cash flow statement

Meaning of cash flow statement : It is a statement showing changes in the financial position of a business concern during different intervals of time of cash and cash equivalents.

 

Cash flows : It implies movement of cash in and out of non-cash items. Receipt of cash from a non-cash item is termed as cash inflow while cash payment in respect of such items is termed as cash outflow.

 

Cash and cash Equivalents : As per AS-3, ‘cash’ comprises cash in hand and demand deposits with bank, and ‘cash equivalent’ means short-term highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

For example,  Short-term marketable securities, which can be readily converted into cash, are treated as cash equivalents.

 

Objectives of Cash Flow Statement

The main objectives of Cash flow statement are

 

  1. To ascertain the specific sources from activities (i.e. Operating/investing/financing activities) from which cash and cash equivalent were generated by an enterprise.

 

  1. To ascertain the specific uses by activities (i.e. Operating/investing/financing activities) for which cash & cash equivalent were used by an enterprise.

 

  1. To ascertain the net change in cash and cash equivalents indicating the difference between sources and uses from or by the three activities between the dates of two balance sheets.

 

Classification of Business Activities : Accounting Standard-3 (Revised) requires that the changes resulting in inflows and outflows of cash and cash equivalents be classified into following three activities.

 

Cash Flow from operating Activities

Operating activities are the principle revenue-producing activities of the enterprise and other activities that are not investing or financing activities.

 

Operating Activities

 

 

Cash Inflow                                        Cash outflow

 

Cash sales                                                                              Cash purchases

Cash received from debtors                                                            Payment to creditors

Cash received from commission and fees                            Cash operating expenses

Royalty                                                                                   Payment of wages

Income tax

 

 

For a Finance Company

 

Cash received for interest and dividends              cash paid for interest

Sale of securities                                                       purchase of securities

 

 

For an Insurance Company

 

Premiums and claims received                                Premiums and claims paid

 

 

For a real estate (Infranstructure) Company

 

Rent received                                                                        Rent paid

 

 

Cash Flow from Investing Activities : As per AS-3, investing activities are the acquisition and disposal of the long-term assets and other investments, not included in cash equivalents.

Cash flow from investing activities are exhibited as follows:

 

Investing Activities

 

 

Cash Inflow                                                   Cash outflow

Sale of fixed assets                                        Purchase of fixed assets

Sale of investments                                       Purchase of investments

Interest received                                           Income tax

Dividends received

Rent received

 

Cash Flow from financing activities : These are the activities which result in change in the size and composition of the owner’s capital (including preference share capital) and borrowings (including debentures) of the enterprise from other sources.

 

Cash flow arising from financing activities are exhibited as follows:

 

Financing Activities

 

 

 

Cash Inflow                                                                            Cash outflow

 

Issue of share in cash                                               payment of loans

Issue of debentures in cash                         Redemption of preference shares, debentures

Proceeds from long-term borrowings       buy-back of equity shares

Payment of dividend

Payment of interest

Premium paid on redemption

 

Format of cash Flow Statement

 

Indirect Method [As per Accounting Standard-3 (Revised)]

For the year ended…

 

Particulars Amt (Rs.)
Cash flow from Operating Activities

Net profit before Taxation and Extraordinary Items (Working Note)

Adjustment for Non-cash and Non-operation items

(+) Items to be added

Depreciation                                                                                                                 .…

Goodwill, Patents and Trademarks Amortised                                                       .…

Interest on Borrowings and Debentures                                                                  .…

Loss on Sale of fixed Assets                                                                                         ….

Increase in Provision for Doubtful Debts                                                                  ….

(-) Items to be Deducted

Interest Income                                                                                                           (…)

Dividend Income                                                                                                         (…)

Rental Income                                                                                                              (…)

Gain (Profit  on sale of fixed assets)                                                                         (…)

 

Operating profit before Working Capital Changes

(+) Decrease in Current Assets and Increase in Current Liabilities

(-) Increase in Current Assets and decrease in current Liabilities

 

Cash Generated from Operations

(-) Income Tax Paid (Net of tax refund received)

Net cash from (or used in ) Operating Activities

 

Cash flow from investing activities

Proceeds from sale of fixed assets                                                                                    …

Proceeds from sale of investments                                                                                   …

Proceeds from sale of intangible assets                                                                           …

+interest and Dividend Received (for non-financial companies only)                        …

Rent Income                                                                                                                          …

Purchase of fixed Assets                                                                                                   (…)

Purchase of Investments                                                                                                   (…)

Purchase of Intangible Assets like goodwill                                                                   (…)

 

Cash flow from financing Activities

Proceeds from issue of shares and Debentures                                                              …

Proceeds from Other Long-term Borrowings                                                                   …

Final Dividend paid                                                                                                             (…)

Interim Dividend paid                                                                                                        (…)

Interest on Debentures and Loans paid                                                                         (…)

Repayment of loans                                                                                                           (…)

Redemption of debentures/Preference Shares                                                            (…)

 

Net cash from (or used in) Financing Activities

 

Net increase/Decrease in cash and cash equivalents (I+II+III)

(+) Cash and Cash Equivalents in the Beginning of the Year

Cash in Hand                                                                                                                         …

Cash at Bank                                                                                                                          …

Short-term Deposits                                                                                                             …

Marketable Securities                                                                                                          …

 

 

Cash and cash Equivalents at the End of the Year

Cash in Hand                                                                                                                         …

Cash at Bank                                                                                                                          …

Short-term Deposits                                                                                                             …

Marketable Securities                                                                                                          …

 

 

 

 

….

 

 

 

 

….

 

 

 

 

(….)

….

….

(…)

 

….

(…)

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….

 

….

 

 

 

 

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Working note:-

Calculation of net profit before tax & Extra-ordinary Item

 

Net Profit                                                        XX

+General Reserve (if                                       XX

+ Provision for tax (current year)                   XX

+ Proposed Dividend                                       XX

+ Interim Dividend                                          XX

 

Net Profit before & extra-ordinary Item        XX

 

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