Presentation of Interest Accrued but not Credited on Saving Deposit under Statement of Cash Flows

Para 20 of Ind AS 7, Statement of Cash Flows, states that under the indirect method, the net cash flow from operating activities is determined by adjusting profit or loss for the effects of items for which the cash effects are investing or financing cash flows. Following this provision of Ind AS 7, a company has adjusted the total interest income including accrued interest from the operating cash flow so that the total effect of the investing transaction is nullified from the net profit under the cash flows from operating activity and added the same to the investing cash flows.

However, the auditor issued a memo regarding the presentation of the interest amount received by the company. It states that the interest received by the company has been incorrectly depicted in cash flows from investing activities due to non-adjustment of accrued interest. The company has sought the opinion of the Expert Advisory Committee (EAC) on the above presentation of the interest income in the statement of Cash flows.

The Expert Advisory Committee (EAC) has noted that the company has deducted total interest income from the profit to reach the actual cash flows from operating activities and the same amount is also shown in cash flows from investing activities. However, this total interest income includes interest income accrued but not credited, which is a non-cash transaction. This portion of accrued interest which is non-cash should be excluded from the cash flows from investing activities. Accordingly, the inclusion of accrued interest under the cash flows from investing activities in the statement of cash flows is not correct.

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