PAS 7 - Statement of Cash Flows
Objective: 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: All entities that prepare financial statements in conformity with
the IFRSs are required to present a statement of cash flows.
- The Cash flows statement analyzes changes in cash and cash equivalents (cash
on hand, demand deposits, highly liquid investments that are subject to an
insignificant risk of changes in value) during a period
- 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 (rather
than its form) a cash equivalent (i.e. 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.
Presentation of the Statement of Cash Flows
- Cash flows must be analyzed between operating, investing and financing
activities
Operating - main revenue-producing activities of the entity that are not investing
or financing. Normally presented using the direct method.
Investing - acquisition and disposal of long-term assets and e=other investments
that are not considered to be cash equivalents
Financing - activities that alter the equity capital and borrowing structure of the
entity
