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IAS 7 — Classification of short-term loans and credit facilities

Date recorded:

IAS 7 Statement of Cash Flows—Classification of short-term loans and credit facilities (Agenda Paper 4)

Background

The Committee received a request asking about the types of borrowings an entity includes in its statement of cash flows as a component of cash and cash equivalents. In March 2018, the Committee published a tentative Agenda Decision. In that tentative Agenda Decision the Committee observed that:

  • (a) Applying IAS 7:8, an entity generally considers bank borrowings to be financing activities. An entity, however, includes a bank borrowing as a component of cash and cash equivalents only in the particular circumstances described in IAS7:8—i.e. the banking arrangement is a bank overdraft that (i) is repayable on demand, and (ii) forms an integral part of the entity’s cash management.
  • (b) Cash management includes managing cash and cash equivalents for the purpose of meeting short-term cash commitments rather than for investment or other purposes (IAS 7:7 and 9). Assessing whether a banking arrangement is an integral part of an entity’s cash management is a matter of facts and circumstances.
  • (c) If the balance of a banking arrangement does not often fluctuate from being negative to positive, then this indicates that the arrangement does not form an integral part of the entity’s cash management and, instead, represents a form of financing.

Comment letters were received and respondents agree with the Committee's decision not to add the matter to its standard-setting agenda for the reasons outlined in the tentative Agenda Decision.

The staff recommend confirming the tentative Agenda Decision as published in IFRIC Update in March 2018 with no changes.

Discussion

There were no discussions on this topic.

Decision

 The Committee decided, unanimously, to  finalise the Agenda Decision as published in IFRIC Update in March 2018 with no changes.

 

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