Foreign Currency Cash Flows
25 Cash flows arising from transactions in a foreign currency should be recorded in an enterprise’s
reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and
the foreign currency at the date of the cash flow. A rate that approximates the actual rate may be used if the
result is substantially the same as would arise if the rates at the dates of the cash flows were used. The effect of
changes in exchange rates on cash and cash equivalents held in a foreign currency should be reported as a separate
part of the reconciliation of the changes in cash and cash equivalents during the period.
26 Cash flows denominated in foreign currency are reported in a manner consistent with Accounting Standard (AS) 11, The Effects of Changes in Foreign
Exchange Rates. This permits the use of an exchange rate that approximates the actual rate. For example, a
weighted average exchange rate for a period may be used for recording foreign currency transactions.
27 Unrealised gains and losses arising from changes in foreign exchange rates are not cash flows. However, the effect
of exchange rate changes on cash and cash equivalents held or due in a foreign currency is reported in the cash flow
statement in order to reconcile cash and cash equivalents at the beginning and the end of the period. This amount is
presented separately from cash flows from operating, investing and financing activities and includes the
differences, if any, had those cash flows been reported at the end-of-period exchange
28. The cash flows associated with extraordinary items should be classified as arising from operating,
investing or financing activities as appropriate and separately disclosed.
29. The cash flows associated with extraordinary items are disclosed separately as arising from operating, investing
or financing activities in the cash flow statement, to enable users to understand their nature and effect on the
present and future cash flows of the enterprise. These disclosures are in addition to the separate disclosures of
the nature and amount of extraordinary items required by Accounting Standard (AS) 5, Net Profit or Loss for the Period,
Prior Period Items and Changes in Accounting Policies .
30. Cash flows from interest and dividends received and paid should each be disclosed separately. Cash
flows arising from interest paid and interest and dividends received in the case of a financial enterprise should be
classified as cash flows arising from operating activities. In the case of other enterprises, cash flows arising
from interest paid should be classified as cash flows from financing activities while interest and dividends
received should be classified as cash flows from investing activities. Dividends paid should be classified as cash
flows from financing activities.
31 The total amount of interest paid during the period is disclosed in the cash flow statement whether it has been
recognised as an expense in the statement of profit and loss or capitalised in accordance with Accounting Standard (AS) 16, Borrowing Costs.
32 Interest paid and interest and dividends received are usually classified as operating cash flows for a financial
enterprise. However, there is no consensus on the classification of these cash flows for other enterprises. Some
argue that interest paid and interest and dividends received may be classified as operating cash flows because they
enter into the determination of net profit or loss. However, it is more appropriate that interest paid and interest
and dividends received are classified as financing cash flows and investing cash flows respectively, because they
are cost of obtaining financial resources or returns on investments.
33 Some argue that dividends paid may be classified as a component of cash flows from operating activities in order
to assist users to determine the ability of an enterprise to pay dividends out of operating cash flows. However, it
is considered more appropriate that dividends paid should be classified as cash flows from financing activities
because they are cost of obtaining financial resources.
34. Cash flows arising from taxes on income should be separately disclosed and should be classified as
cash flows from operating activities unless they can be specifically identified with financing and investing
35. Taxes on income arise on transactions that give rise to cash flows that are classified as operating, investing or
financing activities in a cash flow statement. While tax expense may be readily identifiable with investing or
financing activities, the related tax cash flows are often impracticable to identify and may arise in a different
period from the cash flows of the underlying transactions. Therefore, taxes paid are usually classified as cash
flows from operating activities. However, when it is practicable to identify the tax cash flow with an individual
transaction that gives rise to cash flows that are classified as investing or financing activities, the tax cash
flow is classified as an investing or financing activity as appropriate. When tax cash flow are allocated over more
than one class of activity, the total amount of taxes paid is disclosed.
Investments in Subsidiaries, Associates and Joint Ventures
36 When accounting for an investment in an associate or a subsidiary or a joint venture, an investor
restricts its reporting in the cash flow statement to the cash flows between itself and the investee/joint venture,
for example, cash flows relating to dividends and advances.
Acquisitions and Disposals of Subsidiaries and Other Business Units
37 The aggregate cash flows arising from acquisitions and from disposals of subsidiaries or other
business units should be presented separately and classified as investing activities.
38 An enterprise should disclose, in aggregate, in respect of both acquisition and disposal of
subsidiaries or other business units during the period each of the following:
