Index • Meaning and Types Cash Flow • Operating Activities • Investing Activities • Financing Activities • Interest • Dividend Cash Flow - Dr. varadraj Bapat, IIT Mumbai 4
Index • Introduction Cash Flow Statement • Meaning • Applicability • Cash and Cash equivalents Cash Flow - Dr. varadraj Bapat, IIT Mumbai 3
Index • Acquisitions and disposals of subsidiaries and other business units • Non-cash transactions • Disclosures of cash and cash equivalents Cash Flow - Dr. varadraj Bapat, IIT Mumbai 6
Introduction Traditional financial statement fails to inform the way enterprise has generated cash and were utilised in the accounting period. The need for inclusion of cash summary was therefore recognised . Cash Flow - Dr. varadraj Bapat, IIT Mumbai 7
Meaning The summary of cash transactions (receipts and payments) during an accounting period is called Cash Flow Statement. The transactions are catagorised as Operating, Investing and Financing. Cash Flow - Dr. varadraj Bapat, IIT Mumbai 8
Accounting Standard The ‘Accounting Standards’ are issued to establish principals and policies which have to be complied by the business entities in preparing the financial statement. Cash Flow - Dr. varadraj Bapat, IIT Mumbai 9
AS-3 AS-3/IAS-7/IndAS-7 deals with preparation of Cash flow Statement. Cash Flow - Dr. varadraj Bapat, IIT Mumbai 10
Cash and Cash Equivalents Cash Equivalents:- Short term, highly liquid investments, that are readily convertible into known amounts of cash and are subject to insignificant risk/change to value Cash Flow - Dr. varadraj Bapat, IIT Mumbai 12
Types of Cash Flow The cash flows generated through various activities are classified as • Operating cash flow • Investing cash flow • Financing cash flow Cash Flow - Dr. varadraj Bapat, IIT Mumbai 14
Cash Flow Activities Operating Investing Financing (From Day e.g. e.g. Loan to Day Purchase of Taken Activities) Land Cash Flow - Dr. varadraj Bapat, IIT 15 Mumbai
Operating Activities • These are principal revenue producing activities of the enterprise. • Examples: Cash receipts from sale of goods or rendering services Cash Flow - Dr. varadraj Bapat, IIT Mumbai 16
Reporting of Cashflow 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 Cash Flow - Dr. varadraj Bapat, IIT Mumbai 18
Direct Method Cash receipts from customers XX Cash paid to suppliers XX Cash paid to employees XX Cash paid for other operating expenses XX Cash generated from operation XX Income tax paid XX Net cash from operating activities XX Cash Flow - Dr. varadraj Bapat, IIT 19 Mumbai
• Indirect method: In this method, profit and loss account is adjusted for the effects of transaction of non-cash and non-operating nature. Cash flow statement of listed companies shall be presented only under the indirect method as prescribed in AS 3 Cash Flow - Dr. varadraj Bapat, IIT Mumbai 20
Retained Earning XX Add: Dividend paid XX Income Tax XX Net Profit Before Tax XX Add: Depreciation XX Loss on sale of Asset/Investment XX Interest Paid XX Provision for Bad debts XX Less: Interest/ Dividend Received XX Profit on sale of Asset/ Investment XX Cash Flow - Dr. varadraj Bapat, IIT 21 Mumbai
Funds from operations XX Add: Decrease in Current Asset XX Add: Increase in Current Liabilities XX Less: Increase in Current Asset XX Less: Decrease in Current Liabilities XX Cash generated from operation XX Income Tax Paid XX Net Cash flow from operating XX activities Cash Flow - Dr. varadraj Bapat, IIT 22 Mumbai
Investing Activities • The activities of acquisition and disposal of long term assets and other investments not included in cash equivalent are investing activities. • It includes acquiring and disposal of debt and equity instruments, property and fixed assets etc. Cash Flow - Dr. varadraj Bapat, IIT Mumbai 23
• Examples: Cash payments for purchase of fixed assets Cash receipts from disposal of FAs Cash payments to purchase shares, or debt instruments of other companies Cash receipt from disposal of above investments Cash Flow - Dr. varadraj Bapat, IIT Mumbai 24
• Financing Activities • Example: Issue of equity shares Buy back of equity shares Issue/ Redemption of preference shares Issue / redemption of debentures Long term loan / payment thereof Dividend / interest paid Cash Flow - Dr. varadraj Bapat, IIT Mumbai 26
Interest Interest Received Received on investment – it is investment inflow Received from short term investment classified, as cash equivalents should be considered as cash inflows from operating activities Cash Flow - Dr. varadraj Bapat, IIT Mumbai 27
Received on trade advances and operating receivables should be in operating inflows For financial enterprises – in operating inflow Cash Flow - Dr. varadraj Bapat, IIT Mumbai 28
Interest Paid On loans/debts is financing activities On working capital loan or loan taken to finance operating activities are included in operating inflows For financial enterprises – in operating outflow Cash Flow - Dr. varadraj Bapat, IIT Mumbai 29
Dividend • Dividend Received For non-financial enterprises- investing inflow For financial enterprises – operating inflow • Dividend Paid Always classified as financing inflow Cash Flow - Dr. varadraj Bapat, IIT Mumbai 30
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