Statements of Accounting Standards
(AS 3) Revised
Cash Flow Statements
(In this Accounting Standard, the standard
portions have been set in bold italic type. These should
be read in the context of the background material which has been
set in normal type, and in the context of the 'Preface to the Statements
of Accounting Standards'.)
The following is the text of the revised Accounting Standard (AS)
3, 'Cash Flow Statements', issued by the Council of the Institute
of Chartered Accountants of India. This Standard supersedes Accounting
Standard (AS) 3, 'Changes in Financial Position', issued in June,
1981.
In the initial years, this accounting standard will be recommendatory
in character. During this period, this standard is recommended for
use by companies listed on a recognised stock exchange and other
commercial, industrial and business enterprises in the public and
private sectors.
Objective
Information about the cash flows of
an enterprise is useful in providing users of financial statements
with a basis to assess the ability of the enterprise to generate
cash and cash equivalents and the needs of the enterprise to utilise
those cash flows. The economic decisions that are taken by users
require an evaluation of the ability of an enterprise to generate
cash and cash equivalents and the timing and certainty of their
generation.
The Statement deals with the provision of information about the
historical changes in cash and cash equivalents of an enterprise
by means of a cash flow statement which classifies cash flows during
the period from operating, investing and financing activities.
Scope
1. An enterprise should prepare a cash flow statement and should
present it for each period for which financial statements are presented.
2. Users of an enterprise's financial
statements are interested in how the enterprise generates and uses
cash and cash equivalents. This is the case regardless of the nature
of the enterprise's activities and irrespective of whether cash
can be viewed as the product of the enterprise, as may be the case
with a financial enterprise. Enterprises need cash for essentially
the same reasons, however different their principal revenue-producing
activities might be. They need cash to conduct their operations,
to pay their obligations, and to provide returns to their investors.
Benefits of Cash Flow Information
3. A cash flow statement, when used
in conjunction with the other financial statements, provides information
that enables users to evaluate the changes in net assets of an enterprise,
its financial structure (including its liquidity and solvency) and
its ability to affect the amounts and timing of cash flows in order
to adapt to changing circumstances and opportunities. Cash flow
information is useful in assessing the ability of the enterprise
to generate cash and cash equivalents and enables users to develop
models to assess and compare the present value of the future cash
flows of different enterprises. It also enhances the comparability
of the reporting of operating performance by different enterprises
because it eliminates the effects of using different accounting
treatments for the same transactions and events.
4. Historical cash flow information is often used as an indicator
of the amount, timing and certainty of future cash flows. It is
also useful in checking the accuracy of past assessments of future
cash flows and in examining the relationship between profitability
and net cash flow and the impact of changing prices.
Definitions
5. The following terms are used in this Statement with the meanings
specified:
Cash comprises cash on hand and demand deposits with banks.
Cash equivalents are short term, highly liquid investments
that are readily convertible into known amounts of cash and which
are subject to an insignificant risk of changes in value.
Cash flows are inflows and outflows of cash and cash equivalents.
Operating activities are the principal revenue-producing
activities of the enterprise and other activities that are not investing
or financing activities.
Investing activities are the acquisition and disposal
of long-term assets and other investments not included in cash equivalents.
Financing activities are activities that result in changes
in the size and composition of the owners' capital (including preference
share capital in the case of a company) and borrowings of the enterprise.
Cash and Cash Equivalents
6. Cash equivalents are held for the
purpose of meeting short-term cash commitments rather than for investment
or other purposes. For an investment to qualify as a cash equivalent,
it must be readily convertible to a known amount of cash and be
subject to an insignificant risk of changes in value. Therefore,
an investment normally qualifies as a cash equivalent only when
it has a short maturity of, say, three months or less from the date
of acquisition. Investments in shares are excluded from cash equivalents
unless they are, in substance, cash equivalents; for example, preference
shares of a company acquired shortly before their specified redemption
date (provided there is only an insignificant risk of failure of
the company to repay the amount at maturity).
7. Cash flows exclude movements between items that constitute cash
or cash equivalents because these components are part of the cash
management of an enterprise rather than part of its operating, investing
and financing activities. Cash management includes the investment
of excess cash in cash equivalents.
Presentation of a Cash Flow Statement
8. The cash flow statement should report cash flows during the
period classified by operating, investing and financing activities.
9. An enterprise presents its cash flows
from operating, investing and financing activities in a manner which
is most appropriate to its business. Classification by activity
provides information that allows users to assess the impact of those
activities on the financial position of the enterprise and the amount
of its cash and cash equivalents. This information may also be used
to evaluate the relationships among those activities.
10. A single transaction may include
cash flows that are classified differently. For example, when the
instalment paid in respect of a fixed asset acquired on deferred
payment basis includes both interest and loan, the interest element
is classified under financing activities and the loan element is
classified under investing activities.
Operating Activities
11. The amount of cash flows arising
from operating activities is a key indicator of the extent to which
the operations of the enterprise have generated sufficient cash
flows to maintain the operating capability of the enterprise, pay
dividends, repay loans and make new investments without recourse
to external sources of financing. Information about the specific
components of historical operating cash flows is useful, in conjunction
with other information, in forecasting future operating cash flows.
12. Cash flows from operating activities
are primarily derived from the principal revenue-producing activities
of the enterprise. Therefore, they generally result from the transactions
and other events that enter into the determination of net profit
or loss. Examples of cash flows from operating activities are:
(a) cash receipts from the sale of goods
and the rendering of services;
(b) cash receipts from royalties, fees,
commissions and other revenue;
(c) cash payments to suppliers for goods
and services;
(d) cash payments to and on behalf of
employees;
(e) cash receipts and cash payments
of an insurance enterprise for premiums and claims, annuities and
other policy benefits;
(f) cash payments or refunds of income
taxes unless they can be specifically identified with financing
and investing activities; and
(g) cash receipts and payments relating
to futures contracts, forward contracts, option contracts and swap
contracts when the contracts are held for dealing or trading purposes.
13. Some transactions, such as the sale
of an item of plant, may give rise to a gain or loss which is included
in the determination of net profit or loss. However, the cash flows
relating to such transactions are cash flows from investing activities.
14. An enterprise may hold securities
and loans for dealing or trading purposes, in which case they are
similar to inventory acquired specifically for resale. Therefore,
cash flows arising from the purchase and sale of dealing or trading
securities are classified as operating activities. Similarly, cash
advances and loans made by financial enterprises are usually classified
as operating activities since they relate to the main revenue-producing
activity of that enterprise.
Investing Activities
15. The separate disclosure of cash
flows arising from investing activities is important because the
cash flows represent the extent to which expenditures have been
made for resources intended to generate future income and cash flows.
Examples of cash flows arising from investing activities are:
(a) cash payments to acquire fixed assets
(including intangibles). These payments include those relating to
capitalised research and development costs and self-constructed
fixed assets;
(b) cash receipts from disposal of fixed
assets (including intangibles);
(c) cash payments to acquire shares,
warrants or debt instruments of other enterprises and interests
in joint ventures (other than payments for those instruments considered
to be cash equivalents and those held for dealing or trading purposes);
(d) cash receipts from disposal of shares,
warrants or debt instruments of other enterprises and interests
in joint ventures (other than receipts from those instruments considered
to be cash equivalents and those held for dealing or trading purposes);
(e) cash advances and loans made to
third parties (other than advances and loans made by a financial
enterprise);
(f) cash receipts from the repayment
of advances and loans made to third parties (other than advances
and loans of a financial enterprise);
(g) cash payments for futures contracts,
forward contracts, option contracts and swap contracts except when
the contracts are held for dealing or trading purposes, or the payments
are classified as financing activities; and
(h) cash receipts from futures contracts,
forward contracts, option contracts and swap contracts except when
the contracts are held for dealing or trading purposes, or the receipts
are classified as financing activities.
16. When a contract is accounted for
as a hedge of an identifiable position, the cash flows of the contract
are classified in the same manner as the cash flows of the position
being hedged.
Financing Activities
17. The separate disclosure of cash
flows arising from financing activities is important because it
is useful in predicting claims on future cash flows by providers
of funds (both capital and borrowings) to the enterprise. Examples
of cash flows arising from financing activities are:
(a) cash proceeds from issuing shares
or other similar instruments;
(b) cash proceeds from issuing debentures,
loans, notes, bonds, and other short or long-term borrowings; and
(c) cash repayments of amounts borrowed.
Reporting Cash Flows from Operating Activities
18. An enterprise should report
cash flows from operating activities using either:
(a) the direct method, whereby
major classes of gross cash receipts and gross cash payments are
disclosed; or
(b) the indirect method, whereby
net profit or loss is adjusted for the effects of transactions of
a non-cash nature, any deferrals or accruals of past or future operating
cash receipts or payments, and items of income or expense associated
with investing or financing cash flows.
19. The direct method provides information
which may be useful in estimating future cash flows and which is
not available under the indirect method and is, therefore, considered
more appropriate than the indirect method. Under the direct method,
information about major classes of gross cash receipts and gross
cash payments may be obtained either:
(a) from the accounting records of the
enterprise; or
(b) by adjusting sales, cost of sales
(interest and similar income and interest expense and similar charges
for a financial enterprise) and other items in the statement of
profit and loss for:
i) changes during the period in inventories
and operating receivables and payables;
ii) other non-cash items; and
iii) other items for which the cash
effects are investing or financing cash flows.
20. Under the indirect method, the net
cash flow from operating activities is determined by adjusting net
profit or loss for the effects of:
(a) changes during the period in inventories
and operating receivables and payables;
(b) non-cash items such as depreciation,
provisions, deferred taxes, and unrealised foreign exchange gains
and losses; and
(c) all other items for which the cash
effects are investing or financing cash flows.
Alternatively, the net cash flow from
operating activities may be presented under the indirect method
by showing the operating revenues and expenses excluding non-cash
items disclosed in the statement of profit and loss and the changes
during the period in inventories and operating receivables and payables.
Reporting Cash Flows from Investing and Financing
Activities
21. An enterprise should report
separately major classes of gross cash receipts and gross cash payments
arising from investing and financing activities, except to the extent
that cash flows described in paragraphs 22 and 24 are reported on
a net basis.
Reporting Cash Flows on a Net Basis
22. Cash flows arising from the
following operating, investing or financing activities may be reported
on a net basis:
(a) cash receipts and payments
on behalf of customers when the cash flows reflect the activities
of the customer rather than those of the enterprise; and
(b) cash receipts and payments
for items in which the turnover is quick, the amounts are large,
and the maturities are short.
23. Examples of cash receipts and payments
referred to in paragraph 22(a) are:
(a) the acceptance and repayment of
demand deposits by a bank;
(b) funds held for customers by an investment
enterprise; and
(c) rents collected on behalf of, and
paid over to, the owners of properties.
Examples of cash receipts and payments
referred to in paragraph 22(b) are advances made for, and the repayments
of:
(a) principal amounts relating to credit
card customers;
(b) the purchase and sale of investments;
and
(c) other short-term borrowings, for
example, those which have a maturity period of three months or less.
24. Cash flows arising from each
of the following activities of a financial enterprise may be reported
on a net basis:
(a) cash receipts and payments
for the acceptance and repayment of deposits with a fixed maturity
date;
(b) the placement of deposits
with and withdrawal of deposits from other financial enterprises;
and
(c) cash advances and loans made
to customers and the repayment of those advances and loans.
Foreign Currency Cash Flows
25. Cash flows arising from transactions
in a foreign currency should be recorded in an enterprise's reporting
currency by applying to the foreign currency amount the exchange
rate between the reporting currency and the foreign currency at
the date of the cash flow. A rate that approximates the actual rate
may be used if the result is substantially the same as would arise
if the rates at the dates of the cash flows were used. The effect
of changes in exchange rates on cash and cash equivalents held in
a foreign currency should be reported as a separate part of the
reconciliation of the changes in cash and cash equivalents during
the period.
26. Cash flows denominated in foreign
currency are reported in a manner consistent with Accounting Standard
(AS) 11, Accounting for the Effects of Changes in Foreign Exchange
Rates. This permits the use of an exchange rate that approximates
the actual rate. For example, a weighted average exchange rate for
a period may be used for recording foreign currency transactions.
27. Unrealised gains and losses arising
from changes in foreign exchange rates are not cash flows. However,
the effect of exchange rate changes on cash and cash equivalents
held or due in a foreign currency is reported in the cash flow statement
in order to reconcile cash and cash equivalents at the beginning
and the end of the period. This amount is presented separately from
cash flows from operating, investing and financing activities and
includes the differences, if any, had those cash flows been reported
at the end-of-period exchange rates.
Extraordinary Items
28. The cash flows associated
with extraordinary items should be classified as arising from operating,
investing or financing activities as appropriate and separately
disclosed.
29. The cash flows associated with extraordinary
items are disclosed separately as arising from operating, investing
or financing activities in the cash flow statement, to enable users
to understand their nature and effect on the present and future
cash flows of the enterprise. These disclosures are in addition
to the separate disclosures of the nature and amount of extraordinary
items required by Accounting Standard (AS) 5, Net Profit or Loss
for the Period, Prior Period Items and Changes in Accounting Policies.
Interest and Dividends
30. Cash flows from interest and
dividends received and paid should each be disclosed separately.
Cash flows arising from interest paid and interest and dividends
received in the case of a financial enterprise should be classified
as cash flows arising from operating activities. In the case of
other enterprises, cash flows arising from interest paid should
be classified as cash flows from financing activities while interest
and dividends received should be classified as cash flows from investing
activities. Dividends paid should be classified as cash flows from
financing activities.
31. The total amount of interest paid
during the period is disclosed in the cash flow statement whether
it has been recognised as an expense in the statement of profit
and loss or capitalised in accordance with Accounting Standard (AS)
10, Accounting for Fixed Assets.
32. Interest paid and interest and dividends
received are usually classified as operating cash flows for a financial
enterprise. However, there is no consensus on the classification
of these cash flows for other enterprises. Some argue that interest
paid and interest and dividends received may be classified as operating
cash flows because they enter into the determination of net profit
or loss. However, it is more appropriate that interest paid and
interest and dividends received are classified as financing cash
flows and investing cash flows respectively, because they are cost
of obtaining financial resources or returns on investments.
33. Some argue that dividends paid may
be classified as a component of cash flows from operating activities
in order to assist users to determine the ability of an enterprise
to pay dividends out of operating cash flows. However, it is considered
more appropriate that dividends paid should be classified as cash
flows from financing activities because they are cost of obtaining
financial resources.
Taxes on Income
34. Cash flows arising from taxes
on income should be separately disclosed and should be classified
as cash flows from operating activities unless they can be specifically
identified with financing and investing activities.
35. Taxes on income arise on transactions
that give rise to cash flows that are classified as operating, investing
or financing activities in a cash flow statement. While tax expense
may be readily identifiable with investing or financing activities,
the related tax cash flows are often impracticable to identify and
may arise in a different period from the cash flows of the underlying
transactions. Therefore, taxes paid are usually classified as cash
flows from operating activities. However, when it is practicable
to identify the tax cash flow with an individual transaction that
gives rise to cash flows that are classified as investing or financing
activities, the tax cash flow is classified as an investing or financing
activity as appropriate. When tax cash flow are allocated over more
than one class of activity, the total amount of taxes paid is disclosed.
Investments in Subsidiaries, Associates and Joint
Ventures
36. When accounting for an investment
in an associate or a subsidiary or a joint venture, an investor
restricts its reporting in the cash flow statement to the cash flows
between itself and the investee/joint venture, for example, cash
flows relating to dividends and advances.
Acquisitions and Disposals of Subsidiaries and
Other Business Units
37. The aggregate cash flows arising
from acquisitions and from disposals of subsidiaries or other business
units should be presented separately and classified as investing
activities.
38. An enterprise should disclose,
in aggregate, in respect of both acquisition and disposal of subsidiaries
or other business units during the period each of the following:
(a) the total purchase or disposal
consideration; and
(b) the portion of the purchase
or disposal consideration discharged by means of cash and cash equivalents.
39. The separate presentation of the
cash flow effects of acquisitions and disposals of subsidiaries
and other business units as single line items helps to distinguish
those cash flows from other cash flows. The cash flow effects of
disposals are not deducted from those of acquisitions.
Non-cash Transactions
40. Investing and financing transactions
that do not require the use of cash or cash equivalents should be
excluded from a cash flow statement. Such transactions should be
disclosed elsewhere in the financial statements in a way that provides
all the relevant information about these investing and financing
activities.
41. Many investing and financing activities
do not have a direct impact on current cash flows although they
do affect the capital and asset structure of an enterprise. The
exclusion of non-cash transactions from the cash flow statement
is consistent with the objective of a cash flow statement as these
items do not involve cash flows in the current period. Examples
of non-cash transactions are:
(a) the acquisition of assets by assuming
directly related liabilities;
(b) the acquisition of an enterprise
by means of issue of shares; and
(c) the conversion of debt to equity.
Components of Cash and Cash Equivalents
42. An enterprise should disclose
the components of cash and cash equivalents and should present a
reconciliation of the amounts in its cash flow statement with the
equivalent items reported in the balance sheet.
43. In view of the variety of cash management
practices, an enterprise discloses the policy which it adopts in
determining the composition of cash and cash equivalents.
44. The effect of any change in the
policy for determining components of cash and cash equivalents is
reported in accordance with Accounting Standard (AS) 5, Net Profit
or Loss for the Period, Prior Period Items and Changes in Accounting
Policies.
Other Disclosures
45. An enterprise should disclose,
together with a commentary by management, the amount of significant
cash and cash equivalent balances held by the enterprise that are
not available for use by it.
46. There are various circumstances
in which cash and cash equivalent balances held by an enterprise
are not available for use by it. Examples include cash and cash
equivalent balances held by a branch of the enterprise that operates
in a country where exchange controls or other legal restrictions
apply as a result of which the balances are not available for use
by the enterprise.
47. Additional information may be relevant
to users in understanding the financial position and liquidity of
an enterprise. Disclosure of this information, together with a commentary
by management, is encouraged and may include:
(a) the amount of undrawn borrowing
facilities that may be available for future operating activities
and to settle capital commitments, indicating any restrictions on
the use of these facilities; and
(b) the aggregate amount of cash flows
that represent increases in operating capacity separately from those
cash flows that are required to maintain operating capacity.
48. The separate disclosure of cash
flows that represent increases in operating capacity and cash flows
that are required to maintain operating capacity is useful in enabling
the user to determine whether the enterprise is investing adequately
in the maintenance of its operating capacity. An enterprise that
does not invest adequately in the maintenance of its operating capacity
may be prejudicing future profitability for the sake of current
liquidity and distributions to owners.
APPENDIX
I
Cash Flow
Statement for an Enterprise other than a Financial Enterprise
The appendix is illustrative only
and does not form part of the accounting standard. The purpose of
this appendix is to illustrate the application of the accounting
standard.
1. The example shows only current period
amounts.
2. Information from the statement of
profit and loss and balance sheet is provided to show how the statements
of cash flows under the direct method and the indirect method have
been derived. Neither the statement of profit and loss nor the balance
sheet is presented in conformity with the disclosure and presentation
requirements of applicable laws and accounting standards. The working
notes given towards the end of this appendix are intended to assist
in understanding the manner in which the various figures appearing
in the cash flow statement have been derived. These working notes
do not form part of the cash flow statement and, accordingly, need
not be published.
3. The following additional information
is also relevant for the preparation of the statement of cash flows
(figures are in Rs.'000).
(a) An amount of 250 was raised from
the issue of share capital and a further 250 was raised from long
term borrowings.
(b) Interest expense was 400 of which
170 was paid during the period. 100 relating to interest expense
of the prior period was also paid during the period.
(c) Dividends paid were 1,200.
(d) Tax deducted at source on dividends
received (included in the tax expense of 300 for the year) amounted
to 40.
(e) During the period, the enterprise
acquired fixed assets for 350. The payment was made in cash.
(f) Plant with original cost of 80 and
accumulated depreciation of 60 was sold for 20.
(g) Foreign exchange loss of 40 represents
the reduction in the carrying amount of a short-term investment
in foreign-currency designated bonds arising out of a change in
exchange rate between the date of acquisition of the investment
and the balance sheet date.
(h) Sundry debtors and sundry creditors
include amounts relating to credit sales and credit purchases only.
Balance Sheet as at 31.12.1996
| |
(Rs.
'000) |
| |
|
1996
|
|
1995
|
| Assets |
|
|
|
|
| Cash on hand and
balances with banks |
|
200
|
|
25 |
| Short-term investments
|
|
670
|
|
135
|
| Sundry debtors |
|
1,700
|
|
1,200
|
| Interest receivable
|
|
100
|
|
– |
| Inventories |
|
900
|
|
1,950
|
| Long-term investments
|
|
2,500
|
|
2,500
|
| Fixed assets at
cost |
2,180
|
|
1,910
|
|
| Accumulated depreciation
|
(1,450)
|
|
(1,060)
|
|
| Fixed assets (net)
|
|
730
|
|
850
|
| Total assets |
|
6,800
|
|
6,660
|
| Liabilities |
|
|
|
|
| Sundry creditors
|
|
150
|
|
1,890
|
| Interest payable
|
|
230
|
|
100
|
| Income taxes payable
|
|
400
|
|
1,000
|
| Long-term debt |
|
1,110
|
|
1,040
|
| Total liabilities
|
|
1,890
|
|
4,030
|
| Shareholders' Funds |
|
|
|
|
| Share capital |
|
1,500
|
|
1,250
|
| Reserves |
|
3,410
|
|
1,380
|
| Total shareholders'
funds |
|
4,910
|
|
2,630
|
| Total liabilities
and shareholders' funds |
|
6,800
|
|
6,660
|
Statement of Profit and Loss for the
period ended 31.12.1996
| (Rs. '000) |
| Sales |
30,650
|
| Cost of sales |
(26,000)
|
| Gross profit |
4,650
|
| Depreciation |
(450)
|
| Administrative and
selling expenses |
(910)
|
| Interest expense
|
(400)
|
| Interest income
|
300
|
| Dividend income
|
200
|
| Foreign exchange
loss |
(40)
|
| Net profit before
taxation and extraordinary item |
3,350
|
| Extraordinary item
– Insurance proceeds from earthquake disaster settlement
|
180
|
| Net profit after
extraordinary item |
3,530
|
| Income-tax |
(300)
|
| Net profit |
3,230
|
Direct Method Cash Flow Statement [Paragraph
18(a)]
| |
(Rs.
'000) |
| |
|
1996 |
| Cash flows from
operating activities |
|
|
| Cash receipts from
customers |
30,150
|
|
| Cash paid to suppliers
and employees |
(27,600)
|
|
| Cash generated from
operations |
2,550
|
|
| Income taxes paid
|
(860)
|
|
| Cash flow before
extraordinary item |
1,690
|
|
| Proceeds from earthquake
disaster settlement |
180
|
|
| Net cash from
operating activities |
|
1,870
|
| Cash flows from
investing activities |
|
|
| Purchase of fixed
assets |
(350)
|
|
| Proceeds from sale
of equipment |
20 |
|
| Interest received
|
200
|
|
| Dividends received
|
160
|
|
| Net cash from
investing activities |
|
30 |
| Cash flows from
financing activities |
|
|
| Proceeds from issuance
of share capital |
250
|
|
| Proceeds from long-term
borrowings |
250
|
|
| Repayment of long-term
borrowings |
(180)
|
|
| Interest paid |
(270)
|
|
| Dividends paid |
(1,200)
|
|
| Net cash used
in financing activities |
|
(1,150)
|
| Net increase in
cash and cash equivalents |
|
750
|
| Cash and cash equivalents
at beginning of period (see Note 1) |
|
160
|
Cash and cash equivalents
at end of period(see Note 1) |
|
910
|
Indirect Method Cash Flow Statement [Paragraph
18(b)]
| |
(Rs.
'000) |
| |
|
1996
|
| Cash flows from
operating activities |
|
|
| Net profit before
taxation, and extraordinary item |
3,350
|
|
| Adjustments for:
|
|
|
|
Depreciation
|
450
|
|
|
Foreign exchange loss
|
40 |
|
|
Interest income
|
(300)
|
|
|
Dividend income
|
(200)
|
|
|
Interest expense
|
400
|
|
| Operating profit
before working capital changes |
3,740
|
|
| Increase in sundry
debtors |
(500)
|
|
| Decrease in inventories
|
1,050
|
|
| Decrease in sundry
creditors |
(1,740)
|
|
| Cash generated from
operations |
2,550
|
|
| Income taxes paid
|
(860)
|
|
| Cash flow before
extraordinary item |
1,690
|
|
| Proceeds from earthquake
disaster settlement |
180
|
|
| Net cash from
operating activities |
|
1,870
|
| Cash flows from
investing activities |
|
|
| Purchase of fixed
assets |
(350)
|
|
| Proceeds from sale
of equipment |
20 |
|
| Interest received
|
200
|
|
| Dividends received
|
160
|
|
| Net cash from
investing activities |
|
30 |
| Cash flows from
financing activities |
|
|
| Proceeds from issuance
of share capital |
250
|
|
| Proceeds from long-term
borrowings |
250
|
|
| Repayment of long-term
borrowings |
(180)
|
|
| Interest paid |
(270)
|
|
| Dividends paid |
(1,200)
|
|
| Net cash used
in financing activities |
|
(1,150)
|
| Net increase
in cash and cash equivalents |
|
750
|
| Cash and cash
equivalents at beginning of period (see Note 1) |
|
160
|
| Cash and cash equivalents
at end of period
(see Note 1) |
|
910
|
Notes to the cash flow statement
(direct method and indirect method)
1. Cash and Cash Equivalents
Cash and cash equivalents consist of
cash on hand and balances with banks, and investments in money-market
instruments. Cash and cash equivalents included in the cash flow
statement comprise the following balance sheet amounts.
| |
1996
|
1995
|
| Cash on hand and
balances with banks |
200
|
25 |
| Short-term investments
|
670
|
135
|
| Cash and cash equivalents
|
870
|
160
|
| Effect of exchange
rate changes |
40 |
–
|
| Cash and cash equivalents
as restated |
910
|
160
|
Cash and cash equivalents at the end
of the period include deposits with banks of 100 held by a branch
which are not freely remissible to the company because of currency
exchange restrictions.
The company has undrawn borrowing facilities
of 2,000 of which 700 may be used only for future expansion.
2. Total tax paid during the year (including
tax deducted at source on dividends received) amounted to 900.
Alternative Presentation (indirect method)
As an alternative, in an indirect method
cash flow statement, operating profit before working capital changes
is sometimes presented as follows:
| Revenues excluding
investment income |
30,650
|
|
| Operating expense
excluding depreciation |
(26,910)
|
|
| Operating profit
before working capital changes |
|
3,740
|
Working Notes
The working notes given below do not
form part of the cash flow statement and, accordingly, need not
be published. The purpose of these working notes is merely to assist
in understanding the manner in which various figures in the cash
flow statement have been derived. (Figures are in Rs. '000.)
1. Cash receipts from customers
|
Sales
|
30,650
|
|
Add: Sundry debtors at the beginning of the
year
|
1,200
|
| |
31,850
|
|
Less : Sundry debtors at the end of the year
|
1,700
|
| |
30,150
|
2. Cash paid to suppliers and employees
|
Cost of sales
|
|
|
26,000
|
|
Administrative and selling expenses
|
|
|
910
|
| |
|
|
26,910
|
|
Add: Sundry creditors at the beginning of
the year
|
1,890
|
|
|
|
Inventories at the end of the year
|
900
|
|
2,790
|
| |
|
|
29,700
|
|
Less: Sundry creditors at the end of the year
|
150
|
|
|
|
Inventories at the beginning of the year
|
1,950
|
|
2,100
|
| |
|
|
27,600
|
3. Income taxes paid (including tax deducted at source
from dividends received)
|
Income tax expense for the year (including
tax deducted
at source from dividends received)
|
300
|
|
Add : Income tax liability at the beginning
of the year
|
1,000
|
| |
1,300
|
|
Less: Income tax liability at the end of the
year
|
400
|
| |
900
|
Out of 900, tax deducted at source on
dividends received (amounting to 40) is included in cash flows from
investing activities and the balance of 860 is included in cash
flows from operating activities (see paragraph 34).
4. Repayment of long-term borrowings
|
Long-term debt at the beginning of the year
|
1,040
|
|
Add : Long-term borrowings made during the
year
|
250
|
| |
1,290
|
|
Less : Long-term borrowings at the end of
the year
|
1,110
|
| |
180
|
5. Interest paid
|
Interest expense for the year
|
400
|
|
Add: Interest payable at the beginning of
the year
|
100
|
| |
500
|
|
Less: Interest payable at the end of the year
|
230
|
| |
270
|
APPENDIX II
Cash Flow Statement for a Financial Enterprise
The appendix is illustrative only and
does not form part of the accounting standard. The purpose of this
appendix is to illustrate the application of the accounting standard.
1. The example shows only current period
amounts.
2. The example is presented using the
direct method.
| |
(Rs.
'000) |
| |
|
1996
|
| Cash flows from
operating activities |
|
|
| Interest and commission
receipts |
28,447
|
|
| Interest payments
|
(23,463)
|
|
| Recoveries on loans
previously written off |
237
|
|
| Cash payments to
employees and suppliers |
(997)
|
|
| Operating profit
before changes in operating assets |
4,224
|
|
| (Increase) decrease
in operating assets: |
|
|
| Short-term funds
|
(650)
|
|
| Deposits held for
regulatory or monetary control purposes |
234
|
|
| Funds advanced to
customers |
(288)
|
|
| Net increase in
credit card receivables |
(360)
|
|
| Other short-term
securities |
(120)
|
|
| Increase (decrease)
in operating liabilities: |
|
|
| Deposits from customers
|
600
|
|
| Certificates of
deposit |
(200)
|
|
| Net cash from operating
activities before income tax |
3,440
|
|
| Income taxes paid
|
(100)
|
|
| Net cash from operating
activities |
|
3,340
|
| Cash flows from
investing activities |
|
|
| Dividends received
|
250
|
|
| Interest received
|
300
|
|
| Proceeds from sales
of permanent investments |
1,200
|
|
| Purchase of permanent
investments |
(600)
|
|
| Purchase of fixed
assets |
(500)
|
|
| Net cash from investing
activities |
|
650
|
| Cash flows from
financing activities |
|
|
| Issue of shares
|
1,800
|
|
| Repayment of long-term
borrowings |
(200)
|
|
| Net decrease in
other borrowings |
(1,000)
|
|
| Dividends paid |
(400)
|
|
| Net cash from financing
activities |
|
200
|
| Net increase in
cash and cash equivalents |
|
4,190
|
| Cash and cash equivalents
at beginning of period |
|
4,650
|
| Cash and cash equivalents
at end of period |
|
8,840
|
|
