Objective, Scope & Definitions - Ind AS - Indian Accounting Standards - Companies Law

Objective, Scope Definitions Objective Information about the cash flows of an entity is useful in providing users of financial statements with a basis to assess - The ability of the entity to generate cash and cash equivalents and The needs of the entity to utilise those cash flows. The economic decisions that are taken by users require an evaluation of the ability of an entity to generate cash and cash equivalents and The timing and certainty of generation of future cash flows and to check the past assessment accuracy; and The changes in the capital structure. The objective of this Standard is to require the provision 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 from operating, investing and financing activities. Scope An entity shall prepare a statement of cash flows in accordance with the requirements of this Standard and shall present it as an integral part of its financial statements for each period for which financial statements are presented. Definitions The following terms are used in this Standard with the meanings specified: Cash: Cash comprises cash on hand and demand deposits. Cash Equivalents: An asset can be called as a cash equivalent when it satisfies the following conditions: - Cash equivalents are short-term, highly liquid investments that are readily convertible. Conversion into cash is subject to known amounts of cash and which are subject to an insignificant risk of changes in value. Cash flows are inflows and outflows of cash and cash equivalents. Operating activities are the principal revenue-producing activities of the entity and other activities that are not investing or financing activities. Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. Financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of the entity. Short term Investment is an Investment which has a maturity of less than or equal to 3 months from the date of acquisition. Example Government Securities, treasury bills having maturity less than or equal to 3 months. Preference share having redemption within 3 months subject to insignificant risk of failure of the company to repay the amount of maturity. Equity Shares cannot be cash equivalent as it has significant risk of change in value.