Index

 Introduction
 Applicability
 Definitions
 Cash and Cash equivalents
 Features of Cash Flow Statement
 Operating Activities
 Investing Activities
 Financing Activities
 Interest
 Dividend
 Foreign Currency transactions
 Extraordinary items
 Treatment of Tax
 Investments in subsidiaries, associates and  joint ventures
 Acquisitions and disposals of subsidiaries  and other business units
 Non-cash transactions
 Disclosures of cash and cash equivalents
Introduction
 Cash flow statement is additional information to user of financial
statement

 This statement exhibits the flow of incoming and outgoing cash

 This statement assesses the ability of the enterprise to generate

cash and cash equivalents

 It also assesses the needs of the enterprise to utilise the cash

and cash equivalents generated

 It also assesses the liquidity and solvency of the enterprise.

Applicability

 This standard applies to the enterprises:

 Having turnover more than Rs. 50 Crores in a

financial year;

 Listed companies;
 Cash flow statement of listed companies shall be
presented only under the indirect method as prescribed
in AS 3
Definitions
 Cash comprises cash on hand and demand deposits with banks. 

 Cash equivalents are 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. 

 Cash flows are inflows and outflows of cash and cash equivalents. 

 Operating activities are the principal revenue-producing activities of the

enterprise and other activities that are not investing or financing
activities. 

 Investing activities are the acquisition and disposal of long-term assets

and other investments not included in cash equivalents. 

 Financing activities are activities that result in changes in the size and
composition of the owners’ capital (including preference share capital in
the case of a company) and borrowings of the enterprise.
Cash and Cash Equivalents
 Cash Equivalents
 Held for meeting short term commitments
 It is readily convertible into known amounts of cash
 It has a very insignificant risk
 Short maturity (say 3 months maximum)

 Cash flows exclude

 Movements between cash and cash equivalents

 Cash management includes the investment of

excess cash in cash equivalents
Features of Cash Flow Statement

 The cash flow statement should report

cash flows during the period classified by
 Operating,
 Investing and
 Financing activities.

 Sum of these three types of cash flow reflect

net increase or decrease of cash and cash
equivalents.
Operating Activities
 These are principal revenue producing activities of
the enterprise.

 Examples:
 Cash receipts from sale of goods / rendering services;

 Cash receipts from royalties, fees, commissions and other

revenue;

 Cash payments to suppliers of goods and service;

 Cash payments to and on behalf of employees.

Investment Activities
 The activities of acquisition and disposal of long term assets and other
investments not included in cash equivalent are investing activities.

 It includes making and collecting loans, acquiring and disposal of debt

and equity instruments, property and fixed assets etc.

 Examples of cash flows arising from investing activities are as follows:

 Cash payments to acquire fixed assets

 Cash receipts from disposal of fixed assets

 Cash payments to acquire shares, warrants or debt instruments of other

enterprises and interest in joint ventures

 Cash receipt from disposal of above investments

Financing Activities
 Those activities that result in changes in size and composition of
owners capital and borrowing of the organization.

 It includes receipts from issuing shares, debentures, bonds, borrowing

and payment of borrowed amount, loan etc.
 Sale of share

 Buy back of shares

 Redemption of preference shares

 Issue / redemption of debentures

 Long term loan / payment thereof

 Dividend / interest paid

Cash flow from operating activities

 It can be derived either from direct method or

indirect method

 Direct method:
 In this method, gross receipts and gross payments of
cash are disclosed

 Indirect method:
 In this method, profit and loss account is adjusted for the
effects of transaction of non-cash nature.
Interest
 Interest Received
 Received from investment – it is in investment activities

 Received from short term investment classified, as cash equivalents should

be considered as cash inflows from operating activities.

 Received on trade advances and operating receivables should be in

operating activities

 Interest Paid
 On loans / debts are in financing activities

 On working capital loan and any other loan taken to finance operating
activities are in operating activities

 Cash flow from interest should be separately disclosed.

Dividend
 Dividend Received
 For financial enterprises – in operating activities

 For other than financial enterprises – in investing activities

 Dividend Paid
 Always classified as financing activities

 Cash flow from dividend should be separately

disclosed
Foreign currency transaction

 The effect of change in exchange rate in cash

and cash equivalents held in foreign currency
should be reported as separate part of the
reconciliation of cash and cash equivalents.

 Unrealized gain and losses arising from

changes in foreign exchanges rates are not
cash flows.
Extraordinary items

 The cash flows associated with extraordinary

items should be classified as arising from:
 Operating
 Investing or
 Financing activities
as appropriate and separately disclosed.
Treatment of tax

 Cash flow for tax payments / refund should

be classified as cash flow from operating
activities.

 If cash flow can be specifically identified as

cash flow from investment / financing
activities, appropriate classification should be
made.
Investments in subsidiaries, associates
and  joint ventures
 Only the cash flow between itself and the
investee is required to be reported

 Example:
 Cash flow relating to dividends and advances
Acquisitions and disposals of
subsidiaries  and other business units
 Cash flow on acquisition and disposal of subsudiaries and
other business units should be :

 Presented separately

 Classified as investing activities

 Total purchase and disposal should be disclosed separately

 The position of the purchase / disposal consideration discharged

by means of cash and cash equivalents should be disclosed
Non-cash transactions
 These should be excluded from the cash flow statement

 These transactions should be disclosed in the financial

statements.

 Examples

 Acquisition of assets by assuming directly related liabilities

 Acquisition of an enterprise by means of issue of equity sshares

 Conversion of debt to equity

Disclosures of cash and cash
equivalents
 The components of cash and cash equivalents
should be disclosed

 Reconciliation of the amount in the cash flow

statement with the equivalent items reported in the
balance sheet

 The amount of cash and cash equivalent balance

held by the enterprises that are not available for use
(with explanation by management)