Difference Between AS 3 and Ind AS 7

Accounting Standard 3: This Standard is mandatory for the enterprises, which fall in the category of level I, at the end of the relevant accounting period. For all other enterprises though it is not compulsory but it is encouraged to prepare such statements. Where an enterprise was not covered by this statement during the previous year but qualifes in the current accounting year, they are not supposed to disclose the fgures for the corresponding previous years. Whereas, if an enterprises qualifes under this statement to prepare the cash fow statements during the previous year but now disqualifed, will continue to prepare cash fow statements for another two consecutive years.

Cash fow Statement (CFS) is an additional information provided to the users of accounts in the form of an statement, which refects the various sources from where cash was generated (infow of cash) by an enterprise during the relevant accounting year and how these infows were utilised (outfow of cash) by the enterprise.

Ind AS 7 - Statement of Cash Flows

Ind AS 7 prescribes principles and guidance on preparation and presentation of cash flows of an entity from operating activities, investing activities and financing activities for a reporting period.

The objective of Ind AS 7 is to provide information about the historical changes in cash and cash equivalents of an entity during the reporting period from its operating, investing and financing activities.

Cash flows are inflows and outflows of cash and cash equivalents. Cash comprises cash on hand and demand deposits. Cash equivalents are shortterm, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Cash and cash equivalents include demand deposits, certain short-term investments and in some cases, bank overdrafts.

Difference Between AS 3 and IndAS 7

Basis of Differences Ind AS 7: Cash Flow Statement AS 3: Cash Flow Statement
Bank Overdraft Repayable on Demand Bank overdrafts which are repayable on demand as a part of cash and cash equivalents No Such provision
Adjustment of the Profit or Loss for the Effects of Undistributed Profits of Associates and Non controlling Interests Requires such adjustment under Indirect Method No such provision
Cash Flows associated with Extraordinary Activities No items are classified as Extraordinary Activities. Extraordinary activities to be separately classified as arising from operating, investing and financing activities
Disclosure of Cash and Cash Equivalents in Specific Situations Disclose the amount of cash & cash equivalents and other assets & liabilities in the subsidiaries or other businesses over which control is obtained or lost No such provision
New Examples of Cash Flows arising from Financing Activities
  • cash payments to owners to acquire or redeem the entity‘s shares
  • cash proceeds from mortgages
  • cash payments by a lessee for the reduction of the outstanding liability relating to a finance lease.
Not included
Investment in Subsidiaries, Associates and JVs (Investees)
  • Mentions the use of equity or cost method
  • Specifically deals by using equity method
Not contain such requirements
Use of Different Terminology and Translation of Cash Flows of a Foreign Subsidiary. Functional currency Reporting currency
Disclosures Requires more disclosures No disclosures.

In Simple Format

AS 3 Ind AS 7
AS 3 is silent on this matter. Bank borrowings are generally considered as a part of financing activities. However, Ind AS 7 requires the bank overdraft, which are repayable on demand, to be considered as a part of cash and cash equivalents, instead of classifying it as cash flow from financing activity.
  Ind AS 7 requires more disclosures as compared to AS 3.
AS 3 uses the term “Reporting Currency”. Ind AS 7 uses the term “functional currency” instead of “Reporting Currency”.
AS 3 does not deal with cash flows arising from foreign subsidiaries. Ind AS 7 deals with translation of cash flows arising from foreign subsidiaries.
AS 3 is silent on this aspect. Some entities purchases the assets and then give such assets on rent (assets held for rental) and later on, sells such assets in the ordinary course of business. Ind AS 7 requires the classification of cash flows from such activity(eg: payments made to purchase or manufacture the assets and cash receipts from renting out and sale of such assets) to be shown as cash flows from operating activities.

Ind AS 7 provides some new examples of cash flows from financing activities like:

  • Cash payments to the owners to acquire or redeem entity’s shares.
  • Cash receipts from mortgages
  • Cash payments made by lessee, for reduction of the outstanding liability, in a finance lease.
AS 3 does not specifically provide for the same. Under Ind AS 7, the net cash flow from operating activities, using the indirect method, is determined by adjusting profit or loss for the effects of: undistributed profits of associates, and non-controlling interests
Cash flows arising from change in ownership interests held in a subsidiary company shall be classified as cash flows from investing activities.* Cash flows arising as a result of change in ownership interest, held in a subsidiary company shall be classified as cash flows from financing activities, if it do not result into loss of control. *
As per AS 3, the cash flows from extra ordinary activities shall be classified as cash flows from operating or investing or financing activity, as the case may be, depending on the nature of such extraordinary item. IND AS 1 prohibits presentation of any item of  income or expense as extraordinary item and hence Ind AS 7 does not deal with the presentation of cash flows from extra ordinary items.

* A parent may decrease its ownership interest in a subsidiary by:

  • (1) selling a portion of the subsidiary’s shares it holds or
  • (2) causing the subsidiary to issue shares.