as-3cash flow ppt

8/6/2019 As-3cash Flow Ppt

1/30

Accounting Standard (AS) - 3


2/30

Index

y Introduction

y Applicabilityy Definitionsy Cash and Cash equivalentsy Features of Cash Flow Statement

Operating Activities Investing Activities Financing Activities

y Interesty Dividendy Foreign Currency transactionsy Extraordinary items

y Treatment of Taxy Investments in subsidiaries, associates and joint venturesy Acquisitions and disposals of subsidiaries and other business unitsy Non-cash transactionsy Disclosures of cash and cash equivalents


3/30

Introduction

y Cash flow statement is additional information to user offinancial statement

y This statement exhibits the flow of incoming and outgoing

cash

y This statement assesses the ability of the enterprise togenerate cash and cash equivalents

y It also assesses the needs of the enterprise to utilise thecash and cash equivalents generated

y It also assesses the liquidity and solvency of the enterprise.


4/30

Applicability

Cash flow statement of listed companies shall

be presented only under the indirectmethod as prescribed in AS -3

This standard applies to the enterprises:

(i) All commercial, industrial and business

reporting enterprises, whose turnover forthe immediately preceding accountingperiod on the basis of audited financialstatements exceeds Rs. 50 crore. Turnover

does not include other income.


5/30

(ii) All commercial, industrial andbusiness reporting enterprises

having borrowings, includingpublic deposits, in excess of Rs.10crore at any time during theaccounting period.


6/30

(iii) Banks including co-operative banks.

(iv) Financial institutions.

(v) Enterprises carrying on insurancebusiness.

(vi) Enterprises whose equity or debt

securities are listed whether in India oroutside India.


7/30

(vii)Enterprises which are in the processof listing their equity or debt securities

as evidenced by the board of directorsresolution in this regard.

(viii)Holding and subsidiary enterprises

of any one of the above at any timeduring the accounting period.


8/30

Definitions

y Cash comprises cash on hand and demand deposits with banks.

y Cash equivalents are short term, highly liquid investments that arereadily convertible into known amounts of cash and which aresubject to an insignificant risk of changes in value.

y

Cash flows are inflows and outflows of cash and cash equivalents.

y Operating activities are the principal revenue-producing activitiesofthe enterprise and other activities that are not investing or

financing activities.

y Investing activities are the acquisition and disposal of long-termassets andother investments not included in cash equivalents.

y Financing activities are activities that result in changes in the sizeandcomposition of the owners capital (including preference sharecapital in the case of a company) and borrowings of the enterprise.


9/30

Cash and Cash Equivalents

y Cash Equivalents Held for meeting short term commitments It is readily convertible into known amounts of cash It has a very insignificant risk Short maturity (say 3 months maximum)

y Cash flows excludeMovements between cash and cash equivalents

y Cash management includes the investment ofexcess cash in cash equivalents


10/30

Features of Cash Flow Statement

y The cash flow statement should report cashflows during the period classified by Operating,

Investing and Financing activities.

y Sum of these three types of cash flow reflect net

increase or decrease of cash and cash equivalents.


11/30

Operating Activities

y These are principal revenue producing activities ofthe enterprise.

y Examples: Cash receipts from sale of goods / rendering services;

Cash receipts from royalties, fees, commissions and otherrevenue;

Cash payments to suppliers of goods and service;

Cash payments to and on behalf of employees.


12/30

Investment Activities

y The activities of acquisition and disposal of long term assets and otherinvestments not included in cash equivalent are investing activities.

y It includes making and collecting loans, acquiring and disposal of debtand equity instruments, property and fixed assets etc.

y Examples of cash flows arising from investing activities are as follows: Cash payments to acquire fixed assets

Cash receipts from disposal of fixed assets

Cash payments to acquire shares, warrants or debt instruments of otherenterprises and interest in joint ventures

Cash receipt from disposal of above investments


13/30

Financing Activities

y Those activities that result in changes in size and composition ofowners capital and borrowing of the organization.

y It includes receipts from issuing shares, debentures, bonds, borrowingand payment of borrowed amount, loan etc.

Sale of share

Buy back of shares

Redemption of preference shares

Issue / redemption of debentures

Long term loan / payment thereof

Dividend / interest paid


14/30

Cash flow from operating activities

y It can be derived either from direct method orindirect method

Direct method: In this method, gross receipts and gross payments of cash are

disclosed

Indirect method:

In this method, profit and loss account is adjusted for the effects oftransaction of non-cash nature.


15/30

Interest

y Interest Received Received from investment it is in investment activities

Received from short term investment classified, as cash equivalentsshould be considered as cash inflows from operating activities.

Received on trade advances and operating receivables should be inoperating activities

y Interest Paid

On loans / debts are in financing activities

On working capital loan and any other loan taken to financeoperating activities are in operating activities

y

Cash flow from interest should be separately disclosed.


16/30

Dividend

y Dividend Received

For financial enterprises in operating activities

For other than financial enterprises in investing activities

y Dividend Paid

Always classified as financing activities

y Cash flow from dividend should be separatelydisclosed


17/30

Foreign currency transaction

y The effect of change in exchange rate in cash andcash equivalents held in foreign currency should bereported as separate part of the reconciliation of cash

and cash equivalents.

y Unrealized gain and losses arising from changes inforeign exchanges rates are not cash flows.


18/30

Extraordinary items

yThe cash flows associated withextraordinary items should be classified

as arising from:Operating

Investing or

Financing activitiesas appropriate and separately disclosed.


19/30

Treatment of tax

y Cash flow for tax payments / refund should beclassified as cash flow from operating activities.

y If cash flow can be specifically identified as cash flowfrom investment / financing activities, appropriateclassification should be made.


20/30

Investments in subsidiaries, associates and joint

ventures

yOnly the cash flow between itselfand the investee is required to be

reportedyExample:

Cash flow relating to dividends andadvances


21/30

su s ar es an o er us nessunits

Cash flow on acquisition and disposal of

subsidiaries and other business units

should be Presented separately :

Classified as investing activities

Total purchase and disposal should be

disclosed separately

The position of the purchase / disposal

consideration discharged by means of

cash and cash equivalents should be

disclosed


22/30

Non-cash transactions

y These should be excluded from the cash flowstatement

y These transactions should be disclosed in thefinancial statements.

y Examples

Acquisition of assets by assuming directlyrelated liabilities

Acquisition of an enterprise by means of issueof equity sshares

Conversion of debt to equity


23/30

sc osures o cas an casequivalents

y The components of cash and cash equivalents shouldbe disclosed

y Reconciliation of the amount in the cash flowstatement with the equivalent items reported in the

balance sheet

y The amount of cash and cash equivalent balance heldby the enterprises that are not available for use (withexplanation by management)


24/30

y ITEMS GENERALLY APPRARING INyTHE CASH FLOWSTATEMENTOF

BANKS :


25/30

A. CASH FLOWFROMOPERTAINGACTIVITIES:

yNet Profit Before Tax

I. Adjustments for :

Depreciation for fixed assets

Depreciation on investments

Provisions in respect of NPA/Bad Debts

Provisions on Standard Assets

Provisions for other items


26/30

Profit/Loss on sale of fixed assets

Dividend received from subsidiaries/others

Payment /provision for interest (other debts)II. Adjustment for :

Increase/(Decrease) in Deposits

Increase/ (Decrease) in BorrowingIncrease/(Decrease) in other liabilities &

provisions


27/30

(Increase)/Decrease in Advances

(Increase) / Decrease in Investments

(Increase)/Decrease in Other Assets(Direct Taxes paid)/ Refund

Net Cash Flow From

Operating Activities-


28/30

B.CASH FLOWFROMINVESTINGACTIVITIES :

sale/Disposal of Fixed Assets

Purchase of Fixed Assets

Income from subsidiaries & associates

Investment in Subsidiaries and/JointVentures

Net cash Flow From Investment Activities.


29/30

C.CASH FLOWFROM FINANCING ACTIVITIES:Equity Capital Raised

Subordinated debts raised

Subordinated debts repaidPremium on equity capital raised

Dividend Paid

Interest on Long Term Loan/Subord.

Debts

Net Cash Flow From Financing Activities


30/30

D. Net increase/decrease in cash & cash

equivalents (A+B+C)

a. Cash & Cash Equivalents (Opening)b. Cash & Cash Equivalents (Closing )

E. Difference in opening & closing (a-b)

D= E

as-3cash flow ppt

Documents