Chapter:- 5

Cash Flow Statement

[Model Problems]

Cash Flow Statements

Introduction
Cash Flow Statement is a statement that shows the flow of
-----cash ;and
-----cash equivalents
during a particular period.
In short,cash flow statement highlights the factors that bring in
changes in cash position of an enterprise.
It is important to remember here that the Cash Flow Statement is prepared
according to the Revised Accounting Standard-3 which requires that cash
flow is to be classified and shown in the Cash Flow Statement under the
following three[3] heads,namely:-

i)Cash Flow From---------Operating Activities.

ii)Cash Flow From---------Investing Activities.
iii)Cash Flow From--- -----Financing Activities

1.Meaning of -------->Cash Flow Statement

------------------------------------------------------------------------------------------------------------

Cash Flow Statement is a statement which shows the flow of Cash

and Cash Equivalents during a particular period. Stated in other way, a
Cash Flow Statement reveals the causes of changes in cash position of
business concern between two dates of Balance Sheets.
According to Accounting Standard - 3 (Revised) an
enterprise should prepare a Cash Flow Statement and should present it for
each period with financial statements prepared.

2.Imporatant Terms In Connection with the Preparation of --- Cash

Flow Statement
-----------------------------------------------------------------------------------------------------------a. Cash: This includes cash on hand and demand deposits with
banks.
b. Cash equivalents: This includes purely short term and highly
liquid investments which are readily convertible into cash and which are
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 [3] months or less.
c. Cash flows: This includes inflows and outflows of cash and
cash equivalents. If the effect of transaction results in the increase [+] of
cash and its equivalents, it is called an inflow (source) and if it results in the
decrease [-] of total cash, it is known as outflow (use of cash).

3. Classification of ------------Cash Flows

1. Cash flows from

------------Operating
Activities.
Operating
activities
are
the
principal
revenue-producing
activities
of
the
enterprise
and
other
activities that are not
investing or financing
activities.

2.Cash flows from

----------Investing
Activities.
Investing activities
are the acquisition
and disposal of longterm assets and other
investments not
included in cash
equivalents.
Examples of cash

3. Cash flows from

-------------Financing
Activities.
Financing
activities
are activities that result
in changes in the size
and composition of the
owners
capital

flows
arising
from (including
Preference
Examples of Important Investing
Activities Share Capital in the
Operating Activities:-----case of a company) and
(i)Cash receipts from the sale of are: -----goods and the rendering of services. (i) Cash payments to acquire borrowing
of
the
assets
(including
(ii) Cash receipts from royalties, fixed
fees,
commissions
and
other intangibles). These payments enterprise.
revenue.
(iii) Cash payments to suppliers for
goods and services.
(iv) Cash payments to and on behalf
of employees.
(v)
Cash
receipts
and
cash
payments
of
an
insurance
enterprise for premiums and claims,
annuities and other policy benefits,
(vi) Cash payments or refunds of
income taxes unless they can be
specifically identified with financing
and investing activities,
(vii) Cash receipts and payments
relating in future contracts, forward
contracts, option contracts and
swap contracts when the contracts
are held for dealing or trading
purposes.etc.

include
those
relating
to
capitalised
research
&
development costs and self
constructed fixed assets.
(ii) Cash receipts from disposal
of
fixed
assets
(including
intangibles).
(iii) Cash payments to acquire
shares,
warrants,
or
debt
instruments
of
other
enterprises and interests in
joint ventures.
(iv) Cash receipts from disposal
of shares, warrants, or debt
instruments
of
other
enterprises and interests in
joint venture.
(v) Cash advances and loans
made to third parties (other
than advances and loans made
by a financial enterprise).
(vi) Cash receipts from the
repayment of advances and
loans made to third parties
(other than advances and loans
of a financial enterprise).
(vii) Cash payments for future
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
(viii) Cash receipts from future
contracts, forward contracts,
option contracts and swap
contracts except when the
contracts are held for dealing or
trading purpose, or the receipts
are classified as financing
activities.

Examples of cash flows arising

from financing activities are:
(i) Cash proceeds from issuing
shares
or
other
similar
instruments.
(ii) Cash proceeds from issuing
debentures loans, notes, bonds
and other short-or long-term
borrowings and
(iii) Cash repayments of amounts
borrowed such as redemption of
debentures, bonds, preference
shares.

Q.No Problem
.

Q.1 Identify the transactionas belonging to (i)opreting

activities
(ii)investing activities ,(iii)financing activitiesand (iv)cash
equivalents.
1.Cash sales

Referen
ce

2.Cash purchase
3.Rent paid
4.Cash balance
5.Income tax paid
6.Office expensive
7.Bank balance
8.Sale of Machines
9.Issue debenture
10.Dividends paid
11.Cash paid to creditors
12.purchases of machine
13.Income tax refund received
14.Issue of share capital
15 .Sale of patents
16.Manufacturing expenses
17.purchase of goodwill
18.short term deposite in banks
19.puchase of investements
20.cash received from debtors
21.buy-back of equity shares
22.repayment of laong term loan
23.commision and royalty received
24.selling and distributing expenses
25.redemption of debuntersand profence shares
26.investments of marketable securities(short time)
27.sale and investments by
(a)finance company
(b) (non-finance company)
28.dividend received on shares by by
(a)finance company(b) non-finance company
29.intrest received by investments
(a)finance company(b) non-finance company
30.rent received by a company whose buissiness is
(a)real estate buissness (b)manufacturing
31.intrests paid by debunters or long term loan by
(a)finance company(b) non-finance company
32.(a)discount allow to coustmers
(b)discount received from suppliers.

Q.2
Q.3
Q.4
Q.5