrafts that are used to finance the entity's operating activities would be classified as cash outflows from operating activities, while those used to finance investing or financing activities would be classified as cash outflows from investing or financing activities, respectively. Additionally, the repayment of bank overdrafts would be classified as a cash inflow from financing activities.