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Editorial Board on Accounts and Audit
  • Advance for Capital Goods is Investing or change in Working Capit

    by RAHUL on Tuesday, June 11, 2019 at 02:38 PM

    Our query is advance given to suppliers for manufacturing of tooling on our behalf. Is to be classified as Investing activity or Finance activity. We give Advance for manufacturing of tooling to our suppliers. Tooling manufacturing takes around 2 to 3 years. Advance to suppliers for tooling is classified in financial statement as Other non current assets.

    Replied byEditorial Board Saturday, June 15, 2019 at 05:36 PM

    Under Ind AS 7, Cash Flow Statements, cash advances and loans made to parties (other than financial institutions) are specifically treated as ‘cash flows from investing activities’. However, if the advance is for short-term period and accordingly disclosed as current asset in the balance sheet then it shall form part of ‘change in working capital’ under ‘cash flows from operating activities’.

    Therefore, in your case, the advance given to the manufacturer of tooling should be classified as cash flows arising from investing activities as the same has been disclosed as non-current assets in the balance sheet.

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