accountin standard cashflow

7/28/2019 Accountin Standard Cashflow

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Introduction

Cash flow statement is additional information to user of

financial statement

This statement exhibits the flow of incoming and outgoingcash

This statement assesses the ability of the enterprise togenerate cash and cash equivalents

It also assesses the needs of the enterprise to utilise thecash and cash equivalents generated

It also assesses the liquidity and solvency of theenterprise.


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Applicability

This standard applies to the enterprises:

Having turnover more than Rs. 50 Crores in afinancial year;

Listed companies;

Cash flow statement of listed companies shall bepresented only under the indirect method as

prescribed in AS 3


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Definitions

Cash compr ises cash on hand and demand deposits wi th banks.

Cash equivalents are short term, highly liquid investments that are readi lyconvertible into known amounts of cash and which are subject to aninsigni fi cant r isk of changes in value.

Cash f lows are inf lows and outf lows of cash and cash equi valents.

Operating activiti es are the pri ncipal revenue-producing activi ties of theenterprise and other activiti es that are not investing or financing activi ties.

I nvesting activities are the acquisi tion and disposal of long-term assets and

other investments not included in cash equi valents.

F inancing activi ties are activi ties that resul t in changes in the size andcomposition of the owners capital (including preference share capital inthe case of a company) and borrowings of the enterpri se.


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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 ofexcess cash in cash equivalents


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Features of Cash Flow Statement

The cash f low statement should report cash f lows dur ing

the period classif ied by

Operating,

I nvesting and

F inancing activities.

Sum of these three types of cash flow reflect net increase

or decrease of cash and cash equivalents.


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Operating Activities

These are principal revenue producing activities ofthe enterprise.

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

Cash receipts from royalties, fees, commissions and otherrevenue;

Cash payments to suppliers of goods and service;

Cash payments to and on behalf of employees.


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Investment Activities

The activities of acquisition and disposal of long termassets and other investments not included in cashequivalent are investing activities.

It includes making and collecting loans, acquiring anddisposal of debt and equity instruments, property andfixed assets etc.


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Examples of cash flows arising from investing activities are asfollows:

Cash payments to acquire fixed assets

Cash receipts from disposal of fixed assets

Cash payments to acquire shares, warrants or debtinstruments of other enterprises and interest in joint ventures

Cash receipt from disposal of above investments


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Financing Activities

Those activities that result in changes in size and composition of ownerscapital and borrowing of the organization.

It includes receipts from issuing shares, debentures, bonds, borrowingand 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


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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.


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Interest

Interest Received

Received from investmentit is in investment

activities

Received from short term investment classified, as cashequivalents should be considered as cash inflows fromoperating activities.

Received on trade advances and operating receivablesshould be in operating activities


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Interest Paid

On loans / debts are in financing activities

On working capital loan and any other loan taken tofinance operating activities are in operating activities

Cash flow from interest should be separately disclosed.


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Dividend

Dividend Received For financial enterprisesin operating activities

For other than financial enterprisesin investing

activities

Dividend Paid Always classified as financing activities

Cash flow from dividend should be separately disclosed


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Foreign currency transaction

The effect of change in exchange rate in cashand cash equivalents held in foreign currencyshould be reported as separate part of thereconciliation of cash and cash equivalents.

Unrealized gain and losses arising from

changes in foreign exchanges rates are notcash flows.


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Extraordinary items

The cash flows associated with extraordinaryitems should be classified as arising from:

Operating

Investing or

Financing activities

as appropriate and separately disclosed.


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Treatment of tax

Cash flow for tax payments / refund should beclassified as cash flow from operatingactivities.

If cash flow can be specifically identified ascash flow from investment / financing

activities, appropriate classification should bemade.


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Investments in subsidiaries,

associates and joint ventures

Only the cash flow between itself and theinvestee is required to be reported

Example:

Cash flow relating to dividends and advances


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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


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Disclosures of cash and cash

equivalents The components of cash and cash equivalents should be

disclosed

Reconciliation of the amount in the cash flow statementwith 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 (withexplanation by management)


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THANK YOU

accountin standard cashflow

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