Case:
In the Cash flow statement of a company, a cash outflow was reported as ‘capital expenditure’ under cash flows from Investing Activities.
As per Para 16 of IND AS 7 ” The separate disclosure of cash flows arising from investing activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows. Only expenditure that result in a recognized asset in the balance sheet are eligible for classification as investing activities. Example of cash flows arising from investing activities are:
Cash payment to acquire property, plant and equipment, intangibles and other long-term assets. These payments include those relating to capitalized development cost and self-constructed property, plant and equipment.”
Observation:
It was noted from the cash flow statement that a cash flow has been reported as “Capital Expenditure” The Capital Expenditure was on account of cash paid to acquire property, plant and equipment. It was viewed that such cash outflow should have been reported using the proper description of the line item viz. ‘acquisition of property, plant and equipment’ rather than as ‘capital expenditure’ in line with the above-mentioned requirement of paragraph 16(a) of Ind AS 7.
Conclusion:
Accordingly, it was viewed that the description given while presenting the cash outflow on acquisition of property, plant and equipment was not in line with the above stated requirement of Ind AS 7.
