CHAAPTER

Cash.Flow Statement
LEARNING OBJECTIVES
studyofthis Chapter wouldl enable you to
he
, Meaning ofCash Flow and Cash Flow Statement understand:
Objectives of Cash Flow Statement
5.2
Importance or Uses of Cash Flow
Limitationssof Cash Flow Statement
Statement 5.3

5.3
Preparation of Cash Flow Statement 5.4
5.15

MEANING OF KEY TERMS USED IN THE

1. Cash Flow Statement
CHAPTER
It is the
statement that shows flow of
during the period under report. Cash and Cash Equivalents
2. Cash Flows
These are the inflows (receipts) and
and Cash Equivalents. outflows (payments) of Cash
3. Cash It comprises ofCash on
Hand and demand deposits with
4. Cash Equivalents
These are short-term, highly liquid banks.
investments that are readily
convertible into known amount of cash
to an insignificant risk of and which are subject
change in value. An investment
normally qualifies as cash equivalent only
maturity period of, say, three months or lesswhen has short
from the date of
acquisition, i.e., purchase.
5. Operating Activities These are the principal revenue
enterprise and other activities thatproducing
are not
activities of the
Financing Activities. Investing and
6. Investing Activities
These are activities of acquisition and
assets and other investments not includeddisposal of long-term
in cash equivalents.
1. Financing Activities
These are the activities that result in
change in the size and
composition of the owner's capital (including Preference Share
Capital in the case of a company) and
enterprise.
borrowings of the
Extraordinary Activities These are incomes or expenses that arise from
events or
transactions that are clearly distinct from the ordinary activities
of the enterprise and, therefore, are not
expected to recur
frequently or regularly.
 otherwise,
Equivalents
included and
Equivalents (i.e.,during CashMEANING Accounting
Balance (xii) (x) (ix) (vii)Capital
(x) Work-in-Progress; (vii)
paynents),
Cash Flow eansevaluated);
Treatment andbe
commitments held Deferred
Cash Other Intangible
the Sheet
in OF that asand
Equivalents
Current
Cash are Statement
period Ratios Non-current
include Cash Tax
inflows of CASH can the of Margin Assets
and Cashunder Unamortised
be above and Assets
InvestmentsCash, is
FLOW and Equivalents:
Cash are ofand a
asked. BankMoney Assets; Under
Cash report. Cash (Net);
statement AND items
Equivalents. outflowsBank Cash Deposits
and CASH
Flow
Expenses.
or Development;
are Equivalents. Cash
Balance, will (Earmarked
Cash that
Security
considered of Statement. not
Flowsshows FLOW with
Equivalents
Cash be
Marketable more Balance
againstof
Transactions
and STATEMENT
are the evaluated
as However, than
Cash inflows flow
Marketable and borrowings, with
Securities, 12
transactions of in
Equivalents. months Banks,
that (i.e., Cash Comparative
their
increase
receipts) and
Securities.
etc. presentation maturity Balances
guarantees,
that Cash
Unless Cash
decrease Cash and Statements with
Equivalents are
Hence,
specified and and
outflows in not Ba
other
Cash Cash Cash the t
are
CashFlowStatement
5.3
Flows
ÉxamplesofCash
Cash Inflows
Cash Outflows
CashSales Cash Purchases
against Trade Receivables
CashReceived Cash paid against Trade Payables
Receivedfor Commission and Royalty
Cash Operating Expenses paid (e.g., Administration Expenses,
InsuranceClaimReceived
Selling andDistribution Expenses)
from Sale of Investment
Cash Recceived Cash Purchase of Investment
(Otherthan Marketable
Securities) (Other than Marketable Securities)
Receivedfrom Sale of Fixed Assets Cash Purchase of Fixed Assets
Cash
Receivedfrom Sale of Securities Loans and Advances Given
Cash
JNns andAdvances Received Loans and Advances Repaid
Draceeds from Issue of Equity Shares Payment for Buy-back of Equity Shares
Doceeds from Issue of Preference Shares Payment for Redemption of Preference Shares
Droceeds from Issue of Debentures Payment for Redemption of Debentures
C2sh Flow Statement is prepared according to the Accounting Standard-3 (Revised)
IAS3 (Revised)], Cash Flow Statement. The accounting standard requires Cash Flow
Statement to be prepared showing cash flow under three heads, namely:
1. Cash Flow from Operating Activities;
2. Cash Flow from Investing Activities;and
3 Cash Flow from Financing Activities.

OBJECTIVES OF CASH FLOWSTATEMENT

The objectives of Cash Flow Statement are:
. To ascertain the sources (receipts)) of Cash and Cash Equivalents under operating,
investing and financing activities by the enterprise.
" To ascertain applications (payments) of Cash and Cash Equivalents under operating,
investing and financing activities by the enterprise.
"To ascertain net change in Cash and Cash Equivalents being the difference between
Sources (receipts) and applications (payments)under operating, investing and financing
activities between the dates of twoBalance Sheets.

IMPORTANCE OR USES OF CASH FLOW STATEMENT

WShort-term Planning: Cash Flow Statement gives information about sources and
applications of Cash and Cash Equivalents for a specificperiod. It helps in planning
investments and assessing the financial requirements of the enterprise.
m) Cash Flow Helps in Assessing Liquidity and Solvency: Solvency is the ability of the
enterprise to meet its liabilities on time. Cash Flow Statement helps to assess liquidity.
5.4 Analysis of Financial

(iii) Efficient Cash Management: Cash Flow Statement gives information

surplus or deficit of cash. An enterprise, therefore, can decide
about
statementrcelaotisngt
the y
Investments of the surplus and can arrange the Short-term Credit in case of Short-te
actual cash flows with the
(iv) Conparative Study: A comparison of the budgeted
Cash Equivalents
were cast
Cash and
flows of the year shows the extent to which
and applied as per the plan. generated
Statement shows the reasons
(v) Reasons for Cash Position: Cash Flow for

higher cash balances with the enterprise. Sometimes, an enterprise has

lower and
lower ca.
balance in spite of higher profits or has higher cash balarnce in spite of lower profts
Reasons for such situations can be analysed with the help of Cash Flow
(vi) Evaluate Management Decisions: Cash Flow Statement, by providing
Statement
information
relating to company's investing and financing activities, gives the investors and credit:
information about cash flow which helps them to evaluate management decision:
(vii) Dividend Decision: Dividend payable is deposited in a separate Bank Account upor
it being declared (i.e., interim dividend) or approved (i.e., final dividend). Cash Flo%
Statement helps in deciding how much dividend should be paid.

LIMITATIONS OF CASH FLOW STATEMENT

The limitations of Cash Flow Statemernt are:

(i) Non-cash Transactions are not Shown: Cash Flow Statement shows only inflow:
and outflows of cash. It does not show non-cash transactions like the purchas
of building by issue of shares or debentures to the vendors or issue of bonus shares
(ii) Not aSubstitute for an Income Statement: An Income Statement shows both aS
and non-cash transactions. Income Statement shows net income of the enterprs
whereas Cash Flow Statement shows only net cash inflows or outflows wh
not represent net profits or losses of the enterprise.
Statemer
(iii) Historical in Nature: It rearranges available information in the Income
and the Balance Sheet. Thus, it is historical in nature.
accountin;
(iv) Fundamental Accounting Concept Ignored: It ignores accrual concept of
fromCast
() Assesment of Liquidity: Liquidity of the enterprise cannot be ascertained asset
Current
Flow Statement alone because it depends on other factors also like
ofcurre
and current liabilities. Cash and Cash Equivalernts is one of the components
assets.
 Cash Flow Statement
5.5
o-fore we proceed further let us discuss the meaning of terms used in Cash Flow
Statement.
DEFINITION OF KEY TERMS USED IN CASH FLOW STATEMENT
Term Definition
Cash Cash comprises of Cash on Hand and demand
deposits with banks.
Cash Cash Equivalents are short-term, highly liquid
Equivalents into the known amount of cash and which are subject investments that are readily convertible
to an insignificant risk of change in
value. An investment normally qualifies as cash
of, say, three months or less from the date of equivalent only when it has ashort maturity
acquisition.
Current Investments, unless specified otherwise, are taken as
and included in Cash and Cash Marketable Securities
Equivalents.
Examples of Cash Equivalents are Current Investments, Treasury Bils,
Preference Shares if these are redeemable within three months from the Commercial Papers,
and these have insignificant risk of change in its date of purchase
value, etc.
Cash Flows Cash Flows are inflows and outflows of Cash and
Cash Equivalents.
Cash flows exclude movement between items that constitute
they are part of the cash management of an enterprise rather cash cash equivalents because
or
and Financing Activities. Cash management includes the than part of its Operating, Investing
Equivalents. investment of excess Cash in Cash
Examples of transactions, that are movements between items of Cash and Cash
are: Equivalents,
(i) Cash withdrawn from bank for
business.
(ii) Cash deposited into bank out of Cash in
Hand.
(iii ) Sale/Purchase of Short-term Marketable
Securities being cash equivalents.
Operating Operating Activities are the principal revenue producing activities of the
Activities and other activities that are not Investing or Financing Activities. enterprise
Investing Investing Activities are the acquisition and disposal of Long-term Assets and
Activities not included in cash equivalents. other investments
Financing Financing Activities are the activities that result in
owners' capital (including Preference Share Capital change
in the size and composition of the
Activities
in the case of a company) and
of the enterprise. borrowings
Classification of Cash Flows
Accounting Standard-3 (Revised) requires that the changes resulting in
outflows of Cash and Cash Equivalents be classified into three inflows and
Investing and Financing. These are discussed below: activities, i.e., Operating,
() Operating Activities
Operating Activities are the principal revenue producing activities of the
Other activities that are not Investing or enterprise and
Financing Activities. Cash Flow from Operating
Activities being the principal revenue producing activity of enterprise,
from the generally results
business transactions and events that determine net profit or loss.
Examples of Cash Flow from Operating
For Non-financial Companies Activities are:
(") Receipts from sale of
(6) goods and services;
Receipts from royalties, fees and commission, etc.;
5.6 Analysis of Financial Statements--CBSE
receivable;
(c) Receipts from debtors and bills
services;
(d) Payment for purchase of goods and
(e) Payment to creditors and bills payable;
() Payment of wages, salaries and other payments to employees;
(g) Payment of and refund of income tax unless these are identified with investing; or
financing activities.
For Financial Companies
securities;
(a) Payment for purchase of
loans;
(b) Payment of interest on
(c) Receipts from sale of
securities;
(d) Dividend received on securities;
(e) Interest received on loans granted;
() Paymnent of salaries, etc. to employees;
unless these are identified with investing: o
(g) Payment of and refund of income tax
financing activities.
shown in Cash Flow Statement
The net effect of Cash Flow from Operating Activities is
as cash flow from or cash used in Operating Activities.
Principal Revenue Producing Activities
carried out by the
Principal revenue producing activities mean business activities being
enterprise to earn profit. For example:
computers
i) For a computer manufacturing company, manufacturing and selling of
is its principal revenue producing activity.
revenue
(ii) For a trading company, purchase and sale of goods is its principal
producing activity.
(iii) For afinance company, giving and taking loans, dealing in securities is its principal
revenue producing activity.
(iv) For an insurance company, receipt of premiums and payment of claims, annuities,
etc., is its principal revenue producing activity.
Illustration 1. Identify which of the following transactions are classified or shown 5
Operating Activity:
() Cash received against sale of goods (ii) Cash paid for purchases of goods
(iii) Payment of salaries and wages (iv) Payment of interest on loan
(v) Repayment of Loan (vi) Purchase of machinery against payment
(vii) Dividend Paid (viii) Sale of car in cash
receivables
(ix) Commission received (x) Cash received from trade
Solution:
() Cash received against sale of goods (ii) Cash paid for purchases of goods
(iii) Payment of salaries and wages (ix) Commission received
(x) Cash received from trade receivables
 Cash Flow Statement 5.7

Illustration 2. State atransactionthat is always classified or shown as an Operating Activity.

Solution:
Payment ofEmployees' Salaries, bonus toemployees, staff welfare expenses, etc. are always
Ahown as Operating Activity.
(inInvesting Activities
Iuvesting Activities are the acquisition and disposal of the Long-term
Assets and Other
sctntents, not included in cash equivalents.These activities include
transactions involving
purchase and|sale of the Long-term assets, which are not held for resale
A building, investments, etc. It also includes
such as machinery, land
investments that are not included in Cash
dCash Equivalents such as current investments other than
marketable securities. It shows
the investment made in long-term investments and other
investments by the enterprise
with a purpose to generate income and thus, cash flow. Examples of Cash Flow from
Investing Activities are:
(a) Payments for purchase of fixed assets (including intangible assets) and
also payments for
capitalised research and development costs and self-constructed fixed assets.
(0) Receipts from disposal of fixed assets (including
intangible assets).
(c) Payments to purchase (acquire) securities, i.e., shares,
warrants, debentures, bonds or
debt instruments of other enterprises. (In the case of
Non-financial companies).
(d) Receipts from sale (disposal) of securities, i.e., shares,
debt instruments of other enterprises. (In the case of
warrants, debentures, bonds or
(e) Advances and loans made to third parties (other
Non-financial Companies).
than advances and loans made by a
financial enterprise).
() Receipts from repayments of advances and loans made to third parties (other than
advances and loans made by financial enterprise).
Illustration 3. Identify out of the following transactions that are classified or shown as
Investing Activity:
() Cash proceeds from sale of fixed asset. (ii)
Cash paid for purchase of Stock-in-Trade.
(i) Repayment of loan taken. (iv) Debentures purchased.
(v) Loan advanced. (vi) Purchase of Patents.
Solution:
() Cash proceeds from sale of fixed
asset. (iv) Debentures purchased.
Loan advanced. (vi) Purchase of Patents.
lilustration 4. State a transaction that is always classified as an
with the reason
for such classification.
Investing Activity along
Solution:
P'ayment towards purchase of fixed asset, as it is not purchased for resale. Examples are
purchase of building furniture for office use, goodwill, etc.
 Analysis of Financial
5.8
(ii) Financing Activities
Statements- CBSF
Financing Activities are the activities which result in change in size and
owner's capital (including Preference Share Capital in the case of a ccompany)
omposition
borrowings of the enterprise from other sources. Thus, increase in share capital (both an
and preference), redemption of preference shares, issue of debentures. ino
borrowings (short-term and long-term), repayment of borrowings (short-term and
term) and redemption of debentures, etc. are shown under Financing Activity.
long
of Cash Flow from Financing Activities are: .Examplk
(a) Proceeds from the issue of shares or other similar instruments.
(b) Proceeds from the Issue of Debentures, Loans, Bonds and other Short-term
(c) Payment for Buy-back of Equity Shares.
Borrowings.
(d) Repayments of the amounts borrowed including redemption of debentures.
(e) Payments of dividends both on Equity and Preference Shares.
() Payments for Interest on Debentures and Loans (Short-term and Long-term).
(&) Increase or decrease in Bank Overdraft and Cash Credit.

Illustration 5.Identify out of the following transactions that are shown as Financing Actvi
() Repayment of Loan taken. (ii) Proceeds from Issue of Shares.
(iii) Debentures subscribed by the company. (iv) Redemption of Preference Shars
(v) Interest paid. (vi) Dividend paid.
() Increase in Bank Overdraft orCash Credit. (vii) Issue of bonus shares.
Solution:
(i) Repayment of Loan taken. (ii) Proceeds from Issue of Shares.
(iv) Redemption of Preference Shares. (v) Interest paid.
(vi) Dividend paid. (vii) Increase in Bank Overdraft or Cash Credi

Ilfustration 6. State a transaction that is always classified as aFinancing Activity al0i

with the reason for such classification.
Solution:
Payment of dividends is always classified as a Financing Activity because it is a payue
relating to share capital, which is a Financing Activity.
and
Illustration 7. Give a transaction, a part of which is shown as an Investing Activity
another part as a Financing Activity.
Solution:
Component
Payment of instalments of a Hire-purchase transaction. The instalment has two interestas
and
i.e., principal and interest. Principal is shown as an Investing Activity
Financing Activity.
Cash FlowStatement 5.9

Transactions not Regarded as Cash Flow

The movement in between the items of Cash and Cash Equivalents are not Cash Flow. For
example, cash deposited into bank is not Cash Flow because Cash-in-Hand is reduced on
depositinto bank but bank balance is increased. Both Cash and Bank are items of Cash
and Cash Equivalents. Another example is cash withdrawn from bank for use in business.
Non-cash Transactions
Non-cash Transactions are those transactions in which flow (inflow or outflow) of
Cash and Cash Equivalent does not take place. For example, Depreciation and Amortisation
Expenses, Issue of Equity Shares or Debentures for consideration other than cash (say, for
nurchase of assets), Conversion of Debentures into New Debentures or Shares.
Non-cash transactions are not considered while preparing Cash Flow Statement.
REMEMBER

1. Net Cash Flow within an activity-operating, investing or financing--may be positive

or negative.
2. Sum of Cash Flow from all the activities taken together, together with the opening
Cash and Cash Equivalents, equals the closing Cash and Cash Equivalents.
3. Atransaction is classified as an Operating Activity or Investing Activity or Financing
Activity.
4. Asingle transaction may include Cash Flow under two different activities, for instance,
if a machinery is purchased on hire-purchase instalments, each instalment will
include interest and a part of principal. Cash paid for interest is a Financing Activity
whereas the cash payment for principal amount is an Investing Activity.
5. Issue of shares and debentures for consideration other than cash and also the
conversion of debentures into shares or other types of securities are not shown in
Cash FlowStatement. For example, purchase of abuilding by issuing shares to the
vendor does not involve receipt and payment of cash. Similarly, issue of bonus
shares does not involve receipt or payment in cash.
6. An inflow or outflow between components of Cash and Cash Equivalents is not
considered while preparing the Cash Flow Statement. For example, cash deposited
of cash. For
into bank. It is not a part of Cash Flow Statement but is management
for business are
example, cash deposited into bank or cash withdrawn from bank
not cash flow.

5.1
classified or shown as operating
ls it correct that payment of salary to staff is
activity for both non-finance and finance company? Why?
5.2
fixed assets is classified or shown as
IS it correct that payment for purchase of company? Why?
Investing activity for both non-finance and finance
 Analysis of Financial
5.10

5.3
Statements- CBSE xXN

Is it correct that payment of dividend is lassified or shown as financing

for both non-finance and finance company? Why? activity
5.4
Give an example of a transaction, a part of which is classified or
Investing Activity and another part is classified as Financing Activity. shown as

Classification of Business Activities as per AS-3 (Revised), showing the

Outflow of Cash Intlow and
Operating Activities

Cash Inflow Cash Outflow

In case of Non-financial Companies In case of Non-financial Companies
(i) Cash Sales (i) Cash Purchases
(ii) Cash received from Trade Receivables (ii) Payment to Trade Payables
(iii) Royalty, Fee, Commission Received (iii) Payment of Operating Expenses
(iv) Income Tax Refund (iv) Payment of Wages
In case of Financial Companies (2) Income Tax Paid (Unless identified with Investino
(v) Receipts of Interest and Dividends or Financing Activities)
(oi) Proceeds from Sale of Securities In case of Financial Companies
(vi) Payment for Interest
(vii) Payment for Purchase of Securities
Investing Activities

Cash Inflow Cash Outflow

(i) Proceeds from Sale of Fixed Assets (i) Purchase of Fixed Assets
(ii) Proceeds from Sale of Investments (ii) Purchase of Investments
(Other than Marketable Securities) (Other than Marketable Securities)
(iii) Interest received (iii) Income Tax (If relates to Investing Activities)
(iv) Dividend received
(v) Rent received from property
held as investment.
Financing Activities

Cash Inflow Cash Outflow

() Proceeds from Issue of Shares in Cash () Payment of Loans (Short-term and Long-tert)
(ü) Proceeds from Issue of Debentures in (i) Payment for Redemption of Preference Shares
Cash (ii) Payment for Buy-back of Equity Shares
(iii) Proceeds from Long-term Borrowings (iv) Paynment of Dividend
(iv) Increase in balance of Bank Overdraft (v) Payment of Interest Activities)
or Cash Credit Account (vi) Income Tax (If related to Financing
(vii) Decrease in balance of Bank Overdraft or
Cash Credit Account
Cish
FlowStatement 5.11

Iaportanceof separate disclosure of cash flow under each activity:

OperatingActivities Investing Activities Financing Activities
cashflow arising from The amount of the cash flow arising The amount of the cash flow arising
the
amountof
activitiesis akey indicator of from investing activities represents from financing activities is useful
ooerating
The
sthe business operations the extent to which expenditure has in assessing claims on future cash
which
extentto have
the enterprise generated cash, i.e, been incurred to generate future flows by contributors of funds to the
ofthe generation is adequate to income andcash flows. enterprise.
whethercash
capabilityyof the enter-
noperating
maintain
dividends,repayloans, and make
epay
prise
yinvestments. s also helpful in fore-
Itisa
d flows from operations.
(astinghutureecash

Illustration 8. Identify the following transactions belonging to () Operating Activities,

)Investing Activities, (ii) Financing Activities, and (iv) Cash and Cash Equivalents:
1. Cash Sales 2. Cash Purchase 0
paid 0 4. Cash-in-Hand
3. Rent
paid 0 6. Office Expenses
5. Income Tax
7, Balance at Bank 8. Sale of Machines
9. Issue of Debentures 10. Dividend paid
11. Cash paid against Trade Payables 0 12. Purchase of Machines

13, Income Tax refund received ) 14. Issue of Share Capital

15. Sale of Patents 1 16. Manufacturing Expenses O
17. Purchase of Goodwill 1, 18. Short-term Deposits in Banks
20. Cash received from Debtors
19. Purchase of Investments (Non-Current)
Solution:
Operating Activities :1,2, 3, 5, 6, 11, 13, 16, 20;
Investing Activities .: 8, 12, 15, 17, 19;
Financing Activities :9, 10, 14;
Cash and Cash Equivalents : 4, 7, 18.
llustration 9. Identify which of the following transactions are (i) Operating Activities,
) Investing Activities, (ii) Financing Activities and (in) Cash and Cash Equivalents:
1. Issue of Share Capital; 2. Sale of Patents;
3. Marketing Expenses; 4. Purchase of Goodwill;
5.
Short-term Deposits in Banks;
Cash received from Trade Receivables;
6. Purchase of Investments;
8. Buy-back of Equity Shares;
10. Commission received;:
11.
Repayment of a Long-term Loan;
Selling
and Distribution Expenses;
Investments in Marketable Securities;
12. Redemption of Debentures;
14. Bank Overdraft/Cash Credit.
 Particulars -Cash 3. 1. a Statement
Cash
Flow
Cash L Having
(0) () 19)
Cash Cash Less:Cash Less:
()
Add:
(E) (D)
Operating Less:
() (B)
Add:
Adjustment
A)
NetFlow
and
Cash change
and
Elow
no
ComputingPREPARATI
compl
Computing
Cash
Computing ete ON
Items
(+/-)
nary Income
ow Flow
Generated
Increase
Decrease Decrease
Increase Items Items Profit
from Statement.Flows discussed
before Equivalents Cash in
DecreaseIncome
Rental
Dividend
Income Goodwil,
LossDepreciation
Interest
Income IncreaseInterest
Interest statemnent.
Decrease Increase Increase
Increase
Increase
Increase
Decrease Increase Decrease
Increase Decrease
Decrease
Decrease Gain
m before Decrease Profit to Operating
to for under
FORMAT
Tax
in in in in (Profit) be on be
Non-cash Cash CashCash Cash
orrdinary Paidfrom Current Tax Equivalents cash OF
inCurrent
in in in in inCurrent in in in in
in inin Current
in before in Deducted Sale on on Added
in
Patents
Aggregate
Flow
d Prepaid
(NetAdvance Trade
Outstanding Inventories Advance TradeAccruedTrade
Trade Outstanding
Accrued
PrepaidInventories Provision on Provision
Borrowings of
Bank and OF and each Flow Flow flow It CASH
Activities (Step
) perations Fixed
Overdraft/Cash andExtraordinary and CASH
Assets Payables
Liabilities
of PayablesReceivables Receivables
Working Sale
Liabilities
Assets activity fromtromfrom
Cash
is
TaxIncomes Expenses
Incomes Incomes Expenses
Incomes for
of for
Assets Non-operating (AFLOW
s 4). prepared fromFLOW
Items Trademarks balance of
Refund (Stock) Expenses
and (Stock) andDoubtfulFixed (Short-term
Doubtful perEquivalents.Financing
Expenses
(D (Creditors/Bills
Capital Resulting
(Operating/Investing/Financing)
STATEMENT these Investing
Operating each
(Creditors/Bills
+ (Debtors/Bills Assets Accounting
E-) (Debtors/Bills Items STATEMENT
received) Credit by:
Changes Debts Debts Amortised in three activity,
and Items (as
Long-term) per (INDIRECT amount the Activities.
Standard-3 Activities.
activities Activities.
Payable)Receivable) Payable) (A Working beginning
Receivable) + let
B-C) is
and METHOD) us
Note) (Revised)] Cash now
Debentures is may
added
for and discuss
result
theCash
year
to
in Cash
the
Equivalents increase, are
ended
net shown Flow
..
change
decrease in Statement
at
the in the
Cash 5.15
end.Cash
or as
 Net Less: Add: Working
Opening Net VI. V.IV. IM. I . 5.16
Profit Profit Cash Add: Net Cash Cash Cash
Flow Cash
RefundExtraordinary
Extraordinary Provision Interim
ProposedTransfer
Balance as Note:Investments
Current
Marketable Cash-in-Hand
Short-term
Deposits Bank
Cash at Marketable Investments
and SecuritiesCurrentlIncrease/Decrease
Bank
Cash at Debentures/Preference
Cash-in-Hand
Short-term
Deposits Cash Payment Flow Payment
Redemption
for Repayment Payment
ofIncrease/Decrease
Loansof
PaymentPayment Proceeds Extraordinary
Proceeds
Flow Payment Payment
Payment Received
Rent Proceeds
Interest Proceeds
included Proceeds
Flow
before per
of Dividend to Cash and from
for Dividend from from and from infrom from from
Tax
Tax ReservesStatementof Net of of of of from from for for for
creditedItems, Items, Tax Surplus, Profit Securities Equivalents Cash (or
Buy-back Share InterestInterim Final Financing (orPurchase Purchase Dividend Cash Investing
and for paid Used Other Issue Used Items Purchase Sale Sale Sale
the for before Equivalents Dividend in and
traordinary toany, if any, if during i.e.,Profit of in in) Issue
Dividend
on Long-term in) (e.g., of of of
the current current Cash of Debentures
Bank of
SharesInvesting of of ofreceived Intangible Cash Activities
Investments Fixed
credited debited Balance Tax at Financing Expenses Activities
th e Shares Overdraft Insurance Investments
Intangible Fixed
Statement the and and and Equivalents) Assets
year year year end in and
inLoss the Cash as Assets (For
Items to to Extraordinary
Statement Activities Borrowings Activities
Debentures
Assets
the the or of beginning Extraordinary and and ClaimAssets Non-financial (Other
ofStatement Difference the Equivalents (0ther
Statement
Profit Shares Loans Cash and
year onlike than
and of (Short-term Credit Machinery than Marketable
Profit Items of Goodwill Current
Loss of of between the (lActivity Marketable Companies
Profit Profit and year I1+ +
against Investments
Securities)
and and Loss I) and
Closing
Securities) only) Analysis
Loss Loss Long-term) Fire)
Balance (to
(+/-) of
be
and Financial

Statements--CBSE X
eet

. .) (..) (..) (.) (..) .) .)

 3. 2.COMPUTATION
1.Cash FinancilnwgnestmentOneratinexpect
g erdcurto Increase/Decrease 4 in 2 Amounts
2 1.Notes:in
ExtrclaoreExtardlyirnaaroriytedmins arIlnIytcermeasse/Decrease CasFhlow . StateCment
asFhlow.
example,
activities.
aSn
purchase
activities.
dtinancing

For those
business
also Fiow o
perating .CASH

from activity
Activities FLOW
Cash Cash Cash
Flow Flow Flow
Statement
Flow
you
Cash
Do consideration GSC 5.5
Activities Activities distinct
Activities
Increase/Decrease

Alernatively, Net
Statement
Flow Infotech bracketsS
mean
from from from
activities
of
Operating OF think
goods from FROM Investing
Financing Statement frequently
: from
in in Profit
Operating is CASH
Investing
Financing :Claim : are
Unclaimed unpaid
are that byPvt. Compensation
Payrent Accrued
before
and cashwhich which the
OPERATING prepared it issue incomes
the amounts
receiptsActivities, FLOW isActivity
Activity Ltd. received Interest Interest
services principal
it Activities; and or
ordinary Tax
do earns
Activities.
Activities; in of for regularly. and
Dividend
not to FROMaccordance purchased
hasEquity
that
onExtraordinary
and
from : :
buy-backagainst paid on
are
and therefore,
fulfil revenue
profit show Issue
Purchase shown activities Debentures/Loans
expenses Investments affects
Cash
sale ACTIVITIES and DIFFERENT Shares. to to
be
mployees the and separately: of a damage
of Examples
employees deducted.
of with
goodscriteriameans producing Equity of the building Shares. of
that affects
Financing
from
Flow
other transaction Anil,
AS-3? Building of the arise
fixed under of affect shown
Itemsand
Benefits and ofcash activities ACTIVITIES Shares the for enterprise from Cash
investing Extraordinary
assets Cash
services, flow activities
Flow may
accountant,
as
Voluntary Flow
Expenses, that
5,00,000 say events from be
from follows: and, Activities. from
Investing determined
cash
activities of 5,00,000 ?
5,00,000 because
are the Retirement therefore,
items or Financing
discount
etc.
business has and transactions
not
enterprise,
or investing prepared paid
of
are: Activities.
financing earthquake. Activities.
received, activities Scheme. are
the 5.17
i.e., not that
or
 Cash Less: Cash Non-cash/Non-operating
Non-operating
Working tems:
Less: Items:
Add Particulars
Net Solution:
Income
Refund TaxdGain Loss ProvisionTafoxrIllustration
Tax Amortised
IncomePaiGoodwill Net
(d) (c) (b)Particulars
Transfer
GaiDepreciation
n
Amortisation
(a) Illustration20.
Profit
Proposed
Dividend
Depreciation
Cash whi4000
2
LosS
Net Less:
Generated le
Profit ) FlowIncome Gain Loss
Depreciation
Amortised
Goodwill on on Profit
(Profit) Note: from on on before Flow Surplus,
to Sale
Sale Sale computing have
General
on of on for Tax from Sale Tax
after 19. from
Net Less: Add: Net Operating
Net Paid of of of of i.e.,
SaleGoodwillFixed the and Compute been
Land Plant Plant Balance
Reserve
of
Calculate ProfitRefund ProvisionProfitProfit Operations
(Net Land Provision Operating Cash
Land year Proposed
Dividend Extraordinary paid
Assets. beforeActivities of
(After in
before
before of Refund)
before Cash Flow for Stdl
Cash Income for
Provision Tax for Activities. from the
Tax Tax (50,000 Taxes
tax and Items
CASH Tax Flow purchase
Flow and Tax (WN) Operating
and Extraordinary
for and from wil It
Extraordinary Tax -40,000) FLOW
after from and ProposedOperating intangible
be
of
FROM Activities
Operating
considering Extraordinary shown
Items:
Items OPERATING
in Tixed
DividendActivities because
Cash
Activities
the Items)
Flow asset,
ACTIVITIES
purchase
following from from I.e.,
from goodwilI.
the affectfixed of
Investing
items the following
asset It
50,000S0,000 10,00040,00020,000 Activities is
following:
is does not
2,50,000. Informak
1,10,000 not consid(10,000)
2,10,01,0000,000 1,10,000
1,70,000 40,000 10,00020,00050,00050,000
40,00050,00040,00040,000
30,00070,00050,01,0000,000 1,90,000 2,00,000 2,40,000 1,70,00
10,00 40,000 70,000
 CashFlow.Statement 5.39

Wustration27. Fromn the following information, calculate Cash Flow from Investing Activities:
Particulars Closing Opening
Balances () Balances ()
Machinery(Atcost) 4,20,000 4,00,000
rcumulatedDepreciation 1,10,000 1,00,000
Patents
1,60,000 2,80,000
ltitionallnformation:
Duringthe year, a machine costing ? 40,000 with its accumulated depreciation of
1 for 20,000.
124,000was sold
Patents were written off to the extent of { 40,000 and some patents were sold at a profit
2of 20,000,

solution: CASH FLOW FROM INVESTING ACTIVITIES

Particulars

Prxeeds from Sale of Machinery

20,000
baument on Purchase of Machinery (WN 1) (60,000)
1,00,000
Droreeds from Sale of Patents (WN 3)
60,000
Cash Flow from Investing Activities
Working Notes:
MACHINERY ACCOUNT Cr.
1.Dr.
Particulars
Particulars
4,00,000 By Bank A/c (Sale of Machinery) 20,000
To Balance b/d
To Gasn (Profit) on Sale of Machinery A/c* 4,000 By Accumulated Depreciation A/c 24,000
(Statement of Profit and Loss) (Depreciation on Machinery Sold)
60,000 By Balance dd 4,20,000
To Bank A/c (Purchases) (Balancing Figure)
4,64,000 4,64,000

-16,00040,000- 24,000) =4,000.

"Gain (Profit) on Sale = Sale Price - Book Value of Machinery 20,000
ACCUMULATED DEPRECIATION ACCOUNT Cr.
2Dr.

Particulars
Pariculars 1,00,000
oMachinery A/c (Depreciation on 24,000 By Balance b/d
Machinery Sold) (Transfer) By Depreciation A/c (Statement of Profit and Loss) 34,000
To Balance cdd 1,10,000 (Balancing Figure)
1,34,000
1,34,000

Cr.
.0r. PATENTS ACCOUNT

Pariculars
To Balance b/d 2,80,000
Particulars

By Bank A/c (Sale) (Balancing Figure)

1,00,000
Loss) 40,000
Gain (Profit) on Sale of Patents A/C 20,000 By Amortisation A/c (Statement of Profit and
1,60,000
Statement of Profit and Loss) (Given) By Balance dd
3,00,000
3,00,000
 Notes: Dividend Particulars
Paid Proceeds
CashRedemption
Interest paid 2. Debentures
Infornation:
Additional
Solution: Dividend 8%10%
Equity
Capital
1.Debentures
3. Activities:
Financing Cash Interest
IllustrationRedemption
ShareParticulars Debentures Additional InterestSecurities
IncreaseParticulars
ofInterest Cash Solution: Premium
Reserve
Bank
DebenturesCapital
Equity
10% Particulars
ShareIllustration

Flow
reserve.
DuringInterest Flow Proceeds Overdraft
on
paid in on
Paid
(ii)It (i) from from Bank Bank Bank advice into 5.7
from
on of on Prince
2016. Bonus
March, the from Infornation:
is Debentures 10% the
assumed Financing paid 33.
Financing Debentures
Overdraft
Overdraft Overdraft 32. shares
Issue year the From onGlobal
shares Debentures XYZ
of
on Issue showing
2015--16, has
that
10% Activities
are 8% Debentures Activities
Ltd. the
50,000. of lnterest
CALCULATION Finance
not Debentures Shares following received
provides it
Debenturesshown XYZ in
(Including
CASH
paid the Ltd.,
in
the FLOW Ltd. ? OF information,dividend
Cash
10,000. the CASH a
have Cash Premium) on company
FROM issued
been Flow following debentures
FLOW Flow
on
FINANCING
redeemed
Statement bonus FROM Statement.
calculate shares.
engaged
information. FINANCING
ACTIVITIES
shares ?
and
because 10,000. Cash The
fresh8% in
Give
in ACTIVITIES accountant
providing
there
the March,
2016
31st 31st Flow
March,
2016
Debentures your
is ratio 2,00,00015,00,000 Calculate 5,00,000
2,00,000 1,00,000
no 15,000 50,000 Financing
Activities:
from
cash advice loansand
of has
have flow. 2 (50,000) 1,10,000
(10,000)50,000
(15,000)
been 1: Cash with
souaht
by March,
2015
31st March,
201531st
capitalising 10,00,000 low 4,00,000
1,50,000 1,50,000
investing
reas
issuedon 1,00,000 10,000 40,000
(1,00,02,00,000
00) ve
sis 40,000(50,000)(10,000) from 85,000
(C) Cash Flow from Financing Activities
Redernptin of Debentures (50.000)
Cosh Used in Fingncing Activities
(D) Net increase in Cash and Cash Equivalents (A + B+C)
(50,000
Add Cash and Cash Equivalents in the beginning of the year 2000
(E) Cash and Cash Equivalents at the end of the year
10.0
12,000
llustration 37. Following are the Balance Sheets of XLtd.:
Particulars Note No. 31st March, 31st March,
2016() 2015 (
L EQUITY AND LIABILITIES
1. Shareholders' Funds
(a) Share Capital 25,00,000 20,00,00
(b) Reserves and Surplus 1 2.30,000 1,00,00
2. Current Llablitles
Trade Payables 4,50,000 7.00.000
Total 31,80,000 28,00,000
I. ASSETS
1. Non-Current Assets
Fixed Assets-Tangible Assets (Land) 6,60,000 5.00,000
2. Current Assets
(a) Inventories 9,00,000 8,00,000
(b) Trade Receivables 11,50,000 12,00,000
() Cash and Cash Equivalents 4,70,000 3,00,000
Total 28,00,000
31,80,000
5.49 (1,70,000) (1,60,000) March, 24,000 1,50,00027
1,80,000
()
2012
March,
31st 1,00,000
2015
) 31st
1,30,00050,000
1,80,000 3,50,000 (1,60,000) 5,00,000 informnation
March,
2013(®) 1,32,0001,50,00000
2,10,000 75
31st 2016() 2,30,000
March, 2012:
31st
1,00,000
2,50,000 March
the No.
Note
1
of 31st
-1,00,000) basis
2016 and
STATEMENT
FLOW
CASHMarch, the2013
Liabilities: Liabilities: on
2,30,000
Opening March,
year Statement
1st
Ltd.
X 3 C)
ended Current Current B+
and (Loss the
Beginning
Loss year +
(A (E)
Closingand in in ofat 31st
and the
for Increase Decrease Equivalents
end Flow
Profit Profit at
Activities
between Receivables Activities Activities the the as
of Statement. of and
Statement and Payables Activities in
Equivalents
CashLtd.
Statement Assets Assets Activities Activities Cash Equivalents
(Difference
Operating Inventories
in Purchased
Increase Investing Shares
Financing and Prepare Surplus
.Non-Curren
Liabilities
Statement
FlCasohw Surplusin Flow in
Current
Trade Current Trade
Operating Investingof
Financing
CashCash
Liva EQUITY
AND
LIABILITIES
1.
Shareholders'
Funds Long-te
Borrow
3,Curr
Lia
Balance Balance Issue of (a)
Share
Capital
and
Year in in Land
Account
tNoto e s and Cash from
the
Decrease IncreaseDecrease from
in Decreasein
for
from from in and
from Increase
Cash 38.Sheets Reserves
in Flow in Flow Flow Cashand Illustration
Particulars Reserves Solution:
i.e, Flow i.e.,
for Surplus, Used Payment Used Proceeds
Surolus, Prepare Particulars (b)
CashProfit Add: Less: Cash Cash Cash Cash Cash Net Add: Cash Balance
Pariculars
1, A) B) () W)
 5.51 Prepare 54,00018,000
72,000 16,000 81,200
88,0006,800
31st
March, 96,00060,00072,000
2,00,000 70,000
4,28,000 3,00,000 8,0004,28,000 31st
50,000 March, 60,000
60,00040,000 3,00,000
1,00,0001,60,000
2015
() 2015
()

Theas
follows: dividend.
10,000
6,000
31st
March,
2016
() 98,00090,00082,000
2,00,000 4,70,000 3,42,000 44,000
76,800 7,2004,70,000 31st
March, 50,000
40,000 1,10,000
90,000 60,000 3,42,000
1,72,000
(3)
2016
interim
are
2016
March
Note
No.
()
31.3.2015 as March,
Adjustments
1 2 2,14,000
54,000 paid
31st 31st

at were ended
as Statement
of Liabilities:
Ltd. ()
31.3.2016 52,000 year
with 2,44,000
72,000 the
ABC for Current
in ?
Flow
Statement Balance year STATEMENT (WN) Changes
of in
items Increase
Sheets
i.e., the
Capital
-54,000)
Extraordinary
Surplus, DuringFLOW Activities and
Balance Equivalents Activities
Receivables
Working
Assets Payables
Assets:
CASH
StFlaCatoeswhment
Cash LIABILITIES
EQUITYAND
L
Funds
Liabilities
Non-Current
Shareholders'
1.
2. Borrowings
Surplus:
Long-term (Tangible)
Assets
Fixed Receivables
Trade
(a) Information:
Cash
Flow
Statement. and
Add:72,000 Decrease
Operating
Non-Cash
Expenditure:in
Inventories
Current
Operating
Liabilities
Current
3. Assets
Non-Current
1. 1.Long-term
Borrowings(Tangible) Depreciation before Trade Current
PreparIl uasttiorantion
of 39.
Capital
Share
(a) Loss
and
and
Profit

Reserves
Payables
Trade and
Cash
2. Inventories
Assets
Current(b)
Accounts
to
Notes Ltd.Bank
from
Loan
Less:

(üi)
Machinery
Assets i)Building
TaxX (
from
Trade
Depreciation
Profitin
before Operating in in in from
DeCrease
Increase Increase
Increase
Particulars Total
ASSETS
IM.
Cash Z
from (ü)
Land
Fixed
Aaditional
Solution: Flow
Profit
Particulars
Flow
(c) Total Particulars Loan CashNet d Less: Cosh
2 A)
 (60,000 (8008,0007,200
(22,000) 98,096,000 54,000Operating31st
2,00052,000 March,
2016 16,500) 8,25,2,00000,20,00001045, 00 0001,5000011,7075,00010,95,00080,0(00467,(5300),87,500)
00 2,705,00000013,20
Statements--CBSEY 10,00,000 13,00,000
3,75,000
75,000 23,30,000
11,00,000
ACTIVITIES
(20,000)
(30,000) 40,000
(10,000) (10,000)
(52,000) from thereon
2015) INVESTING
Flow 31st
March,
2015
1,00,000
75,000
2,50,000 10,62,500 provided
21,25,000
11,50,000
Financial 2016)April,
Cash AND
1st
March,
on (Depreciation
ACTIVITIES
of (as
calculate
31st
Analysis Loss
(on
and OPERATING Inventories)
Loss information,
Profit 1,00,000
and
B+C) of
ProfitStatement
year FROM and
+ year of Receivables
(A the Statement of 75,000. FLOW Payable Tax Tax
of the
Equivalents
beginning in following Loss Inventories) value Changes
before after
of Balance Items
Activities: and 20,000.
end CASH Trade
Activities Activities Profit book ? Activities Capital (Trade Activities
Activities
Machinery the
in
Extraordinary year NET Activities
Building Balance
i.e., and Liabilities: Activities
Cashthe the of net
Land Activities Dividend Activities at of Machinery
Working Assets: 2)
Investing Financing Ltd. in Equivalents
andEquivalents
Surplus,
InvestingStatementReceivables a the OF Operating
Operating(WN
i.e., From Additional
Information:
loss CALCULATION Operating
1) Investing
of of of Z Loan having during (WN 3)
Investing
Investing
Purchase
Purchase
Purchase from Financing
Cash Surplus, Paid Accumulated
Depreciation
(WN Current Current 2) Assets
Interim
Bank
of and
a Tax of before (WN
from from in BalanceDividend40. in Fixed
Assets
(Tangible) Depreciation from from Machinery
Loan Tax (Trade at Sale from Fixed
DecreaseCash
Cash of and Balance machine frombefore in in
Profit
for
Flow for forin Flow of in
of Repayment Working
Note:
Balance year before
Illustration Provision
for
Tax paid
sold on Increase Flow
IncreasePaid
Tax
Less: in
Used Proceeds of Used Opening Flow Used
Payment
Payment
Payment Payment andand Interim Activities Trade
Payables
Assets Flow Loss
Operating Flow of
the ie., Solution: Profit Cash Purchase
Cash CashCash CashNetCashCash Particulars wasTax
5.52 Closingfor Profit Surplus, Current A Particulars
Cash Add: Add: Less:Net Cash
of Cash
Cash
Profit Net Sale
(B) (C) (D) (E) Less: Add:Net (i) (ii) (A) (B)
5.53 2,50,000
10,00,000 Statement:
2,00,00012,62,500
7,50,0008,25,000
75,000 Cr. 80,000 20,000 1,62,500 25,92,500Cr.
23,30,000 10,62,500 2015
March,
31st
5,60,0001,82,0001,82,000 4,20,70,000
9,52,000 2,80,0001,82,000
28,000 000 9,52,000
Flow
Cash 2016
Loss)A/c March, 6,30,0003,08,000 2,80,00012,32,000 3,92,0001,26,000
14,000 6,30,00012,32,000
84,000
A/C and Depreciation prepare
AssetProfit
2-(1,00,000
0,000) 31st
ACCOUNT
DEPRECIATION
ACCUMULATED By Figure)
A/c (Balancing
Depreciation Ltd., No.
(Sale) of of Accumulated
Cost) Sale(Statement
cld
Balance
By b/d
Balance
By Note
Loss A/c X 1
on
and (at Particulars Particulars of
ACCOUNT Bank Loss Sheets
Profit By By Loss
By
of 11,00,00012,62,500Balance and
LossStatement ASSETS 4,67,500
21,25,000 25,92,500 1,62,500
Profit
and FIXED
following ofStatement
Profit
in
Tax Balance Machinery Equivalents
of
before
Statement Liabilities
the in
Surplus:
i.e., (Transfer) Balance
Statement
Flow
Cash Profit Surplus, From LIABILITIES
Funds
Shareholders'
1. and
Assets
Non-Current
Receivables
Trade
(b)
(Purchase) 2. Payables
Trade
(a) Current
(a) andi.e,Liabilities
Capital
Share Current Plant
Cash
Net i.e., Figure)
(Balancing 2.Current
Assets
Inventories
(a) and
Notes:
WorkingSurplus,
Opening
A/c 41. Surplus,
Reserves Assets:
of
Calculation b/d
Balance
To Assets
c/d
Balance
To IllustrationAND Other Cash
Closing Tax
Add: ParticularsA/cBank Particulars
Fixed ParticularsEQUITY (b) (b) ASSETS Fixed
II. (c)
Iess: Total Total
2.Dr. 3.
Dr. 1.
, To To L
 31st2015) 3,60,000
March,
!Statements--CBSE S,60,000
2,00,000 14,000
1,82,000
3,08,0001,26,000
56,000 2,10,000
1,82,00028,000 1,96,000
14,000 1,54,000
3,50,000 2,24,000 56,000
31st
March,
(56,000)
(1,82,000) 70,000
4,30,000
2,00,000
6,30,000
2016(3) 56,000,. 56,000.
56,000
98,000 2,10,000
14,000
year
for 28,000.
sold the
ofAnalysis Loss
was yearduring 2016 and
STATEMENT
FLOW
CASHMarch, Loss
42,000
the Profit
and Liabilities: Liabilities:
dividend)31st of
during ProfitStatement year
ended
of of Current Current +B+C)
the
valuemachinery year Statement of
preference in Changes beginning
the Balance in in (A year
book Items Increase Decrease Equivalents
for in Capital (WN) of
Balance
Activitiesi.e.,
Extraordinary Machinery
Activities theend
having
on (included
paid
Dividend Surplus, and and
Activities
Machinery Shares Activities in the
Working ActivitiesMachinery
provided i.e., Assets Assets Liabilities ActivitiesofEquity CashEquivalents
at
Capital
Additional
Information:
Operating
Surplus, of Financing Equivalents
machinery of andAdd:
Non-Cash
Expense: Sale Current
before
Investing
Operating of and
Financing
Balance Current
Trade
Receivables
Capital
Share
Equity
Share Add: Tax Depreciation
Dividend
Paid on Trade
Payables of Purchase
Investing CashCash
Depreciation of (Profit) Decrease
Current
Other Sale lssue
fromBalance before Add:
in
Profit InventoriesIncrease
Less:
in
to
Accounts
Note Share
1.Capital Preference Opening from
from from Cash
from
Flow fromPaid fromin and Cash
Flow for in Dividendlncrease
old GainOperating Flow Used Cashand
Solution: Closing Profit Flow Proceeds
Payment Proceeds Flow
Particulars An Particulars
Cash Less:
5.54 8% Net Less: Cash Cash Cash CashNet Add:Cash
1. 2. 3. (A)
(B) (C) (D) (E)
Cash Flow Statement 5.55

Working Note: Cr.

Dr. PLANT AND MACHINERY ACCOUNT

Particulars Particulars
56,000
To Balance b/d 2,80,000 By Bank A/c (Sale)
By Depreciation A/C 28,000
To Gain (Profit) on Sale of Machinery A/c 14,000 3,92,000
By Balance cd
(Statement of Profit and Loss)
To Bank Ac (Balancing Figure) 1,82,000
(Purchase of Machinery) 4,76,000
4,76,000
Statement:
information, prepare Cash Flow
following
Illustration 42. From the
BALANCESHEETS
and2015
as at 3 1stMarch, 2016 31st March,
Note No. 31st March,
2016() 2015 ()