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Statements of Accounting Standards (AS 3) Revised
Cash Flow Statements
(In this Accounting Standard, the standard portions have been set in bold italic type.
These should be read in the context of the background material which has been set in normal
type, and in the context of the 'Preface to the Statements of Accounting Standards'.)
The following is the text of the revised Accounting
Standard (AS) 3, 'Cash Flow Statements', issued by the Council of the
Institute of Chartered Accountants of India. This Standard supersedes
Accounting Standard (AS) 3, 'Changes in Financial Position', issued in
June, 1981.
In the initial years, this accounting standard will be recommendatory in character. During this period, this standard
is recommended for use by companies listed on a recognised stock exchange
and other commercial, industrial and business enterprises in the public
and private sectors.
Objective
Information about the cash flows of an enterprise
is useful in providing users of financial statements with a basis to assess
the ability of the enterprise to generate cash and cash equivalents and
the needs of the enterprise to utilise those cash flows. The economic
decisions that are taken by users require an evaluation of the ability
of an enterprise to generate cash and cash equivalents and the timing
and certainty of their generation.
The Statement deals with the provision of information about the historical changes in cash and cash equivalents
of an enterprise by means of a cash flow statement which classifies cash
flows during the period from operating, investing and financing activities.
Scope
1. An enterprise should prepare a cash flow statement and should present it for each period for which financial
statements are presented.
2. Users of an enterprise's financial statements
are interested in how the enterprise generates and uses cash and cash
equivalents. This is the case regardless of the nature of the enterprise's
activities and irrespective of whether cash can be viewed as the product
of the enterprise, as may be the case with a financial enterprise. Enterprises
need cash for essentially the same reasons, however different their principal
revenue-producing activities might be. They need cash to conduct their
operations, to pay their obligations, and to provide returns to their
investors.
Benefits of Cash Flow Information
3. A cash flow statement, when used in conjunction
with the other financial statements, provides information that enables
users to evaluate the changes in net assets of an enterprise, its financial
structure (including its liquidity and solvency) and its ability to affect
the amounts and timing of cash flows in order to adapt to changing circumstances
and opportunities. Cash flow information is useful in assessing the ability
of the enterprise to generate cash and cash equivalents and enables users
to develop models to assess and compare the present value of the future
cash flows of different enterprises. It also enhances the comparability
of the reporting of operating performance by different enterprises because
it eliminates the effects of using different accounting treatments for
the same transactions and events.
4. Historical cash flow information is often used as an indicator of the amount, timing and certainty of future cash
flows. It is also useful in checking the accuracy of past assessments
of future cash flows and in examining the relationship between profitability
and net cash flow and the impact of changing prices.
Definitions
5. The following terms are used in this Statement with the meanings specified:
Cash comprises cash on hand and demand deposits with banks.
Cash 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.
Cash flows are inflows and outflows of cash and cash equivalents.
Operating activities are the principal revenue-producing activities of the enterprise and other activities
that are not investing or financing activities.
Investing activities are the acquisition and disposal of long-term assets and other investments not
included in cash equivalents.
Financing activities are activities that result in changes in the size and composition of the owners' capital
(including preference share capital in the case of a company) and borrowings of the enterprise.
Cash and Cash Equivalents
6. Cash equivalents are held for the purpose
of meeting short-term cash commitments rather than for investment or other
purposes. For an investment to qualify as a cash equivalent, it must be
readily convertible to a known amount of cash and be subject to an insignificant
risk of changes in value. Therefore, an investment normally qualifies
as a cash equivalent only when it has a short maturity of, say, three
months or less from the date of acquisition. Investments in shares are
excluded from cash equivalents unless they are, in substance, cash equivalents;
for example, preference shares of a company acquired shortly before their
specified redemption date (provided there is only an insignificant risk
of failure of the company to repay the amount at maturity).
7. Cash flows exclude movements between items that constitute cash or cash equivalents because these components are
part of the cash management of an enterprise rather than part of its operating,
investing and financing activities. Cash management includes the investment
of excess cash in cash equivalents.
Presentation of a Cash Flow Statement
8. The cash flow statement should report cash flows during the period classified by operating, investing and financing
activities.
9. An enterprise presents its cash flows from
operating, investing and financing activities in a manner which is most
appropriate to its business. Classification by activity provides information
that allows users to assess the impact of those activities on the financial
position of the enterprise and the amount of its cash and cash equivalents.
This information may also be used to evaluate the relationships among
those activities.
10. A single transaction may include cash
flows that are classified differently. For example, when the instalment
paid in respect of a fixed asset acquired on deferred payment basis includes
both interest and loan, the interest element is classified under financing
activities and the loan element is classified under investing activities.
Operating Activities
11. The amount of cash flows arising from
operating activities is a key indicator of the extent to which the operations
of the enterprise have generated sufficient cash flows to maintain the
operating capability of the enterprise, pay dividends, repay loans and
make new investments without recourse to external sources of financing.
Information about the specific components of historical operating cash
flows is useful, in conjunction with other information, in forecasting
future operating cash flows.
12. Cash flows from operating activities are
primarily derived from the principal revenue-producing activities of the
enterprise. Therefore, they generally result from the transactions and
other events that enter into the determination of net profit or loss.
Examples of cash flows from operating activities are:
(a) cash receipts from the sale of goods and
the rendering of services;
(b) cash receipts from royalties, fees, commissions
and other revenue;
(c) cash payments to suppliers for goods and
services;
(d) cash payments to and on behalf of employees;
(e) cash receipts and cash payments of an
insurance enterprise for premiums and claims, annuities and other policy
benefits;
(f) cash payments or refunds of income taxes
unless they can be specifically identified with financing and investing
activities; and
(g) cash receipts and payments relating to
futures contracts, forward contracts, option contracts and swap contracts
when the contracts are held for dealing or trading purposes.
13. Some transactions, such as the sale of
an item of plant, may give rise to a gain or loss which is included in
the determination of net profit or loss. However, the cash flows relating
to such transactions are cash flows from investing activities.
14. An enterprise may hold securities and
loans for dealing or trading purposes, in which case they are similar
to inventory acquired specifically for resale. Therefore, cash flows arising
from the purchase and sale of dealing or trading securities are classified
as operating activities. Similarly, cash advances and loans made by financial
enterprises are usually classified as operating activities since they
relate to the main revenue-producing activity of that enterprise.
Investing Activities
15. The separate disclosure of cash flows
arising from investing activities is important because the cash flows
represent the extent to which expenditures have been made for resources
intended to generate future income and cash flows. Examples of cash flows
arising from investing activities are:
(a) cash payments to acquire fixed assets
(including intangibles). These payments include those relating to capitalised
research and development costs and self-constructed fixed assets;
(b) cash receipts from disposal of fixed assets
(including intangibles);
(c) cash payments to acquire shares, warrants
or debt instruments of other enterprises and interests in joint ventures
(other than payments for those instruments considered to be cash equivalents
and those held for dealing or trading purposes);
(d) cash receipts from disposal of shares,
warrants or debt instruments of other enterprises and interests in joint
ventures (other than receipts from those instruments considered to be
cash equivalents and those held for dealing or trading purposes);
(e) cash advances and loans made to third
parties (other than advances and loans made by a financial enterprise);
(f) cash receipts from the repayment of advances
and loans made to third parties (other than advances and loans of a financial
enterprise);
(g) cash payments for futures contracts, forward
contracts, option contracts and swap contracts except when the contracts
are held for dealing or trading purposes, or the payments are classified
as financing activities; and
(h) cash receipts from futures contracts,
forward contracts, option contracts and swap contracts except when the
contracts are held for dealing or trading purposes, or the receipts are
classified as financing activities.
16. When a contract is accounted for as a
hedge of an identifiable position, the cash flows of the contract are
classified in the same manner as the cash flows of the position being
hedged.
Financing Activities
17. The separate disclosure of cash flows
arising from financing activities is important because it is useful in
predicting claims on future cash flows by providers of funds (both capital
and borrowings) to the enterprise. Examples of cash flows arising from
financing activities are:
(a) cash proceeds from issuing shares or other
similar instruments;
(b) cash proceeds from issuing debentures,
loans, notes, bonds, and other short or long-term borrowings; and
(c) cash repayments of amounts borrowed.
Reporting Cash Flows from Operating Activities
18. An enterprise should report cash
flows from operating activities using either:
(a) the direct method, whereby major
classes of gross cash receipts and gross cash payments are disclosed;
or
(b) the indirect method, whereby net
profit or loss is adjusted for the effects of transactions of a non-cash
nature, any deferrals or accruals of past or future operating cash receipts
or payments, and items of income or expense associated with investing
or financing cash flows.
19. The direct method provides information
which may be useful in estimating future cash flows and which is not available
under the indirect method and is, therefore, considered more appropriate
than the indirect method. Under the direct method, information about major
classes of gross cash receipts and gross cash payments may be obtained
either:
(a) from the accounting records of the enterprise;
or
(b) by adjusting sales, cost of sales (interest
and similar income and interest expense and similar charges for a financial
enterprise) and other items in the statement of profit and loss for:
i) changes during the period in inventories
and operating receivables and payables;
ii) other non-cash items; and
iii) other items for which the cash effects
are investing or financing cash flows.
20. Under the indirect method, the net cash
flow from operating activities is determined by adjusting net profit or
loss for the effects of:
(a) changes during the period in inventories
and operating receivables and payables;
(b) non-cash items such as depreciation, provisions,
deferred taxes, and unrealised foreign exchange gains and losses; and
(c) all other items for which the cash effects
are investing or financing cash flows.
Alternatively, the net cash flow from operating
activities may be presented under the indirect method by showing the operating
revenues and expenses excluding non-cash items disclosed in the statement
of profit and loss and the changes during the period in inventories and
operating receivables and payables.
Reporting Cash Flows from Investing and Financing Activities
21. An enterprise should report separately
major classes of gross cash receipts and gross cash payments arising from
investing and financing activities, except to the extent that cash flows
described in paragraphs 22 and 24 are reported on a net basis.
Reporting Cash Flows on a Net Basis
22. Cash flows arising from the following
operating, investing or financing activities may be reported on a net
basis:
(a) cash receipts and payments on behalf
of customers when the cash flows reflect the activities of the customer
rather than those of the enterprise; and
(b) cash receipts and payments for items
in which the turnover is quick, the amounts are large, and the maturities
are short.
23. Examples of cash receipts and payments
referred to in paragraph 22(a) are:
(a) the acceptance and repayment of demand
deposits by a bank;
(b) funds held for customers by an investment
enterprise; and
(c) rents collected on behalf of, and paid
over to, the owners of properties.
Examples of cash receipts and payments referred
to in paragraph 22(b) are advances made for, and the repayments of:
(a) principal amounts relating to credit card
customers;
(b) the purchase and sale of investments;
and
(c) other short-term borrowings, for example,
those which have a maturity period of three months or less.
24. Cash flows arising from each of
the following activities of a financial enterprise may be reported on
a net basis:
(a) cash receipts and payments for the
acceptance and repayment of deposits with a fixed maturity date;
(b) the placement of deposits with and
withdrawal of deposits from other financial enterprises; and
(c) cash advances and loans made to
customers and the repayment of those advances and loans.
Foreign Currency Cash Flows
25. Cash flows arising from transactions
in a foreign currency should be recorded in an enterprise's reporting
currency by applying to the foreign currency amount the exchange rate
between the reporting currency and the foreign currency at the date of
the cash flow. A rate that approximates the actual rate may be used if
the result is substantially the same as would arise if the rates at the
dates of the cash flows were used. The effect of changes in exchange rates
on cash and cash equivalents held in a foreign currency should be reported
as a separate part of the reconciliation of the changes in cash and cash
equivalents during the period.
26. Cash flows denominated in foreign currency
are reported in a manner consistent with Accounting Standard (AS) 11,
Accounting for the Effects of Changes in Foreign Exchange Rates. This
permits the use of an exchange rate that approximates the actual rate.
For example, a weighted average exchange rate for a period may be used
for recording foreign currency transactions.
27. Unrealised gains and losses arising from
changes in foreign exchange rates are not cash flows. However, the effect
of exchange rate changes on cash and cash equivalents held or due in a
foreign currency is reported in the cash flow statement in order to reconcile
cash and cash equivalents at the beginning and the end of the period.
This amount is presented separately from cash flows from operating, investing
and financing activities and includes the differences, if any, had those
cash flows been reported at the end-of-period exchange rates.
Extraordinary Items
28. The cash flows associated with extraordinary
items should be classified as arising from operating, investing or financing
activities as appropriate and separately disclosed.
29. The cash flows associated with extraordinary
items are disclosed separately as arising from operating, investing or
financing activities in the cash flow statement, to enable users to understand
their nature and effect on the present and future cash flows of the enterprise.
These disclosures are in addition to the separate disclosures of the nature
and amount of extraordinary items required by Accounting Standard (AS)
5, Net Profit or Loss for the Period, Prior Period Items and Changes in
Accounting Policies.
Interest and Dividends
30. Cash flows from interest and dividends
received and paid should each be disclosed separately. Cash flows arising
from interest paid and interest and dividends received in the case of
a financial enterprise should be classified as cash flows arising from
operating activities. In the case of other enterprises, cash flows arising
from interest paid should be classified as cash flows from financing activities
while interest and dividends received should be classified as cash flows
from investing activities. Dividends paid should be classified as cash
flows from financing activities.
31. The total amount of interest paid during
the period is disclosed in the cash flow statement whether it has been
recognised as an expense in the statement of profit and loss or capitalised
in accordance with Accounting Standard (AS) 10, Accounting for Fixed Assets.
32. Interest paid and interest and dividends
received are usually classified as operating cash flows for a financial
enterprise. However, there is no consensus on the classification of these
cash flows for other enterprises. Some argue that interest paid and interest
and dividends received may be classified as operating cash flows because
they enter into the determination of net profit or loss. However, it is
more appropriate that interest paid and interest and dividends received
are classified as financing cash flows and investing cash flows respectively,
because they are cost of obtaining financial resources or returns on investments.
33. Some argue that dividends paid may be
classified as a component of cash flows from operating activities in order
to assist users to determine the ability of an enterprise to pay dividends
out of operating cash flows. However, it is considered more appropriate
that dividends paid should be classified as cash flows from financing
activities because they are cost of obtaining financial resources.
Taxes on Income
34. Cash flows arising from taxes on
income should be separately disclosed and should be classified as cash
flows from operating activities unless they can be specifically identified
with financing and investing activities.
35. Taxes on income arise on transactions
that give rise to cash flows that are classified as operating, investing
or financing activities in a cash flow statement. While tax expense may
be readily identifiable with investing or financing activities, the related
tax cash flows are often impracticable to identify and may arise in a
different period from the cash flows of the underlying transactions. Therefore,
taxes paid are usually classified as cash flows from operating activities.
However, when it is practicable to identify the tax cash flow with an
individual transaction that gives rise to cash flows that are classified
as investing or financing activities, the tax cash flow is classified
as an investing or financing activity as appropriate. When tax cash flow
are allocated over more than one class of activity, the total amount of
taxes paid is disclosed.
Investments in Subsidiaries, Associates and Joint Ventures
36. When accounting for an investment
in an associate or a subsidiary or a joint venture, an investor restricts
its reporting in the cash flow statement to the cash flows between itself
and the investee/joint venture, for example, cash flows relating to dividends
and advances.
Acquisitions and Disposals of Subsidiaries and Other
Business Units
37. The aggregate cash flows arising
from acquisitions and from disposals of subsidiaries or other business
units should be presented separately and classified as investing activities.
38. An enterprise should disclose, in
aggregate, in respect of both acquisition and disposal of subsidiaries
or other business units during the period each of the following:
(a) the total purchase or disposal consideration;
and
(b) the portion of the purchase or disposal
consideration discharged by means of cash and cash equivalents.
39. The separate presentation of the cash
flow effects of acquisitions and disposals of subsidiaries and other business
units as single line items helps to distinguish those cash flows from
other cash flows. The cash flow effects of disposals are not deducted
from those of acquisitions.
Non-cash Transactions
40. Investing and financing transactions
that do not require the use of cash or cash equivalents should be excluded
from a cash flow statement. Such transactions should be disclosed elsewhere
in the financial statements in a way that provides all the relevant information
about these investing and financing activities.
41. Many investing and financing activities
do not have a direct impact on current cash flows although they do affect
the capital and asset structure of an enterprise. The exclusion of non-cash
transactions from the cash flow statement is consistent with the objective
of a cash flow statement as these items do not involve cash flows in the
current period. Examples of non-cash transactions are:
(a) the acquisition of assets by assuming
directly related liabilities;
(b) the acquisition of an enterprise by means
of issue of shares; and
(c) the conversion of debt to equity.
Components of Cash and Cash Equivalents
42. An enterprise should disclose the
components of cash and cash equivalents and should present a reconciliation
of the amounts in its cash flow statement with the equivalent items reported
in the balance sheet.
43. In view of the variety of cash management
practices, an enterprise discloses the policy which it adopts in determining
the composition of cash and cash equivalents.
44. The effect of any change in the policy
for determining components of cash and cash equivalents is reported in
accordance with Accounting Standard (AS) 5, Net Profit or Loss for the
Period, Prior Period Items and Changes in Accounting Policies.
Other Disclosures
45. An enterprise should disclose, together
with a commentary by management, the amount of significant cash and cash
equivalent balances held by the enterprise that are not available for
use by it.
46. There are various circumstances in which
cash and cash equivalent balances held by an enterprise are not available
for use by it. Examples include cash and cash equivalent balances held
by a branch of the enterprise that operates in a country where exchange
controls or other legal restrictions apply as a result of which the balances
are not available for use by the enterprise.
47. Additional information may be relevant
to users in understanding the financial position and liquidity of an enterprise.
Disclosure of this information, together with a commentary by management,
is encouraged and may include:
(a) the amount of undrawn borrowing facilities
that may be available for future operating activities and to settle capital
commitments, indicating any restrictions on the use of these facilities;
and
(b) the aggregate amount of cash flows that
represent increases in operating capacity separately from those cash flows
that are required to maintain operating capacity.
48. The separate disclosure of cash flows
that represent increases in operating capacity and cash flows that are
required to maintain operating capacity is useful in enabling the user
to determine whether the enterprise is investing adequately in the maintenance
of its operating capacity. An enterprise that does not invest adequately
in the maintenance of its operating capacity may be prejudicing future
profitability for the sake of current liquidity and distributions to owners.
APPENDIX I
Cash Flow Statement
for an Enterprise other than a Financial Enterprise
The appendix is illustrative only and does
not form part of the accounting standard. The purpose of this appendix
is to illustrate the application of the accounting standard.
1. The example shows only current period amounts.
2. Information from the statement of profit
and loss and balance sheet is provided to show how the statements of cash
flows under the direct method and the indirect method have been derived.
Neither the statement of profit and loss nor the balance sheet is presented
in conformity with the disclosure and presentation requirements of applicable
laws and accounting standards. The working notes given towards the end
of this appendix are intended to assist in understanding the manner in
which the various figures appearing in the cash flow statement have been
derived. These working notes do not form part of the cash flow statement
and, accordingly, need not be published.
3. The following additional information is
also relevant for the preparation of the statement of cash flows (figures
are in Rs.'000).
(a) An amount of 250 was raised from the issue
of share capital and a further 250 was raised from long term borrowings.
(b) Interest expense was 400 of which 170
was paid during the period. 100 relating to interest expense of the prior
period was also paid during the period.
(c) Dividends paid were 1,200.
(d) Tax deducted at source on dividends received
(included in the tax expense of 300 for the year) amounted to 40.
(e) During the period, the enterprise acquired
fixed assets for 350. The payment was made in cash.
(f) Plant with original cost of 80 and accumulated
depreciation of 60 was sold for 20.
(g) Foreign exchange loss of 40 represents
the reduction in the carrying amount of a short-term investment in foreign-currency
designated bonds arising out of a change in exchange rate between the
date of acquisition of the investment and the balance sheet date.
(h) Sundry debtors and sundry creditors include
amounts relating to credit sales and credit purchases only.
Balance Sheet as at 31.12.1996
| |
(Rs.
'000) |
| |
|
1996
|
|
1995
|
| Assets |
|
|
|
|
| Cash on hand and balances
with banks |
|
200 |
|
25 |
| Short-term investments
|
|
670 |
|
135 |
| Sundry debtors |
|
1,700 |
|
1,200 |
| Interest receivable |
|
100 |
|
– |
| Inventories |
|
900 |
|
1,950 |
| Long-term investments
|
|
2,500 |
|
2,500 |
| Fixed assets at cost |
2,180 |
|
1,910 |
|
| Accumulated depreciation
|
(1,450) |
|
(1,060) |
|
| Fixed assets (net) |
|
730 |
|
850 |
| Total assets |
|
6,800 |
|
6,660 |
| Liabilities |
|
|
|
|
| Sundry creditors |
|
150 |
|
1,890 |
| Interest payable |
|
230 |
|
100 |
| Income taxes payable |
|
400 |
|
1,000 |
| Long-term debt |
|
1,110 |
|
1,040 |
| Total liabilities |
|
1,890 |
|
4,030 |
| Shareholders' Funds |
|
|
|
|
| Share capital |
|
1,500 |
|
1,250 |
| Reserves |
|
3,410 |
|
1,380 |
| Total shareholders' funds
|
|
4,910 |
|
2,630 |
| Total liabilities and
shareholders' funds |
|
6,800 |
|
6,660 |
Statement of Profit and Loss for the period ended 31.12.1996
| (Rs. '000) |
| Sales |
30,650 |
| Cost of sales |
(26,000) |
| Gross profit |
4,650 |
| Depreciation |
(450) |
| Administrative and selling
expenses |
(910) |
| Interest expense |
(400) |
| Interest income |
300 |
| Dividend income |
200 |
| Foreign exchange loss
|
(40) |
|
Net profit before taxation and extraordinary item |
3,350 |
| Extraordinary item – Insurance
proceeds from earthquake disaster settlement |
180
|
| Net profit after extraordinary
item |
3,530 |
| Income-tax |
(300) |
| Net profit |
3,230 |
Direct Method Cash Flow Statement [Paragraph 18(a)]
| |
(Rs. '000) |
| |
|
1996 |
| Cash flows from operating activities |
|
|
| Cash receipts from customers
|
30,150 |
|
| Cash paid to suppliers
and employees |
(27,600) |
|
| Cash generated from operations
|
2,550 |
|
| Income taxes paid |
(860) |
|
| Cash flow before extraordinary
item |
1,690 |
|
| Proceeds from earthquake
disaster settlement |
180 |
|
| Net cash from operating
activities |
|
1,870 |
| Cash flows from investing activities |
|
|
| Purchase of fixed assets
|
(350) |
|
| Proceeds from sale of
equipment |
20 |
|
| Interest received |
200 |
|
| Dividends received |
160 |
|
| Net cash from investing
activities |
|
30 |
| Cash flows from financing activities |
|
|
| Proceeds from issuance
of share capital |
250 |
|
| Proceeds from long-term
borrowings |
250 |
|
| Repayment of long-term
borrowings |
(180) |
|
| Interest paid |
(270) |
|
| Dividends paid |
(1,200) |
|
| Net cash used in financing
activities |
|
(1,150) |
| Net increase in cash and cash equivalents |
|
750 |
| Cash and cash equivalents at beginning of period (see Note 1) |
|
160
|
Cash and cash equivalents at end of period(see Note 1) |
|
910
|
Indirect Method Cash Flow Statement [Paragraph 18(b)]
| |
(Rs.
'000) |
| |
|
1996
|
| Cash flows from operating
activities |
|
|
| Net profit before taxation,
and extraordinary item |
3,350 |
|
| Adjustments for: |
|
|
|
Depreciation
|
450 |
|
|
Foreign exchange loss
|
40 |
|
|
Interest income
|
(300) |
|
|
Dividend income
|
(200) |
|
|
Interest expense
|
400 |
|
| Operating profit before
working capital changes |
3,740 |
|
| Increase in sundry debtors
|
(500) |
|
| Decrease in inventories
|
1,050 |
|
| Decrease in sundry creditors
|
(1,740) |
|
| Cash generated from operations
|
2,550 |
|
| Income taxes paid |
(860) |
|
| Cash flow before extraordinary
item |
1,690 |
|
| Proceeds from earthquake
disaster settlement |
180 |
|
| Net cash from operating
activities |
|
1,870 |
| Cash flows from investing
activities |
|
|
| Purchase of fixed assets
|
(350) |
|
| Proceeds from sale of
equipment |
20 |
|
| Interest received |
200 |
|
| Dividends received |
160 |
|
| Net cash from investing
activities |
|
30 |
| Cash flows from financing
activities |
|
|
| Proceeds from issuance
of share capital |
250 |
|
| Proceeds from long-term
borrowings |
250 |
|
| Repayment of long-term
borrowings |
(180) |
|
| Interest paid |
(270) |
|
| Dividends paid |
(1,200) |
|
| Net cash used in financing
activities |
|
(1,150) |
| Net increase in cash
and cash equivalents |
|
750 |
| Cash and cash equivalents
at beginning of period (see Note 1) |
|
160
|
| Cash and cash equivalents at end of period
(see Note 1) |
|
910 |
Notes to the cash flow statement
(direct method and indirect method)
1. Cash and Cash Equivalents
Cash and cash equivalents consist of cash
on hand and balances with banks, and investments in money-market instruments.
Cash and cash equivalents included in the cash flow statement comprise
the following balance sheet amounts.
| |
1996 |
1995 |
| Cash on hand and balances
with banks |
200 |
25 |
| Short-term investments
|
670 |
135 |
| Cash and cash equivalents
|
870 |
160 |
| Effect of exchange rate
changes |
40 |
– |
| Cash and cash equivalents
as restated |
910 |
160 |
Cash and cash equivalents at the end of the
period include deposits with banks of 100 held by a branch which are not
freely remissible to the company because of currency exchange restrictions.
The company has undrawn borrowing facilities
of 2,000 of which 700 may be used only for future expansion.
2. Total tax paid during the year (including
tax deducted at source on dividends received) amounted to 900.
Alternative Presentation (indirect method)
As an alternative, in an indirect method cash
flow statement, operating profit before working capital changes is sometimes
presented as follows:
| Revenues excluding investment
income |
30,650 |
|
| Operating expense excluding
depreciation |
(26,910) |
|
| Operating profit before
working capital changes |
|
3,740 |
Working Notes
The working notes given below do not form
part of the cash flow statement and, accordingly, need not be published.
The purpose of these working notes is merely to assist in understanding
the manner in which various figures in the cash flow statement have been
derived. (Figures are in Rs. '000.)
1. Cash receipts from customers
|
Sales
|
30,650 |
|
Add: Sundry debtors at the beginning of the year
|
1,200 |
| |
31,850 |
|
Less : Sundry debtors at the end of the year
|
1,700 |
| |
30,150 |
2. Cash paid to suppliers and employees
|
Cost of sales
|
|
|
26,000 |
|
Administrative and selling expenses
|
|
|
910 |
| |
|
|
26,910 |
|
Add: Sundry creditors at the beginning of the year
|
1,890 |
|
|
|
Inventories at the end of the year
|
900 |
|
2,790 |
| |
|
|
29,700 |
|
Less: Sundry creditors at the end of the year
|
150 |
|
|
|
Inventories at the beginning of the year
|
1,950 |
|
2,100 |
| |
|
|
27,600 |
3. Income taxes paid (including tax deducted at source from
dividends received)
|
Income tax expense for the year (including tax deducted
at source from dividends received)
|
300 |
|
Add : Income tax liability at the beginning of the
year
|
1,000 |
| |
1,300 |
|
Less: Income tax liability at the end of the year
|
400 |
| |
900 |
Out of 900, tax deducted at source on dividends
received (amounting to 40) is included in cash flows from investing activities
and the balance of 860 is included in cash flows from operating activities
(see paragraph 34).
4. Repayment of long-term borrowings
|
Long-term debt at the beginning of the year
|
1,040 |
|
Add : Long-term borrowings made during the year
|
250 |
| |
1,290 |
|
Less : Long-term borrowings at the end of the year
|
1,110 |
| |
180 |
5. Interest paid
|
Interest expense for the year
|
400 |
|
Add: Interest payable at the beginning of the year
|
100 |
| |
500 |
|
Less: Interest payable at the end of the year
|
230 |
| |
270 |
APPENDIX II
Cash Flow Statement for a Financial Enterprise
The appendix is illustrative only and does
not form part of the accounting standard. The purpose of this appendix
is to illustrate the application of the accounting standard.
1. The example shows only current period amounts.
2. The example is presented using the direct
method.
| |
(Rs.
'000) |
| |
|
1996 |
| Cash flows from operating
activities |
|
|
| Interest and commission
receipts |
28,447 |
|
| Interest payments |
(23,463) |
|
| Recoveries on loans previously
written off |
237 |
|
| Cash payments to employees
and suppliers |
(997) |
|
| Operating profit before
changes in operating assets |
4,224 |
|
| (Increase) decrease in
operating assets: |
|
|
| Short-term funds |
(650) |
|
| Deposits held for regulatory
or monetary control purposes |
234 |
|
| Funds advanced to customers
|
(288) |
|
| Net increase in credit
card receivables |
(360) |
|
| Other short-term securities
|
(120) |
|
| Increase (decrease) in
operating liabilities: |
|
|
| Deposits from customers
|
600 |
|
| Certificates of deposit
|
(200) |
|
| Net cash from operating
activities before income tax |
3,440 |
|
| Income taxes paid |
(100) |
|
| Net cash from operating
activities |
|
3,340 |
| Cash flows from investing
activities |
|
|
| Dividends received |
250 |
|
| Interest received |
300 |
|
| Proceeds from sales of
permanent investments |
1,200 |
|
| Purchase of permanent
investments |
(600) |
|
| Purchase of fixed assets
|
(500) |
|
| Net cash from investing
activities |
|
650 |
| Cash flows from financing
activities |
|
|
| Issue of shares |
1,800 |
|
| Repayment of long-term
borrowings |
(200) |
|
| Net decrease in other
borrowings |
(1,000) |
|
| Dividends paid |
(400) |
|
| Net cash from financing
activities |
|
200 |
| Net increase in cash and
cash equivalents |
|
4,190 |
| Cash and cash equivalents
at beginning of period |
|
4,650 |
| Cash and cash equivalents
at end of period |
|
8,840 |
|
