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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 periodCFS 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 cash3

MEANING OF CASH FLOW STATEMENTThe

Cash Flow Statement means the statement of changes in Cash and Cash equivalents. Net Cash flows It shows the following for the period covered by it: 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 EquivalentsCash 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.5

Computation of Cash and Cash EquivalentsCash and Cash Equivalents at the Beginning of Period Rs. Cash in hand 5,000 Cash at Dena Bank 10,000 Marketable Securities3,000 Less: Bank Overdraft ( 10,000) Less: Cash Credit (9,000)6

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 revenueproducing activities of the

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Cash Flows from Operating ActivitiesCash 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 Expenses8

Meaning of Investing ActivitiesInvesting activities are the

acquisition and disposalof long-term Assets and other Investments not included in Cash equivalents.9

Cash Flows from Investing ActivitiesCash Inflows Sale of..-Machinery -Land & Building -Furniture & Fixtures - Investments -Non

Cash out flows

Purchase of.

Operating Incomes

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

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Meaning of Financing Activities These 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 changesin Equity Share Capital, Pref.

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Cash Flows from Financing ActivitiesCash 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 paid12

How to Compute Cash Flow from

Operating Activities?

Direct O Method R

Indirect Method

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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 14

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 Less: Refund of Tax Less: Extraordinary items (i.e., Insurance proceeds15 Current Year

.B.

Net profit before taxation, and extraordinary item 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

C.

D. Less: deducted:

Non operating g incomes to be

E. Operating Profit before working capital changes F. Add: Decrease in C. Assets & Increase in C.16

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 theItems of

Balance Sheetwithout additional information18

.

Proposed Dividend for the Current Year Add back to current years Net Profits after appropriations

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.

Provision for Tax made during the Current Year

Add back to current years Net Profits after appropriations

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Increase in Reserve.

Add back to current years Net Profits after appropriations

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Decrease in Reserve.

Subtract from current years Net Profits after appropriations

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

Add back to current years Net Profits before tax

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Increase in Provision for Depreciation Account.

Add back to current years 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 years Net Profits before tax25

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

Add back to current years Operating Profits before Working Capital changes.26

Decrease in Current Assets other than Cash & Bank Balance and Marketable Securities Add back to current years Operating Profits before Working Capital changes..27

Increase in Current Liabilities other than Bank Overdraft & Cash Credit Add back to current years Operating Profits before Working Capital changes..28

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

Deduct from current year's Operating Profits before Working Capital changes.29

Decrease in Current Liabilities other than Bank Overdraft & Cash Credit

Deduct from current year's Operating Profits before Working Capital changes.30

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.31

Practical Guidelines for the computation of Cash from Investing Activities from the Items of Balance Sheet without additional information32

Increase in Intangible Assets Opening Closing Trade Mark 1 LAC 3 LAC Cash Used in Investing Activity

Cash Flow StatementCash used in Investing Activity Purchase of Trade mark 2 Lacs

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Increase in Gross/Net Depreciable Fixed Assets

Machinery 3 LAC Cash Used in Investing Activity

Opening Closing 1 LAC

Cash Flow StatementCash used in Investing Activity Purchase of Machinery 2 Lacs

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Increase in Non-Depreciable Fixed Assets

Opening Closing Investments 1 LAC 3 LAC Cash Used in Investing Activity

Cash Flow StatementCash used in Investing Activity Purchase of Investments 2 Lacs

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Increase in items of Misc. Expenditure

Opening Closing Pre. Expenses 1 LAC 3 LAC Cash Used in Investing Activity

Cash Flow StatementCash used in Investing Activity Payment of Pre. Exp. 2 Lacs

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Decrease in Non-Depreciable Fixed Assets

Opening Closing Investments 3 LAC 1 LAC Cash inflow from Investing Activity

Cash Flow StatementCash from Investing Activity Sale of Investments 2 Lacs

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Decrease in Gross Depreciable Fixed Assets

Opening Closing Machinery 3 LAC 1LAC Cash inflow from Investing Activity

Cash Flow StatementCash from Investing Activity Sale of Machinery 2 Lacs38

Interest on the Op.Bal. of InvestmentsOpening Closing 10% Investments 3 LAC 1 LAC inflow from Cash Investing Activity

Cash Flow StatementCash from Investing Activity Interest on Investments 0.3 Lacs

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Increase in Accrued Interest on InvestmentsOpening Closing 10% Investments 1 LAC 3 LAC

Accruedsubtracted from the 0.10 It is Interest 0.11 amount of interest on Opening balance of Investments Cash Flow Statement Cash from Investing Activity Interest on Investments 0.29 Lacs

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Practical Guidelines for the computation of Cash from Financing Activities from the Items of Balance Sheet without additional information41

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

Opening Closing Equity Share Capital 1 LAC 3 Inflow from Financing Cash LAC Activity

Cash Flow StatementCash from Financing Activity Equity Share Capital 2 Lacs

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

Opening Closing Equity Share Capital 3 LAC 1 LAC Cash used in Financing

Cash Flow StatementCash used in Financing Activity Equity Share Capital 2 Lacs (Buy-Back )

Activity

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PremiumOpening Closing Eq. Share capital 1 LAC 3 LAC It is added to 0.25 Securities Premium the increase in amount of 0.75 Share Capital

Cash F