DAY 10

CASH FLOW STATEMENT

 CASH FLOW STATEMENT

• SHOW CHANGES IN CASH POSITION FROM ONE PERIOD TO ANOTHER.

• EXAMPLE:-
➢ CASH BALANCE- RS. 1,00,000 ON 31ST MARCH 2013
➢ CASH BALANCE – RS. 1,20,000 ON 31ST MARCH 2014
➢ INFLOW OF CASH RS. 20,000 YEAR 2013-14.
 PREPARATION OF CASH FLOW STATEMENT

• AS PER ACCOUNTING STANDARD-(AS-3)

• AS PER COMPANY ACT, 2013 CASH FLOW STATEMENT PART OF FINANCIAL STATEMENT EXCEPT
THE FOLLOWING:
i. ONE PERSON COMPANIES
ii. SMALL COMPANY- OTHER THAN A PUBLIC COMPANY, PAID-UP CAPITAL < RS. 50 LAKH OR
TURNOVER AS PER LAST YEAR PROFIT & LOSS ACCOUNT < RS. 2 CRORE.
iii. DORMANT COMPANY-REGISTERED BUT NOT WORKING.
 CASH FLOW STATEMENT AS PER AS-3

• INCLUDES THREE SEPARATE CATEGORIES ARE:-

a. OPERATING ACTIVITIES
b. INVESTING ACTIVITIES
c. FINANCING ACTIVITIES
 OPERATING ACTIVITIES

• ITS IS PRINCIPAL REVENUE PRODUCING ACTIVITIES.

• EXAMPLE ARE:
a. CASH RECEIPT FROM SALE OF GOODS OR RENDERING SERVICE.
b. CASH RECEIPT FROM ROYALTIES, FEES, COMMISSION AND OTHER REVENUE
c. CASH PAYMENT TO SUPPLIER FOR GOODS AND SERVICES
d. CASH PAYMENT TO EMPLOYEES
e. CASH RECEIPTS AND CASH PAYMENT OF AN INSURANCE ENTERPRISE FOR PREMIUMS AND CLAIMS,
ANNUITIES AND OTHER POLICY BENEFITS.
f. CASH PAYMENT OR REFUNDS OF INCOME TAX.
 CALCULATING OF CASH FLOW FROM OPERATING
ACTIVITIES
a. Direct Methord

Trading and Profit & loss Account for the year ending 31st March, 2014
Particular Note No. 2013-14
Revenue from operation
Cash 9,00,000
Credit 1,00,000
10,00,000
Profit on sale of investment 50,000
Total revenue 10,50,000
Expenses
Purchases
Cash 6,00,000
Credit 2,00,000
Wages 1,00,000
Depreciation on plant 20,000
Salaries 50,000
Loss on Sale of Plant 5,000
Total Expenses 9,75,000
Profit before tax 75,000
 CALCULATION OF NET CASH FLOW FROM
OPERATING ACTIVITIES
Particular Rs Rs.

Cash Sales 900,000

Cash Received from Customers 600,000

15,00,000

Less: Cash Purchase 6,00,000

Cash paid to Supplier 4,00,000

Cash Expenses (Wages + Salaries) 1,50,000 11,50,000

Net Cash Flow from Operating Activities 3,50,000

INDIRECT METHOD

1. DEPRECIATION
2. PROFIT OR LOSS ON SALE OF FIXED ASSETS
3. INTEREST PAYABLE / RECEIVABLE
4. CHANGES IN STOCKS, DEBTORS AND CREDITORS
5. BILLS RECEIVABLE AND BILL PAYABLE
6. PREPAID EXPENSES AND OUTSTANDING EXPENSES.
 EXAMPLE
❑ CALCULATE NET CASH FLOWS FROM OPERATING ACTIVITIES FROM THE FOLLING USING
INDIRECT METHOD :
i. PROFIT MADE DURING THE YEAR RS 2,57,000 AFTER CONSIDERING THE FOLLOWING ITEMS
:
a. DEPRECIATION ON FIXED ASSETS RS. 10,000
b. AMORTISATION OF GOODWILL RS. 5,000
c. PROFIT ON SALE OF LAND RS. 3,000

ii. THE FOLLOWING IS THE POSITION OF CURRENT ASSETS AND CURRENT LIABILITIES –
Particular 31-3-13 (Rs.) 31-3-2014 (Rs.)
Debtors 15,000 12,000
Creditors 10,000 15,000
Bill Receivables 8,000 10,000
Prepaid Expenses 4,000 6,000
 CALCULATION OF NET CASH FLOWS FROM OPERATING
ACTIVITIES
(INDIRECT METHORD)
Particulars Rs. Rs.
Profit for the year 2013-14 after t/f to General Reserva 2,57,000

ADD: Depreciation on fixed assets 10,000

Amortisation of Goodwill 5,000 15,000
2,72,000
Less: Profit on sale of land 3,000
Cash Generated from Operation before working capital 2,69,000
changes
Less: Increase in debtors 3,000
Decrease in creditors 5,000 8,000
2,61,000
ADD: Decrease in bill receivable 2,000
Decrease in prepaid expenses 2,000
Net Cash Flow from Operating Activities 2,65,000
 INVESTING ACTIVITIES
❑ ACQUISITION AND DISPOSAL OF LONG TERM ASSETS AND INVESTMENT
❑ EXAMPLES OF CASH FLOW ARISING FROM INVESTING ACTIVITIES ARE:
a) CASH PAYMENTS TO ACQUIRE FIXED ASSETS
b) CASH RECEIPT FROM DISPOSAL OF FIXED ASSETS
c) CASH PAYMENT TO ACQUIRE SHARE, WARRANTS OR DEBT INSTRUMENTS OF OTHER ENTERPRISES
d) CASH RECEIPT FROM DISPOSAL OF SHARE, WARRANT OR DEBT INSTRUMENTS OF OTHER
ENTERPRISES
e) CASH ADVANCE AND LOAN MADE TO THIRD PARTIES
f) CASH RECEIPT FROM THE REPAYMENT OF ADVANCES AND LOAN MADE TO THIRD PARTIES
• FROM THE FOLLOWING INFORMATION CA;CULATE THE AMOUNT OF NET CASH FLOW FROM
INVESTING ACTIVITIES:

Particular 2012-13 (Rs) 2.13-14 (Rs)

Plant and Machinery 8,50,000 10,00,000
Investment (long- term) 40,000 1,00,000
Land (at Cost) 2,00,000 1,00,000
• ADDITIONAL INFORMATION:
1. DEPRECIATION CHARGES ON PLANT AND MACHINERY RS. 50,000.
2. PLANT AND MACHINERY WITH A BOOK VALUE OF RS 60,000 WAS SOLD FOR RS. 40,000 ON 1ST
APRIL 2013.
3. LAND WAS SOLD AT A PROFIT OF RS 60,000
4. NO INVESTMENT WAS SOLD DURING THE YEAR
 CALCULATION OF NET CASH FLOW FROM INVESTING
ACTIVITIES
Particular Rs. Rs.
Cash payment to acquire P & M (Note 1) (2,60,000)
Cash receipt from sale of P & M 40,000
Cash payment to acquire Investments (60,000)
Cash receipts from sale of land [ Rs. 1,00,00 + Rs. 60,000(profit)] 1,60,000

Net Cash Flow From Investing Activities (1,20,000)

Working Note: (1) Plant and Machinery Account

Date Particular Rs Date Particular Rs.

1-4-13 To Balance b/d 8,50,000 1-4-13 By Bank A/c 40,000
To Bank A/c (purchased – bal figure) 2,60,000 By Loss on sale of plant & mach. 20,000
By Dep A/c 50,000
Dec-31 By Bal. c/d 10,00,000
11,10,000 11,10,000
 FINANCING ACTIVITIES

• FINANCIAL ACTIVITIES ARE:

1. CASH PROCEEDS FROM OF ISSUE OF SHARES
2. CASH PROCEEDS FROM ISSUE OF DEBENTURE, LOANS, NOTES, BONDS AND OTHER SHORT OR
LONG – TERM BORROWING.
3. CASH REPAYMENT OF AMOUNT BORROWED
4. PAYMENT OF DIVIDENDS
5. PAYMENT OF INTEREST
QUESTION:
Particular 31-3-2013 (Rs) 31-3-2014 (Rs.)
Equity Share Capital 4,00,000 5,00,000
12% Debenture 1,50,000 1,00,000
Securities Premium 40,000 50,000

Additional information : Interest paid on debenture Rs. 18,000

Ans:
Particular Rs. Rs.
Cash proceeds from the issue of share (including premium) 1,10,000
Interest paid on Debenture (18,000)
Cash repayment for debenture (50,000)
Net Cash Flow from Financing Activities 42,000
 TREATMENT OF SPECIAL ITEMS
• INTEREST AND DIVIDEND
✓ FOR A FINANCIAL ENTERPRISES
1. INTEREST PAID AND RECEIVED – OPERATING ACTIVITIES
2. DIVIDEND RECEIVED – OPERATING ACTIVITIES
3. DIVIDEND PAID – FINANCIAL ACTIVITIES
✓ FOR OTHE ENTERPRISES
1. INTEREST AND DIVIDEND RECEIVED – INVESTING ACTIVITIES
2. INTEREST AND DIVIDEND PAID – FINANCIAL ACTIVITIES

INCOME TAX
INCOME TAX PAID AND INCOME TAX REFUND – OPERATING ACTIVITIES
NON- CASH TRANSACTION:
TRANSACTION – NOT CASH FORM OR EQUIVALENT TO CASH NOT RECORDED
CASH- MEANS CASH IN HAND AND DEMAND DEPOSIT WITH BANK
CASH EQUIVALENT:-SHORT- TERM, HIGHLY LIQUID INVESTMENT THAT ARE READILY CONVERTIBLE INTO KNOW
AMOUNT OF CASH