AS 3 which contains (a) Cash Flows from Operating Activities; (b) Cash Flows

from Investing Activities; and (c) Cash Flows from Financing Activities.

1. Operating Activities:

Cash flows from operating activities are primarily derived from principal
revenue-generating/producing activities of the firm. As such, they usually arise
from the transactions and other events which enter into the determination of
net profit or loss.

Examples:

ADVERTISEMENTS:

(a) Cash receipts from the sale of goods and the rendering of service;

(b) Cash receipts from royalties, fees, commission and other revenues;

(c) Cash payment to creditors for goods and services;

(d) Cash payment to and on behalf of employees;

ADVERTISEMENTS:

(e) Cash receipts and cash payments of an insurance enterprise for premium
and claims, annuities and other benefits;

(f) Cash payment of refund of Income-tax unless they can be specifically

identified with financing and investing activities; and

(g) Cash receipts and payments relating to future contracts, forward contracts,
option contracts and swap contracts when contracts are held for dealing or
trading purposes.

2. Investing Activities:
Practically, cash flows from Investing Activities comprise of the purchase and
sale of long-time assets, i.e. fixed assets or non-current assets and investments.
In other words, the cash flows represent the extent to which expenditures have
been made for resources intended to generate future income and cash flows.

ADVERTISEMENTS:

Examples:

(a) Cash payment to acquire fixed asset (including intangible);

(b) Cash receipts from disposal of fixed asset (including intangible);

(c) Cash payment to acquire shares, warrants, or debt instruments of other

enterprises and interest on joint venture.

ADVERTISEMENTS:

(d) Cash receipts of disposal of share, warrants, or debt instruments of other

enterprises and interest on joint venture;

(e) Cash advances and loans made to third parties;

(f) Cash receipts from the repayment of advances and loans made to third
parties;

(g) Cash payments for future contracts, forward contracts, option contract and
swap contracts;

ADVERTISEMENTS:

(h) Cash receipts from future contracts, forward contracts, and option
contracts and swap contracts.

3. Financing Activities:
Financing activities reveal the composition of capital structure of a firm, i.e.
composition of owned capital and borrowed capital. These activities arise from
the changes in Equity Share Capital, Preference Share Capital, Debenture, etc.
In short, it is useful in predicting claims on future cash flows by providing of
funds both from capital and borrowings.

Examples:

(a) Cash proceeds from issuing shares on other similar instruments;

(b) Cash proceeds from issuing debentures, loans, notes, bonds and other
short- or long-term borrowings;

(c) Cash repayment of amount borrowed;

(d) Cash payment for redemption of Preference Shares;

(e) Cash payment for Buy-back of Equity Shares;

(f) Cash payment for Interest on Loans and Debentures;

(g) Cash payments for Equity Dividend and Preference Dividend.