Cash Flow Statement (For 3 or 5 marks)

A statement of cash flow provide information about inflow and outflow of cash during a
particular accounting period. Cash flow statement helps to analyze movement of cash from three
different activities: Operating Activities, Investing Activities, & Financial Activities.

Cash Flow statement is prepared by following AS-3 / Ind AS- 7 (Statement of Cash Flows).

By cash here we mean Cash and Cash Equivalents.

Cash= Cash in hand + demand deposits with bank

Cash Equivalent- They are short-term highly liquid investment that are readily converted into
known amount of cash and are subject to insignificant risk of changes in value. Example: Bank
overdraft, borrowing which are repayable on demand, bank and non-bank bills fo exchange,
money market instrument with a maturity of three months or less from the date of acquisition.

Cash Flow Statement is to be prepared by dividing the cash into 3 different activities.

a) Operating Activities: It can be prepared by direct or indirect method. It means cash flows
from principal revenue producing activities of the enterprise. Example cash receipts
from sale of goods and the rendering of services, Cash receipts from royalties,
commissions, and other revenue, Cash payment to suppliers for goods and services, cash
payment to and on behalf of employees.
b) Investing Activities: It indicates the cash flow that has been made for resources intended
to generate future income and cash flows. Example purchase of fixed assets, selling of
fixed assets, purchase of investment, selling of investment, received of dividend etc.
c) Financing Activities: It indicates cash flows arising by providers of fund (both capital and
long term borrowings). Example issue of share capital, buy back of share, payment of
dividend, issue of debenture etc.

Note- Whether we are preparing cash flow statement by direct or indirect method, the
presentation will be same for investing and financing activities, only there will be change of
presentation in case of operating activities.
Format of Cash Flow Statement (Direct Method)

(up to operating activities)

Cash Sales xxx

Cash received from debtors xxx
Less: Cash purchase xxx
Cash paid to suppliers xxx
Cash expenses xxx
Net Cash flow from Operating Activities before tax paid xxx
Less, Tax paid xxx
Net cash flow from operating Activities xxx

Cash Flow Statement (Indirect Method)

A) Operating Activities    
Net Profit after tax xx  
Add back,    
Tax xx  
Depreciation on fixed assets xx  
Loss on sale of fixed assets / Long term Investment xx  
Interest paid xx  
any preliminary expenses write off xx  
Provision for bad debt  xx  
Less,
Profit on sale of fixed assets (xx)  
Interest received (xx)  
Cash generated from operating activities before changes
in working capital (EBDIT)
Note- This EBDIT can be calculated two ways, Top Down
and Down up approach (Refer Illus-1) xx  
Adjustment for working capital:    
Less, increase in current assets (xx)  
Less, Decrease in liabilities (xx)  
Add, Decrease in current assets xx  
Add, increase in current liabilities xx  
Net cash flow from operating activities before tax paid xx  
Less, tax paid (xx)  
Net cash flow from operating activities after tax (A)   xxx
     
B) Investing Activities    
Purchase of fixed assets (xxx)  
 Sale of fixed assets xxx  
Received of dividend / Interest from long term xxx  
Net Cash Flow from Investing Activities (B)   xxx
     
C) Financing Activities    
Issue of share for consideration in cash xxx  
Buy back of share (xxx)  
Issue of Debenture xxx  
Redemption of debenture (xxx)  
Payment of Interest (xxx)  
Payment of Dividend and dividend tax (xxx)  
Net Cash Flow from Financing Activities (C)   xxx
     
Net cash flow / (used in) during the year   xxx
Add Opening Cash and cash equivalents   xxx
Closing cash and cash equivalents   xxx

1)
2) From the following calculate net cash flow from investing activities

Particulars 31.12.19 31.12.20

Machinery (at cost) 600000 650000
Accumulated Depreciation 200000 270000

During the year 2020 a machinery costing Rs. 150000 (accumulated depreciation Rs. 120000)
was sold for Rs. 26,000.

3) X Ltd. provides the following information

2019 2020
Equity share capital 500000 700000
14% Debenture 100000 -
Bank loan - 12000
Interest paid on debenture- Rs. 1500, Receipt of dividend- Rs. 2500, Payment of dividend- Rs.
25000, Payment of dividend tax- Rs.500.

During the year X Ltd. issued bonus share in the ratio of 5:1 by capitalizing reserve.

During the year Rs. 50,000 share capital were issued to acquire fixed assets.