Financial Accounting

CASH FLOW STATEMENT

 CASH FLOW STATEMENT
✓ According to the International Accounting Standard No. 7 (IAS-7), “Cash flows are
inflows and outflows of cash and cash equivalents. Cash comprises cash on hand and
demand deposits. Cash equivalents are short-term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value.
✓ The purpose of a cash flow statement is to report the sources from which an
enterprise raised cash and the uses or applications of cash during the period.
✓ Preparation and presentation of the statement of cash flows is governed
internationally by IAS-7 and in India by the Accounting Standard–7 (Ind AS-7) on
Cash Flow Statement issued by the Institute of Chartered Accountants of India.
✓ Ind AS-7 requires that activities that caused cash inflows and outflows should be
classified into three categories: operating activities, investing activities and financing
activities
✓ Operating activities are the main revenue producing activities of the business. Cash
flows from operating activities are the result of transactions that are reported in the
profit & loss account
 CASH FLOW STATEMENT
✓ Examples of cash inflows and outflows related to operating activities would be as
follows:
Operating activities cash inflows:
✓ Cash receipts from customers for sale of goods & services.
✓ Cash received as fees and commission
✓ Cash received on account of royalty

Operating activities cash outflows:

✓ Payments made to suppliers of goods & services purchased
✓ Payments made to employees
✓ Payment of taxes
 CASH FLOW STATEMENT
✓ Investing activities are the related to acquisition and disposal of long-term assets and
other investments (except short-term investment included in cash-equivalents).
Examples of cash inflows and outflows related to investing activities would be as
follows
✓ Examples of cash inflows and outflows related to investing activities would be as
follows:
Investing activities cash inflows:
✓ Cash receipts from sale of assets like plant, equipment and property.
✓ Cash received from sale of investments (other than those included in cash
equivalents)
✓ Recovery of loans made
✓ Receipt of cash dividends on equity investments in other companies
✓ Receipt of interest on loans made
 CASH FLOW STATEMENT
Investing activities cash outflows:
✓ Payment made for purchase of fixed assets like plant, equipment and property.
✓ Payment for investments made (other than those included in cash equivalents)
✓ Loans advanced
✓ Financing activities are those that affect the capital structure of the enterprise and
relate to financing of business through equity or debt. Examples of cash inflows and
outflows related to financing activities would be as follows
Financing activities cash inflows:
✓ Cash received from issue of share capital
✓ Cash received as loans from banks
✓ Government grants received (if any) to subsidize project cost
 CASH FLOW STATEMENT
Financing activities cash outflows:
✓ Repayment of loans
✓ Cash paid for redemption of debentures
✓ Repurchase of company’s own shares for cash
✓ Payment of cash dividends
✓ Payment of interest
 CASH FLOW STATEMENT
Ca sh F lo w S ta tem en t
Net profit after taxes -
Adjustments
Add: Non Cash Items (Dep/Amort) +
Less: Interest income -
Less: Dividend income -
Add:Interest Expense +

+/- Working Capital Changes +/-

Increase in sundry debtors -
Decrease in sundry debtors +
Decrease in inventories +
Increase in inventories -
Increase in sundry creditors +
Decrease in sundry creditors -

Ca sh F lo w f r o m Op er a tio n s a

Purchase of fixed assets -

Proceeds from sale of equipment +
Interest received +
Dividends received +

Cash Flow from Investing Activities b

Proceeds from issuance of share capital +

Proceeds from borrowings +
Repayment of borrowings -
Interest paid -
Dividends paid -

Cash Flow from Financing Activities c

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period y

Cash and cash equivalents at end of period y+a +b +c

INCOME STATEMENT in INR BALANCE SHEET
Revenue 500,000 Equity and Liabilities 2017 2018
Equity share capital 20,000 25,000
Cost of Goods sold -350,000
Other Equity 65,000 75,000
Gross profit 150,000
Total equity 85,000 100,000

Other Expenses
Salaries -60,000 Non-Current Liabilities (Loans) 175,000 200,000
Depreciation -25,000
Interest -35,000 Current Liabilities:
Trade Payables 105,000 88,000
Total expenses -120,000 Other Financial Liabilities 10,000 12,000
375,000 400,000
Profit before income tax 30,000
Income taxes -10,000 Assets
Net Income (Profit after taxes) 20,000 Gross Fixed assets 180,000 200,000
Less: dividends paid -10,000 Less: Accumulated Depreciation -90,000 -115,000
Net Income after Dividends 10,000 Net fixed assets 90,000 85,000

Current assets:
Inventories 140,000 170,000
Trade Receivables 130,000 140,000
Cash & Cash Equivalents 15,000 5,000
Total Current assets 285,000 315,000
Total Assets 375,000 400,000
 CASH FLOW STATEMENT
Profit after Taxes 20,000
Add: Depreciation 25,000
Add: Interest 35,000

Cash Flow from operating activities before adjusting for Working capital changes 80,000

Adjustment for Working Cap:

Increase in Inventory -30,000
Increase in Trade Receivables -10,000
Decrease in Trade Payables -17,000
Increase in Other Financial liabilities 2,000

Net Cash Flow from operating activities 25,000

Cash Flow from Investing activities

Purchase of Fixed Assets -20,000

Net Cash Flow from investing activities -20,000

Cash Flow from Financing activities

Share capital 5,000
Long term loans 25,000
Interest -35,000
Dividends -10,000

Net Cash Flow from financing activities -15,000

Total net increase (decrease) in cash -10,000

Cash & Cash equivalents on 31 Dec-2017 15,000

Cash & Cash equivalents on 31 Dec-2018 5,000
INCOME STATEMENT in INR Lakhs
Revenue 600,000
Gain on sale of investments 10,000
Dividend income 18,000
Interest income 12,000
Cost of Goods sold -365,000

Other Expenses
Selling & administrative expenses -55,000
Depreciation -30,000
Interest expense -70,000
Loss on sale of patent -20,000

Profit before income tax 100,000

Income taxes -30,000
Net Income (Profit after taxes) 70,000

B ALANCE SHEET
Equity and Liabilities 2018 2019
Equity share capital 200,000 250,000
Other Equity 100,000 170,000
Total equity 300,000 420,000

Borrowings 240,000 430,000

Current Liabilities:
Trade Payables 135,000 75,000
Other Financial Liabilities 25,000 45,000

Total Liabilities 700,000 970,000

Assets
Gross Fixed assets 400,000 630,000
Less: Accumulated Depreciation -120,000 -150,000
Net fixed assets 280,000 480,000

Patents 30000 0
Investments 90000 60000

Current assets:
Inventories 140,000 130,000
Trade Receivables 80,000 120,000
Cash & Cash Equivalents 80,000 180,000

Total Assets 700,000 970,000

A. Cas h Flows from Ope rating Activitie s
Profit after income tax 70,000
Adjustments for non-cash items:
Add: Depreciation 30,000

Less: Gain on Sale of Investments -10,000

Add: Loss on Sale of Patent 20,000

Adjustment for expenses not related to operating

Less: Interest income -12,000
Less: dividends income -18,000
Add: Interest Expense 70,000

Adjustment for working capital

changes
- Decrease in inventory 10,000
- Increase in debtors -40,000
- Decrease in trade creditors -60,000
Increase in other financial liabilities 20,000
Total working capital changes

Ne t cas h outflow from ope rating activitie s 80,000

B . Cas h Flows from Inve s ting Activitie s

- Purchase of fixed assets -230,000
- Sale of patents 10,000
- Sale of investments 40,000
- Interest received 12,000
- Dividend received 18,000

Ne t cas h outflow for inve s ting

-150,000
activitie s

C. Cas h Flows from Financing Activitie s

Share capital 50,000
Borrowings 190,000
Interest paid -70,000
Ne t cas h inflow from financing
170,000
activitie s
Total Net increase (decrease) in cash flow 100,000
Cash & Cash equivalents -2018 80,000
Cash & Cash equivalents- 2019 180,000