Modern Limited, whose functional currency is Indian Rupee, had a balance of cash and cash equivalents of 5,00,000, but there are no other assets or…
CA Final · Financial Reporting · PYQS · September 2025
Modern Limited, whose functional currency is Indian Rupee, had a balance of cash and cash equivalents of 5,00,000, but there are no other assets or liabilities in its financial statements as on 1 st April, 2024. During the year 2024-2025, the company has entered into the following foreign currency transactions: (i) It purchased goods for resale from Spain for Euro 1,00,000 when the exchange rate was 1 Euro = 77. This balance is still unpaid at 31 st March, 2025 when the exchange rate was 1 Euro = 72. An exchange gain of 5,00,000 on the retranslation of Trade Payables is recorded in the Statement of Profit and Loss. (ii) It sold the goods to an American client for US $ 1,00,000 when the exchange rate was 1 US $ = 82. This amount was settled when the exchange rate was 1 US $ = 85. The exchange gain regarding the Trade Receivable is recorded in the Statement of Profit and Loss. (iii) Modern Limited also borrowed Euro 1,00,000 under a long-term loan agreement when the exchange rate was 1 Euro = 75 and immediately converted it into 75,00,000. The loan was retranslated at 31 st March, 2025 at 72, with an exchange gain recorded in the Statement of Profit and Loss. The loan is still payable. Modern Limited, therefore, records a cumulative exchange gain of 11,00,000 (5,00,000 + 3,00,000 + 3,00,000) in arriving at its profit for the year. Besides it also records a trading profit of 5,00,000 (₹ 82,00,000 -77,00,000) on the sale of goods. How would the cash flows arising from the above transactions be reported in the Statement of Cash flows of Modern Limited prepared under Indirect Method as per applicable Ind AS? Ignore taxation.
Suggested Answer and Working Notes:
Statement of Cash Flows Particulars ₹ Cash flows from operating activities (Indirect method) Profit before taxation (5,00,000 + 11,00,000) 16,00,000 Adjustment for unrealised exchange gains / losses: Foreign exchange gain on long term loan (3,00,000) Foreign Exchange gain on trade payables (5,00,000) Operating cash flow before working capital changes 8,00,000 Changes in working capital (Due to increase in trade payables) 77,00,000 Net cash inflow from operating activities 85,00,000 Cash inflow from financing activity 75,00,000 Net increase in cash and cash equivalents 1,60,00,000 Cash and cash equivalents at the beginning of the period 5,00,000 Cash and cash equivalents at the end of the period (Refer W.N.) 1,65,00,000 Working Note: Closing Cash and Cash Equivalents Particulars ₹ Opening balance of cash and cash equivalents 5,00,000 Add: Received from settlement of Trade Receivables 85,00,000 Add: Received from conversion of loan 75,00,000 1,65,00,000 Note: One may show changes in working capital net of foreign exchange gain of 72,00,000.
Topics: Ind AS 21, Ind AS 12
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