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EXCLUSIVE FOR ACCOUNTANCY STUDENTS OF NATIONAL UNIVERSITY ONLY
Objective of PAS 7
The objective of PAS 7 is to require the presentation of information about the historical changes
in cash and cash equivalents of an entity by means of a statement of cash flows, which classifies
cash flows during the period according to operating, investing, and financing activities.
Fundamental principle in PAS 7
All entities that prepare financial statements in conformity with IFRSs are required to present a
statement of cash flows.
The statement of cash flows analyses changes in cash and cash equivalents during a period. Cash
and cash equivalents comprise cash on hand and demand deposits, together with short-term,
highly liquid investments that are readily convertible to a known amount of cash, and that are
subject to an insignificant risk of changes in value. Guidance notes indicate that an investment
normally meets the definition of a cash equivalent when it has a maturity of three months or less
from the date of acquisition. Equity investments are normally excluded, unless they are in
substance a cash equivalent (e.g. preferred shares acquired within three months of their specified
redemption date). Bank overdrafts which are repayable on demand and which form an integral
part of an entity's cash management are also included as a component of cash and cash
equivalents.
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The indirect method adjusts accrual basis net profit or loss for the effects of non-cash
transactions. The operating cash flows section of the statement of cash flows under the
indirect method would appear something like this:
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cash flows from investing and financing activities should be reported gross by major
class of cash receipts and major class of cash payments except for the following cases,
which may be reported on a net basis:
cash receipts and payments on behalf of customers (for example, receipt
and repayment of demand deposits by banks, and receipts collected on
behalf of and paid over to the owner of a property)
cash receipts and payments for items in which the turnover is quick, the
amounts are large, and the maturities are short, generally less than three
months (for example, charges and collections from credit card customers,
and purchase and sale of investments)
cash receipts and payments relating to deposits by financial institutions
cash advances and loans made to customers and repayments thereof
investing and financing transactions which do not require the use of cash should be
excluded from the statement of cash flows, but they should be separately disclosed
elsewhere in the financial statements
entities shall provide disclosures that enable users of financial statements to evaluate
changes in liabilities arising from financing activities
the components of cash and cash equivalents should be disclosed, and a reconciliation
presented to amounts reported in the statement of financial position
the amount of cash and cash equivalents held by the entity that is not available for use by
the group should be disclosed, together with a commentary by management.
SOURCES:
// Admin. (2012, March 06). IAS plus. Retrieved December 30, 2020, from
https://www.iasplus.com/en/standards/ias/ias7
///
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