accountin standard cashflow
TRANSCRIPT
-
7/28/2019 Accountin Standard Cashflow
1/22
-
7/28/2019 Accountin Standard Cashflow
2/22
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.
-
7/28/2019 Accountin Standard Cashflow
3/22
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
-
7/28/2019 Accountin Standard Cashflow
4/22
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.
-
7/28/2019 Accountin Standard Cashflow
5/22
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
-
7/28/2019 Accountin Standard Cashflow
6/22
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.
-
7/28/2019 Accountin Standard Cashflow
7/22
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.
-
7/28/2019 Accountin Standard Cashflow
8/22
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.
-
7/28/2019 Accountin Standard Cashflow
9/22
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
-
7/28/2019 Accountin Standard Cashflow
10/22
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
-
7/28/2019 Accountin Standard Cashflow
11/22
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.
-
7/28/2019 Accountin Standard Cashflow
12/22
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
-
7/28/2019 Accountin Standard Cashflow
13/22
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.
-
7/28/2019 Accountin Standard Cashflow
14/22
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
-
7/28/2019 Accountin Standard Cashflow
15/22
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.
-
7/28/2019 Accountin Standard Cashflow
16/22
Extraordinary items
The cash flows associated with extraordinaryitems should be classified as arising from:
Operating
Investing or
Financing activities
as appropriate and separately disclosed.
-
7/28/2019 Accountin Standard Cashflow
17/22
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.
-
7/28/2019 Accountin Standard Cashflow
18/22
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
-
7/28/2019 Accountin Standard Cashflow
19/22
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
-
7/28/2019 Accountin Standard Cashflow
20/22
-
7/28/2019 Accountin Standard Cashflow
21/22
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)
-
7/28/2019 Accountin Standard Cashflow
22/22
THANK YOU