CASH FLOW STATEMENT

AS – 3 / Ind AS - 7
BY
DR ABHISHEK MAHESHWARI
Introduction :
It is possible for a firm to be highly
profitable and not be able to pay
dividends or invest in new
equipment. It is possible for a firm to
be highly profitable and not be able
to service debt. It is also possible for
a firm to be highly profitable and go
bankrupt.
1. You are a banker evaluating a loan
Consider the following questions :

request from a prospective customer.

What is your primary concern when
making a decision regarding approval or
denial of the loan request?
2. You are a wholesaler of goods and have
been asked to sell your products on credit
to a particular buyer. What is the major
determining factor regarding approval or
denial of the credit sale?
3. You are an investor in a firm and rely on
the receipt of regular cash dividends as
part of your return on investment. What
MEANING
Cash Flow Statement is a statement
that shows flow of cash and cash
equivalents during the period under
report. The statement shows net
increase or decrease of cash and
cash equivalents under each activity
separately (operating/ Investing/
Financing) and collectively.
History of Cash Flow
Statement

Dowlais Iron Company – 1863

USA – 1987
Europe – 1989
India - 1994
OBJECTIVES
Short term planning
Cash flow helps in assessing
liquidity and solvency
Efficient cash management
Comparative study
Dividend decisions
Cash and Cash
Equivalents
Cash equivalents are short term,
highly liquid investments that are
readily convertible into known amount
of cash and which are subject to an
insignificant risk of change in value.
Cash in hand, Cash at Bank, Demand
Draft, Cheques in hand, Marketable
Securities (having maturities of less
than 3 months) .
Q Which of the following will be treated as cash and cash
equivalents?
1. Balance in the current account with
State Bank of India.
2. Investment in the shares of a
subsidiary company.
3. Investment in 10 year government
bonds maturing after two months.
4. Investment in equity mutual funds.
5. Fixed deposits with Canara Bank
maturing after one year.
 Non-Cash Transactions :
Conversion of debenture into equity
shares
Conversion of Preference Shares into
equity Shares
Issue of Bonus Shares
Splitting Shares of higher face value to
lower face value
Acquisition of assets by issuing
debentures
Acquisition of another enterprise by
issue of shares
Types of Activities
There are 3 types of activities of Cash flow Statement
Operating Activity:

Cash flows from operating activities

are primarily derived from the
principal revenue-producing
activities of the entity. Therefore,
they generally result from the
transactions and other events that
enter into the determination of profit
or loss. Examples of cash flows from
operating activities are:
Operating Activity :
Cash Inflow Cash Outflow
1. Cash Sales (1)Cash Purchases
2. Cash Received (2)Payment to
from Debtors and Creditors
Bills Receivables
3. Cash Received (3) Payment of
from Commission Operating Expenses
or Fees
4. Royalty (4)Payment of
Wages
5. Refund of (5)Income Tax paid
Investing Activity :
Investing activities are the acquisition and
disposal of the Fixed Assets and Long term
Investments.
Cash Inflow Cash Outflow
1. Proceeds from 1. Purchase of Fixed
sale of Fixed Assets
assets
2. Proceeds from 2.Purchase of
sale of Investments
Investments
3. Interest
Received
Financing Activity :

Financing activity are the activities

which result in change in size and
composition of owner’s capital and
borrowings of the enterprise from
other sources.
 Financing Activity
Cash Inflow Cash Outflow
1. Proceeds form (1)Payment for Buy
issue of Shares for Back of Equity Shares
Cash
2. Proceeds from (2)Payment of
issue of Redemption of
Debentures in cash Preference Shares
3. Proceeds from (3)Payment of Loan
Long Term
Borrowings
4. Bank Loan Taken (4)Payment of
Interest
 Format of Cash Flow
Statement
Statement of Cash
Flow Statement     
Direct Method
- As per AS-3     
      
2017  2016
(A) Cash flows from operating
activities     
Cash receipts from customers ***   
Cash Sales ***   
Cash received from commision, fees and
Royalty ***   
Cash Purchases (***)   
Cash paid to suppliers and employees (***)   
Payment to Operating Expenses (***)   
(B) Cash flows from investing activities     
Sale of Fixed Assets ***   
Sales of Investments ***   
Interest Received ***   
Dividend Received ***   
Purchase of Fixed Assets (***)   
Purchase of Investments (***)   
Net cash flow from (used in) investing activities     
      
(C ) Cash flows from financing activities     
Issue of Shares ***   
Issue of Debentures ***   
Loan Taken ***   
Payment of Loan (***)   
Redemption of Preference Shares (***)   
Payment of Equity Shares (***)   
Payment of Dividend (***)   
Payment of Interest (***)   
Net cash flow from (used in) financing activities     
Net increase (decrese) in cash and cash
equivalents (A+B+C)
Add : Cash and cash equivalents at the
beginning of the period      
Cash and cash equivalents at the end of the
Lehman Brothers Holding
Inc.

Started in 1850
Bankrupt in 2008

Assets – 639 Billion

Debt – 619 Billion
 Example
From the Statements of Cash Flows, Lehman Brothers
Holding Inc. Millions of US Dollars for period
ending Nov 30
2007 2006 2005
Net Income 4,192 4,007 3,260
Cash Flow From (45,595) (36,376) (12,205)
Operations
Cash Flow From (1,698) (792) (447)
Investing
Cash Flow From 48,592 38,255 12,112
Financing
New Debt 89,683 52,934 23,789
 Comparison of Cash Flows
Walmart Active
Inc. Power Inc.
For the year ended: March 31, 2010 March 31,
(in millions) 2010
(in millions)
Net Cash provided (Used) by:
Operating Activity 26,249 68
Investing Activity (11,620) (1243)
Financing Activity (14,191) 9084
Net increase in cash and cash 632 7927
equivalents
Thank You