Cash Flow Statement Guide

20 AS
3
Cash and Cash Equivalents
6. Cash equivalents are held for the purpose of meeting short-term cas
h
commitments rather than for investment or other purposes. For an investment
to qualify as a cash equivalent, it must be readily convertible to a know
n
amount of cash and be subject to an insignificant risk of changes in value
.
Therefore, an investment normally qualifies as a cash equivalent only whe
n
it has a short maturity of, say, three months or less from the date of acquisition
.
Investments in shares are excluded from cash equivalents unless they are, i
n
substance, cash equivalents; for example, preference shares of a compan
y
acquired shortly before their specified redemption date (provided there i
s
only an insignificant risk of failure of the company to repay the amount a
t
maturity).
7. Cash flows exclude movements
b
etween items that constitute cash o
r
cash equivalents because these components are part of the cash management
of an enterprise rather than part of its operating, investing and financin
g
activities. Cash management includes the investment of excess cash in cas
h
equivalents.
Presentation of a Cash Flow Statement
8. The cash flow statement should report cash flows during the
p
erio
d
classified by operating, investing and financing activities.
9. An enterprise presents its cash flows from operating, investing and
financing activities in a manner which is most appropriate to its
b
usiness
.
Classification by activity provides information that allows users to assess th
e
impact of those activities on the financial position of the enterprise and th
e
amount of its cash and cash equivalents. This information may also be use
d
to evaluate the relationships among those activities.
10. A single transaction may include cash flows that are classified
differently. For example, when the instalment paid in respect of a fixed asse
t
acquired on deferred payment basis includes both interest and loan, the interes
t
element is classified under financing activities and the loan element i
s
classified under investing activities.
Operatin
g
Activities
11. The amount of cash flows arising from operating activities is a ke
y
indicator of the extent to which the operations of the enterprise have generate
d
sufficient cash flows to maintain the operatin
g
capabilit
y
of the enterprise
,
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