Asha E.

Thomas
Assistant Professor
SCMS COCHIN
SEBI made it mandatory in 1995

AS- 3 : Cash Flow Statement

Provides historical changes in cash and cash

equivalents
CASH includes:

Cash in Hand and Cash at bank (demand deposits

with bank)

Cash Equivalents
CASH FLOW refers to :

Inflows

Outflows

of cash and cash equivalents

 CASH FROM OPERATING

CASH FROM INVESTING

CASH FROM FINANCING

PRINCIPLE REVENUE PRODUCING ACTIVITY
OF AN ENTERPRISE
ACQUISITION AND DISPOSAL OF LONG-TERM
ASSETS AND OTHER INVESTMENTS
ACTIVITIES THAT RESULT IN CHANGE IN SIZE
AND COMPOSITION OF OWNER’S CAPITAL
DO NOT RESULT IN CAS INFLOW OR
OUTFLOW
DISCUSS THE FEATURES OF CASH FLOW
STATEMENT
To evaluate the changes in net assets of an
enterprise
To assess the ability of an enterprise to
generate cash and cash equivalent
For predicting future cash flows
To examine the relationship between
profitability and net cash flows
CONSTRUCTION OF CASH FLOW
STATEMENT
 Classify each of the following transactions
in to Operating Activity, Investing Activity,
Financing Activity and Non –Cash activity
Redeemed Debentures
Purchased Building
Exchanged land for equity in a subsidiary
Paid Dividend
 Classify each of the following transactions
in to Operating Activity, Investing Activity,
Financing Activity and Non –Cash activity
Redeemed Debentures :Financing
Purchased Building : Investing
Exchanged land for equity in a subsidiary:
Non-Cash
Paid Dividend : Financing
 Classify each of the following transactions in
to Operating Activity, Investing Activity,
Financing Activity and Non –Cash activity
Issued equity shares at a premium
Received interest on debentures
Received dividend on equity investments
Received insurance proceeds from a fire claim
Paid Suppliers
Obtained a computer on Finance Lease
 Classify each of the following transactions in to
Operating Activity, Investing Activity, Financing
Activity and Non –Cash activity
Issued equity shares at a premium :Financing
Received interest on debentures : Investing
Received dividend on equity investments :Investing
Received insurance proceeds from a fire claim:
Operating
Paid Suppliers : Operating
Obtained a computer on Finance Lease : Non-Cash
 Two Alternatives:
The Direct Method
The Indirect Method
INDIRECT METHOD

A derived Statement (Indirect Method)

AccrualAA
Basis Cash Basis

Eliminate Revenue
not received in
cash
NETPROFIT Net Cash Flow
From Operating
Activity

Eliminate Expenses
not paid in cash
RECAP
 Non Cash Items
+ Depreciation
+ Depletion
+ Amortization
+ Bad Debt Expenses
- Excess Provision written back
 Non-Operating Items
+ Interest Expense
+ Loss on sale of Fixed Assets
+ Loss on sale of Investments
- Interest Income
- Gain on sale of Fixed Assets
- Gain on sale of Investments
 Working Capital Items
+ Decrease in debtors
+ Decrease in Inventories
+ Decrease in prepaid expenses
+ Increase in creditors
+ Increase in Bills Payable
- Increase in debtors
- Increase in Prepaid expenses
-Decrease in creditors
-Decrease in Bills Payable