cash flow statement[1]

CASH FLOW STATEMENT

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According to AS 3 every company should along with the Balance sheet and Profit and Loss Account provide information on Cash flows of the organization during the period

•CFS profits information about the changes in cash and cash equivalent of an enterprise.•It is based on cash concept of profit.•It identifies cash generated from operations, •the operating cash surplus• which can be applied for investments in fixed assets.•What an be ploughed back is directly identifiable from cash flow statement.•CFS is prepared to explain the cash movements between two points of time.

Meaning of ‘Cash Flows’ Cash flows are inflows and outflows of cash and cash equivalents.When does the flow of Cash arise?It arises when the net effect of a transaction is either to increase or to decrease the amount of cash or cash equivalents.

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MEANING OF CASH FLOW STATEMENT The Cash Flow Statement means the statement of changes in Cash and Cash equivalents. It shows the following for the period covered by it:—

Net Cash flows from Operating Activities

Net Cash flows from Financing Activities

Net Cash flows from Investing Activities

Net Change in Cash and Cash Equivalents

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Meaning of 'Cash' Cash comprises Cash on hand and Demand Deposits with Banks.

Meaning of ‘Cash Equivalents’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.

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Computation of Cash and Cash Equivalents Cash and Cash Equivalents at the Beginning of Period Rs.Cash in hand 5,000 Cash at Dena Bank 10,000 Marketable Securities 3,000 Less: Bank Overdraft ( 10,000)Less: Cash Credit (9,000) (1,000)

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Meaning of Operating Activities(a)These are the principal revenue-producing activities of the enterprise and other activities that are not investing or financing activities. (b)Cash flows from operating activities are primarily derived from the principal revenue-producing activities of the enterprise.

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Cash Flows from Operating Activities

Cash Inflows • Cash Sales• Cash Receipts from

Debtors • Trading Commission

Received• B/R collected

Cash Outflows • Cash Purchases • Cash Paid to

Suppliers • Wages Paid• Mfg. Oh.Paid • Admin.& Selling

Expenses

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Meaning of Investing Activities

Investing activities are the acquisition and disposal of long-term Assets and other Investments not included in Cash equivalents.

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Cash Flows from Investing Activities

Cash InflowsSale of………..

-Machinery -Land & Building-Furniture & Fixtures- Investments

-Non Operating Incomes

Cash out flows Purchase of…….

-Machinery-Land & Building-Furniture &

Fixtures -Investments

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Meaning of Financing ActivitiesThese are the activities that result in changes in the size and composition of the owners’ capital and borrowings of the enterprise. Cash flow from financing activities is ascertained by analyzing the changes in Equity Share Capital, Pref. Share Capital, Debentures and others borrowings.

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Cash Flows from Financing Activities

Cash Inflows due To

Issue of -Equity Share Capital - Pref. Share Capital - Debentures

-Raising of other borrowings.

Cash Outflows

-Buy back of Equity Shares

-Redemption of Preference Shares

-Repayment of Long-term borrowings

-Dividend paid - Interest paid

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How to Compute Cash Flow from

Operating Activities?

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Direct Method

Indirect Method

OR

Cash Flow from Operating Activities (Direct Method ) Particulars

A. Operating Receipts in Cash: Cash Sales Cash receipts from customers Trading Commission received

B. Operating Payments in Cash:

Cash Purchases Cash paid to suppliers Trading Commission paid Manufacturing Exp. paid

Admin & Selling Exp. paid

C.Cash generated from Operations before taxes [A – B] D. Income Tax paid (Net of refund) E. Cash flow before extraordinary items F. Insurance proceeds from earthquake disaster settlementG. Net Cash from Operating Activities

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Cash Flow from Operating Activities (Indirect Method)

Particulars A. Net Profit as per Profit & Loss A/c Add: Proposed dividend for the current year Add: Interim dividend paid during the year Add: Transfer to reserve Add: Provision for Tax made during Current Year Less: Refund of Tax Less: Extraordinary items (i.e., Insurance proceeds from earthquake disaster settlement)B. Net profit before taxation, and extraordinary item

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.B. Net profit before taxation, and extraordinary item C. Add: Items to be added:

Depreciation Interest on Long term borrowings

Discount on Issue of Debentures w/o

Patents written off Loss on sale of Machinery

Premium on redemption of Pref. shares D. Less: Non operating g incomes to be deducted:

E. Operating Profit before working capital changes F. Add: Decrease in C. Assets & Increase in C. Liabilities: G. Less: Increase in C. Assets & Decrease in C. Liabilities:

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H. Cash generated from operations I. Less: Income taxes paid (Net of Refund) J. Cash flow before extraordinary item [H – I] K. Extraordinary items L.Net Cash from Operating Activities

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Practical Guidelines for the computation of Cash from Operating Activities

from the Items of Balance Sheet without

additional information

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. Proposed Dividend for the Current Year

Add back to current year’s Net Profits after appropriations

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.Provision for Tax made during the Current Year

Add back to current year’s Net Profits after appropriations

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. Increase in Reserve

Add back to current year’s Net Profits after appropriations

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. Decrease in Reserve

Subtract from current year’s Net Profits after appropriations

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.Decrease in Intangible Assets like Goodwill, Patent, Trademark, Copyright

Add back to current year’s Net Profits before tax

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.Increase in Provision for Depreciation Account

Add back to current year’s Net Profits before tax

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Decrease in items of Miscellaneous Expenditure like Preliminary Expenses, Underwriting Commission, Discount on Issue of Debentures/Shares.

Add back to current year’s Net Profits before tax

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. Decrease in Current Assets other than Cash & Bank Balance and Marketable Securities

Add back to current year’s Operating Profits before Working Capital changes.

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. Decrease in Current Assets other than Cash & Bank Balance and Marketable Securities

Add back to current year’s Operating Profits before Working Capital changes.

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. Increase in Current Liabilities other than Bank Overdraft & Cash Credit

Add back to current year’s Operating Profits before Working Capital changes.

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Increase in Current Assets other than Cash & Bank Balance and Marketable Securities

Deduct from current year's Operating Profits before Working Capital changes.

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Decrease in Current Liabilities other than Bank Overdraft & Cash Credit

Deduct from current year's Operating Profits before Working Capital changes.

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Tax paid during the year (if not given separately then Provision for Tax for the previous year)

Deduct from cash generated from operations before tax.

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Practical Guidelines for the computation of Cash from Investing Activities from the Items of Balance Sheet without additional information

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Increase in Intangible Assets Opening Closing Trade Mark 1 LAC 3 LAC

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Cash Flow StatementCash used in Investing Activity

Purchase of Trade mark 2 Lacs

Cash Used in Investing Activity

Increase in Gross/Net Depreciable Fixed Assets Opening Closing

Machinery 1 LAC 3 LAC

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Cash Flow StatementCash used in Investing Activity

Purchase of Machinery 2 Lacs

Cash Used in Investing Activity

Increase in Non-Depreciable Fixed Assets Opening Closing

Investments 1 LAC 3 LAC

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Cash Flow StatementCash used in Investing Activity

Purchase of Investments 2 Lacs

Cash Used in Investing Activity

Increase in items of Misc. Expenditure Opening Closing

Pre. Expenses 1 LAC 3 LAC

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Cash Flow StatementCash used in Investing Activity

Payment of Pre. Exp. 2 Lacs

Cash Used in Investing Activity

Decrease in Non-Depreciable Fixed Assets Opening Closing

Investments 3 LAC 1 LAC

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Cash Flow StatementCash from Investing Activity

Sale of Investments 2 Lacs

Cash inflow from Investing Activity

Decrease in Gross Depreciable Fixed Assets Opening Closing

Machinery 3 LAC 1LAC

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Cash Flow StatementCash from Investing Activity Sale of Machinery 2 Lacs

Cash inflow from Investing Activity

Interest on the Op.Bal. of Investments

Opening Closing10% Investments 3 LAC 1 LAC

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Cash Flow StatementCash from Investing Activity

Interest on Investments 0.3 Lacs

Cash inflow from Investing Activity

Increase in Accrued Interest on Investments Opening Closing10% Investments 3 LAC 1 LAC Accrued Interest 0.10 0.11

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Cash Flow StatementCash from Investing Activity

Interest on Investments 0.29 Lacs

It is subtracted from the amount of interest on Opening balance of

Investments

Practical Guidelines for the computation of Cash from Financing Activities from the Items of Balance Sheet without additional information

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Increase in Equity Share Capital/Pref. Share Capital/Debentures

Opening ClosingEquity Share Capital 1 LAC 3 LAC

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Cash Flow StatementCash from Financing Activity

Equity Share Capital 2 Lacs

Cash Inflow from Financing Activity

Decrease in Equity Share Capital/Pref. Share Capital/Debentures

Opening ClosingEquity Share Capital 3 LAC 1 LAC

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Cash Flow StatementCash used in Financing Activity Equity Share Capital 2 Lacs

(Buy-Back )

Cash used in Financing Activity

Increase in Securities Premium Opening Closing

Eq. Share capital 1 LAC 3 LACSecurities Premium 0.25 0.75

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Cash Flow StatementCash from Financing Activity Equity Share Capital 2.5 Lacs

( Incl. Premium)

It is added to the increase in amount of Share Capital

Increase in Discount on Issue of Debentures

Opening ClosingDebentures 1 LAC 3 LACDiscount 0.25 0.75

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Cash Flow StatementCash from Financing Activity

Debentures 1.5 Lacs ( Net Of Discount )

It is subtracted from the increase in amount of Debentures

Interest on Opening Balance of Debentures

Opening Closing10% Debentures 1 LAC 3 LAC

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Cash Flow StatementCash used in Financing Activity

Interest on Debentures 0.10 Lacs

Cash used in Financing Activity