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Accounting Standard (AS) – 3 CASH FLOW STATEMENT

• Investor. – The enterprise's ability to generate positive future net cash flows.Purpose. . Use and Structure • CFS reflects an enterprise’s major source of cash receipts and cash payments. analyst. creditors. managers will find the information in the CFS useful in assessing the following: – The enterprises ability to meet its obligation and ability to pay dividend and its need for external financing – The reasons for the difference between net profit and associated cash receipts and payments.

161.Applicability http://220.pdf .86/244as3_allnew.227.

Format of the CFS Cash flow from Operating activities Cash flow from Investing activities Cash flow from Financing activities Net change in cash and cash equivalents Opening cash and cash equivalent Closing cash and cash equivalent XX XX XX XX XX XX .

between accrual and cash accounting X Net cash from operations X . The only difference is in the presentation of cash from operating activities.diff. Direct method Cash inflows from operations Cash outflows related to operations Net cash from operations X X X Indirect method Net income X +/.CFS: Direct and indirect methods There are two methods of presentation of the CFS: The direct and indirect methods.

000 in 1999 He has noticed that inventory value has increased as also collections from customers has been slow .000 as at 1998 to Rs 1.Case study 1 – Bharath Chemicals Ltd Issues: Company incurred loss of Rs 75. But Cash in balance sheet increases from 95.000.40.

000 Depreciation 60.000) Rent 2.000 1.000 Decrease in Creditors (30.000 Increase in interest 1.000 .000) Add/(Less) Amortization of goodwill 25.40.Bharath Chemicals Limited CASH FLOW STATEMENT – INDIRECT METHOD Cash flow from operating activities Net loss (75.000) Increase in Stock (20.000 Increase in wages 2.000) 1.000) Increase in Bills payable 5.000 Increase in debtors (25.000 95.000 Nil 45.000 Cash flow from Investing activities Sale proceeds of equipment Cash flow from financing activities Net increase in cash and cash equivalents Opening cash and cash equivalents Closing cash and cash equivalents (55.00.

000 1.04.000 50.000 50.03.000 12.000 17.2011 17.20.000 7.000 Additional information: 01.000 Salaries Insurance premium Depreciation 10.2010 Debtors Creditors Stock Salaries outstanding 15.Case study 2 – Dutt Limited Determine the cash flow from operating activities under direct and indirect method.000 1.2011 Cost of goods sold Gross profit 70. PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31.000 50.000 Net profit 20.20.000 31.03.20.000 1.000 Sales 1.500 .000 5.000 15.000 5.000 Gross profit 1.000 50.

500 .000 500 CASHFLOW FROM OPERATIONS 26.Case study 2 – Dutt Limited Indirect method Net profit Add: depreciation 20.18.000 26.000 15000 Less: Decrease in debtors Less: Decrease in creditors Less: Increase in stock Add: Increase in salaries -2.000 -2.000 -9.500 Direct method Receipts from customers Payment to suppliers Payment towards salary Payment of Insurance CASHFLOW FROM OPERATIONS 1.000 -5.000 -77.500 -5.

000) 90.000 (1.000) Nil (10.000 3.000) 40.000 .000) (4.000 86.000 30.00.000 (5.Solved illustration1 CASH FLOW STATEMENT Cashflow from operating activities Net profit for the year Add/(Less) Depreciation for the year Debtors realised Increase in stock Creditors settled Cashflow from Investing activities Purchase of machinery Cashflow from financing activities Net increase in cash and cash equivalents Opening cash and cash equivalents Closing cash and cash equivalents 10.

00.000 6.00.00.000 66.000 1.00.000 MACHINERY ACCOUNT Balance Bank 6.000 80.00.000 Depreciation Balance 20.000 Balance 7.Solved illustration 1 BUILDING ACCOUNT Balance 1.000 1.00.000 7.34.00.000 Depreciation 1.000 .

000) 1.000 24.000 (1.000 .000 (2.88.000 12.200) 3.68.000) 36.00.000 – 25.800 3.000) 60.000) 84.000 (48.Solved illustration2 CASH FLOW STATEMENT Cashflow from operating activities Net profit for the year Add/(Less) Dividend for the year Profit from sale of equipment Depreciation for the year Taxation provision Outstanding expenses Increase in debtors (25.000 60.000 88.86.000) (6.20.800 86.00.000) (72.000 (12.000 12.000 72.000) Decrease in creditors Decrease in stock Advances Less: Tax paid Cashflow from Investing activities Purchase of Equipment Sale of equipment Purchase of land Cashflow from financing activities Dividend paid Additional capital raised Net increase in cash and cash equivalents Opening cash and cash equivalents Closing cash and cash equivalents 12.02.000 (18.000) (3.000 72.

000 .Solved illustration 2 Balance Profit Bank EQUIPMENT ACCOUNT 3.32.88.000 1.60.60.000 48.80.000 Equipment Balance 1.000 ACCUMULATED DEPRECIATION ACCOUNT 48.000 5.20.60.80.000 60.000 Balance 1.000 6.76.000 Balance 6.000 Accumulated depreciation 2.000 36.000 Depreciation 1.000 Bank 12.