Q.1: Kind of data required to prepare a cash flow statement.

Following data is necessary to prepare a cash flow statement.

1) 1.Profit and loss account2) 2.Balance sheet of current year3) 3.Balance sheet of previous year

Parts of CFS:

1) 1.Operating Activity2) 2.Investing activities 3) 3.Financing Activities

Function of Operating Activities:

This represents all the cash the company raised through its main operations –generally sales and its products.

Function of Investing Activity:

When a company buys a large asset like a piece of machinery or when it buys stock in other company’s cash is paid out. Such activities are called investing activities.

Function of financing Activities:

Such activities sum all the cash flows from the issuance of debts or stock the redemption of debt and dividend paid to share holders.

Q.2 Difference between IAS and IFRS?

Technically they are the same IFRS however is current and reflective of all the changes in the business over the last two decades

The international accounting standards or in short IAS are standards issued by IASC from 1973 to 2001 that dictate how events and transactions should reflect on a company’s financial statements.

The IFRS are the current and updated versions of the IAS and are issued by a new standard making body the IASB. If there are any contradictions in the IFRS with the old IAS the IFRS should be followed

IASC-International Accounting Standards committee

IASB-International Accounting Standard Board

Q.3 IAS-4 Vs IAS16

IAS-4 was only about depreciation accounting it dictated that how depreciation will be calculated and what are the acceptable accounting treatments of depreciation.

On the other hand IAS 16 is about property plant and equipment (PPEE)

It dictates that the acceptable accounting treatments of addition in PPEE disposal and depreciation of those items categorized under the head property plant and equipment.

IAS-4 is abolished and was replaced by IAS-16 2001.

The above difference makes it clear that IAS-16 is an added version of IAS-4. IAS-4 was only regarding depreciation but IAS-16 added more and with a broader spectrum included Addition, deletion of property plant and equipment apart from depreciation only.

Q.4 Check for Cash Flow Statement?

Cash flow statement is one of main financial statements. It shows the movement of cash in and out of a company and the overall change in a company’s cash balance during an accounting period.

You can verify the accuracy of your statements of cash flows by following the instructions given below.

Instructions:

1) 1-find the line items that shows either “Net” increase in cash “or” “Net decrease in cash” at the bottom of your company’s most recent statement of cash flows.

2) 2-Determine the amount of the line item. The amount of a net decrease is in the parenthesis, the amount of net increase is not.

3) 3-Find the amount of your company’s cash balance in the “Assets” section of its most recent balance sheet and the previous period’s balance sheet.

4) 4-If difference calculated at step 4 is in agreement with amount found at step 5 this shows that cash flow statement is correctly prepared.

Part II

Bad debts, discounts are pure noncash items but they are not deal in the adjustment of cash flow statement because such adjustments are already adjusted in the debts head of current assets. So if we take these non cash item in adjustment of non cash items it will create a double effect of a single item. So to be on right track, these items are deal in increase/decrease in current assets.

Q.1 IAS?

International accounting standards are accounting standards issued by IASB and its predecessors IASC.

The purpose of IAS is to develop and implement in the public interest a single set of high quality, easily understood and enforceable accounting standard.

The purpose of IAS is to provide common integrated global and common language those outsider areas of corporate and Gov.t financial institution can understand

IAS dictates that how particular types of transactions and other events should be reflected in financial statements

Listed companies and sometimes unlisted companies are registered to use standards.

Q.2 what is requirement of IAS 2?

The IAS 2 is applicable to all the inventories excepting for construction contracts including contracts that are in progress and also includes directly services contracts and financial instruments.

Cost of acquisition, manufacture, exchange and other expenses are included in the inventories that have made it possible for inventories as they are in current position and stipulation.

Valuation of inventories:

The inventories should be measured at the “lower of cost and NRV” cost of inventories includes the purchase costs, conversion costs and other costs incurred to bring the inventories to their present condition and location

NRV (Net realizable value) is the estimated selling price during the normal course of business less the estimated costs to make a sale and estimated costs to completion.

Q.4 Procedure of preparing CFS

There are two methods of preparing CFS

I) Direct Method II) Indirect method

It will explain preparing CFS through indirect approach in the following steps

1) Cash inflow/outflow through operating activities:

i) Take the amount of net profit before tax and adjust it for pure non-cash items. After adjustments of non cash items (e.g. depreciation, increase/decrease in provision of doubtful debts) move to step ii

ii) Find the increase/decrease in current assets excluding cash and cash equivalents. If there is increase in current assets, subtract it from the amount adjusted at step (i) or vice versa.

iii) Find the increase/decrease in current liabilities if there is increase in current liability add it to the amount calculated at step (ii) or vice versa.

iv) Deduct the amount of tax paid during the year if any from the amount calculated at step (iii)

The resultant figure will be cash inflow/outflow from operating activities.

2) Cash flow from investing activities:

Focus on the “Fixed Assets” and Medium and long term investments in the balance sheet disposal of an asset will result in cash inflow and purchase will result in cash outflow. If our company has purchased stocks of other company this will result in outflow and vice versa. Total such in/out flow will give the figure of cash inflow/outflow from investing activities.

3) Cash flow from financing activities:

In order to determine cash flow from financing activities we will focus on the long term liabilities and capital portion of balance sheet. If loan is received during the year than it will result In cash flow and if loan is repaid than it will be cash outflow.

Addition to capital will lead to cash inflow and drawings will result in cash outflow.