The IAS / IFRS standards • 31Edion 2020 ©
IAS 7
Statementofcashows
1. Objecve
The objecve of IAS 7 is to specify the requirements enes must comply with
when preparing informaon related to cash ows so as to allow the readers of
their nancial statements to understand the potenal implicaons of incoming
and outgoing cash ows and cash equivalents.
The Standard requires that a statementofcashows be provided in the form of
a summarydocument, giving users the possibility to:
• assess the abilityoftheentytogeneratecashandcashequivalents;
• assess the enty’snancingrequirements;
• forecast the enty’s changeincashposion.
• improve the understanding of howtheentygeneratesandusescashows
for operang, invesng and nancing acvies over the relevant period.
The statement of cash ows presents inowsandoulowsofcash based on
type (operang, invesng and nancing).
2. Scope
2.1 Introducon
Before dealing with requirements relang to the presentaon of a state-
ment of cash ows, the terms “cash” and “cash equivalents” need to be
dened, which include the following items:
• cashonhandanddemanddeposits;
• cashequivalents readily converble to known amounts of cash and which
are subject to an insignicant risk of changes in value, such as:
ü short-term investments,
ü liquid investments.
32 • The IAS / IFRS standards Edion 2020 ©
Cash and cash equivalents therefore may include the following:
• cash deposits;
• demand deposits;
• me deposits and related accrued interest not yet due, made less than three
months before the end of the period and with a maturity of less than three
months;
• risk-free investment securies;
• debit balances of bank accounts and related accrued interest not yet payable.
Cash and cash equivalents do not include:
• me deposits and related accrued interest not yet due, made more than
three months before the end of the period and with a maturity of over three
months;
• bonds with a maturity of over three months;
• equity investments, except if they are, in substance, cash equivalents;
• credit balances of bank accounts and other authorized overdras used for
nancing purposes;
• the share of loans and nancial debts due within less than three months
when originally contracted for a term of over three months.
2.2 PresentaonofaStatementofcashows
It is important to remember that IAS 7 categorises dierent types of cash ow
depending on the acvity which generated them: operang, invesng or nan-
cing acvies.
2.2.1 Cash ows from operang acvies
Operang acvies are the principal revenue-producing acvies of the enty
and other acvies that are not invesng or nancing acvies. They include
operang cash ows corresponding to operang income and expenses, and
other incoming and outgoing payments related to the company’s business ac-
vies.
2.2.2 Cash ows from invesng acvies
Invesng acvies are dened as those related to the acquision and disposal
of long-term assets and other investments that are not included in cash equiva-
lents.
In parcular, invesng acvies include acquisions and disposals of tangible
and intangible xed assets, acquisions of interests in other enes, and other
The IAS / IFRS standards • 33Edion 2020 ©
nancial xed assets such as deposits and guarantees, and investment securies
that are not recognized as cash.
2.2.3 Cash Flows from nancing acvies
Financing acvies are acvies that result in changes in the size and composi-
on of the enty’s nancial resources in the form of equity and borrowings. The
following are examples of items of cash ows from nancing acvies and which
should be presented separately:
• increases in, or redempon of, share capital;
• borrowings which have been contracted or repaid;
• distribuon of dividends.
It should be noted that the distribuon of dividends may be presented either as
a ow related to operang acvies or as a ow related to nancing acvies
depending on whether the dividend is considered to be a resource derived from
operaons or a return on capital invested.
2.3 Presentaonofcashows
2.3.1 Presentaon of cash ows from operang acvies
Two methods of presentaon are allowed:
• the direct method, whereby major classes of gross cash receipts and gross
cash payments are disclosed;
• the indirect method, whereby prot or loss is adjusted for the eects of:
ü transacons of a non-cash nature,
ü any deferrals or accruals of past or future operang cash receipts or
payments,
ü items of income or expense associated with invesng or nancing cash
ows.
Below is an example of an extract from a Statement of cash ows presented
using the indirect method and showing the top part of the statement relang to
cash ows from operang acvies:
34 • The IAS / IFRS standards Edion 2020 ©
Year N Year N-1
Cashowsrelatedtooperangacvies
Net prot or loss before corporate income tax 25,000 15,000
Amorzaon/depreciaon allowances 10,000 7,500
Depreciaon of assets 3,500 7,000
Other items 1,500 1,500
TotalcashowsfromoperangacviespriortochangeinWCR 40,000 31,000
Increase/Decrease of long-term receivables (beyond one year) 7,500 3,500
Increase/Decrease of customer receivables and other long-term assets 3,500 7,000
Decrease of debts with maturity of maximum one year - 3,550 - 4,250
ChangeinWorkingCapitalRequirements 7,450 6,250
Netcashowsfromoperangacvies 47,450 37,250
Corporate income tax paid 3,800 2,400
Interest income received 1,500 750
Financing charges related to borrowings - 3,500 - 4,000
Netchangeincashowsfromoperangacvies 49,250 36,400
2.3.2 Presentaon of cash ows from invesng acvies
The following requirements apply here:
• only payments and receipts that result in the recognion or de-recognion
of an asset in the Statement of nancial posion are eligible for classicaon
as cash ows from invesng acvies;
• the main classes of incoming and outgoing gross cash ows are presented
separately;
• the aggregate cash ows generated through the acquision of subsidiaries,
joint ventures and associates are classied as investments.
Below is a presentaon of the secon of the statement reporng this type of
cash ow:
Year N Year N-1
Cashowsfrominvesngacvies
Increase of intangible xed assets - 1,500 - 1,250
Increase of tangible xed assets - 30,000 - 25,000
Proceeds from disposal of tangible xed assets 25,000 2,500
Proceeds from disposal of intangible xed assets 750
Disposal of business acvies 18,000
Other investments 5,000 - 1,500
Netchangeincashowsfrominvesngacvies - 1,500 - 6,500
2.3.3 Presentaon of cash ows from nancing acvies
Cash ows from nancing acvies must be disclosed with the main classes of
incoming and outgoing gross cash ows presented separately.
The IAS / IFRS standards • 35Edion 2020 ©
The following cash ows may be presented on a net basis:
• cash receipts and payments on behalf of customers when the cash ows
reect the acvies of the customer rather than those of the enty;
• cash receipts and payments for items in which the turnover is quick, the
amounts are large, and the maturies are short.
Informaon on the following changes in cash ows from nancing acvies
must be disclosed:
• changes in cash ows used for nancing acvies
• changes of ownership interest leading to obtaing tenon or losing ss of
control of subsidiaries or other businesses
• eects of changes of foreign exchange rates
• changes in fair value
• other changes.
Below is a presentaon of the secon of the Statement of cash ows reporng
cash ows from nancing acvies:
Year N Year N-1
Cashowsfromnancingacvies
Capital increase 10,000
Borrowings contracted 50,000 15,000
Borrowings repaid - 8,900 - 3,500
Dividends paid - 2,500 - 1,250
Net change in cash ows from nancing acvies 48,600 10,250
Autres opéraons d’invesssement 5 000 - 1 500
Variaonneedelatrésorerieliéeauxopéraonsd’invesssement - 1 500 - 6 500
In this example, payment of dividends was considered as compensaon to inves-
tors and recognized as part of nancing acvies.
2.4 SpecialRulesapplicabletopreparaonofaStatementofcash
ows
The following special rules apply to the preparaon of a Statement of cash ows:
• interest is classied based on type - either from operang acvies, investment
acvies or nancing acvies;
• cash ows related to corporate income tax are normally classied as cash ows
from operang acvies;
• cash ows denominated in foreign currencies are reported at the exchange rate
in force on the date of the cash ow;
• when an investment in an enty is accounted for using the equity or cost me-
thod, an investor restricts its reporng in the Statement of cash ows to the cash
36 • The IAS / IFRS standards Edion 2020 ©
ows between itself and the investee.
As an example, the Statement of cash ows below presents all of the cash ows
detailed above:
Year N Year N-1
Cash ows from operang acvies
Net prot before corporate income tax 25,000 15,000
Amorzaon/depreciaon allowances 10,000 7,500
Depreciaon of assets 3,500 7,000
Other items 1,500 1,500
TotalcashowsfromoperangacviespriortochangeinWCR 40,000 31,000
Increase/Decrease of long-term receivables (beyond one year) 7,500 3,500
Increase/Decrease of customer receivables and other long-term assets 3,500 7,000
Decrease of debts with maturity of maximum one year - 3,550 - 4,250
ChangeinWorkingCapitalRequirements 7,450 6,250
Netcashowsfromoperangacvies 47,450 37,250
Corporate income tax paid 3,800 2,400
Interest income received 1,500 750
Financing charges related to borrowings - 3,500 - 4,000
Netchangeincashowsfromoperangacvies 49,250 36,400
Cash ows from invesng acvies
Increase of intangible xed assets - 1,500 - 1,250
Increase of tangible xed assets - 30,000 - 25,000
Proceeds from disposal of tangible xed assets 25,000 2,500
Proceeds from disposal of intangible xed assets 750
Disposal of business acvies 18,000
Other investments 5,000 - 1,500
Netchangeincashowsfrominvesngacvies - 1,500 - 6,500
Cash ows from nancing acvies
Capital increase 10,000
Borrowings contracted 50,000 15,000
Borrowings repaid - 8,900 - 3,500
Dividends paid - 2,500 - 1,250
Netchangeincashowsfromnancingacvies 48,600 10,250
Netchangeincashowsfortheperiod 96,350 40,150