Fillable Printable Cash Flow Statement Guide
Fillable Printable Cash Flow Statement Guide
Cash Flow Statement Guide
16
Accounting Standard (AS) 3
Cash Flow Statements
Contents
OBJECTIVE
SCOPE Paragraphs 1-2
BENEFITS OF CASH FLOW INFORMATION 3-4
DEFINITIONS 5-7
Cash and Cash Equivalents 6-7
PRESENTATION OF A CASH FLOW STATEMENT 8-17
Operating Activities 11-14
Investing Activities 15-16
Financing Activities 17
REPORTING CASH FLOWS FROM OPERATING
ACTIVITIES 18-20
REPORTING CASH FLOWS FROM INVESTING AND
FINANCING ACTIVITIES 2 1
REPORTING CASH FLOWS ON A NET BASIS 22-24
FOREIGN CURRENCY CASH FLOWS 25-27
EXTRAORDINARY ITEMS 28-29
INTEREST AND DIVIDENDS 30-33
TAXES ON INCOME 34-35
Continued../..
17
INVESTMENTS IN SUBSIDIARIES, ASSOCI
A
TES AND
JOINT VENTURES 3 6
ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES
AND OTHER BUSINESS UNITS 37-39
NON-CASH TRANSACTIONS 40-41
COMPONENTS OF CASH AND CASH EQUIVALENTS 42-44
OTHER DISCLOSURES 45-48
ILLUSTRATIONS
Cash Flow Statements 53
Accounting Standard (AS) 3
Cash Flow Statements
(Thi
s
A
ccountin
g
S
tanda
r
d include
s
p
aragraph
s
s
et in bold
i
t
alic type
and plain type, which have equal authority. Paragraphs in bold italic
type indicate the main principles. This Accounting Standard should b
e
read in the context of its objective and the General Instructions
contained in part A of the Annexure to the Notification.)
This Accounting Standar
d
is not mandato
r
yfo
r
Small an
d
Mediu
m
Size
d
Companies, as defined in the Notification. Such companies are howeve
r
encoura
g
e
d
to compl
y
with the Standard.
Ob
j
ective
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 t
o
utilise those cash flows. The economic decisions that are taken by user
s
require an evaluation of the ability of an enterprise to generate cash an
d
cash equivalents and the timing and certainty of their generation.
The Standard deals with the provision of information about the historica
l
changes in cash and cash equivalents of an enterprise by means of a cas
h
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
p
resent it for each period for which financial statements are
p
resented.
2. Use
r
s of an enterprise’s financial statements a
r
eintereste
d
in how the
enterprise generates and uses cash and cash equivalents. This is the cas
e
regardless of the nature of the enterprise’s activities and irrespective o
f
whether cash can be viewed as the product of the enterprise, as may be th
e
case with a financial enterprise. Enterprises need cash for essentially th
e
same reasons, however different their principal revenue-producing activitie
s
might be. They need cash to conduct their operations, to pay their obligations
,
and to provide returns to their investors.
Cash Flow Statements 19
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 change
s
in net assets of an enterprise, its financial structure (including its liquidity an
d
solvency) and its ability to affect the amounts and timing of cash flows i
n
order to adapt to changing circumstances and opportunities. Cash flo
w
information is useful in assessing the ability of the enterprise to generat
e
cash and cash equivalents and enables users to develop models to assess
and compare the present value of the future cash flows of differen
t
enterprises. It also enhances the comparability of the reporting of operatin
g
p
erformance by different enterprises because it eliminates the effects o
f
using different accounting treatments for the same transactions and events.
4. Historical cash flow information is often use
d
as an indicato
r
of the
amount, timing and certainty of future cash flows. It is also useful in checkin
g
the accuracy of past assessments of future cash flows and in examining th
e
relationship between profitability and net cash flow and the impact o
f
changing prices.
Definitions
5. The following terms are used in this Standard with the meanings
s
peci
f
ied:
5.1 Cash
com
p
rises cash on hand and demand de
p
osits wi
t
h banks.
5.2 Cash equivalents
are short term
,
hi
g
h
l
y
liquid investments tha
t
are readily convertible into known amounts of cash and which ar
e
sub
j
ec
t
t
o an insi
g
ni
f
ican
t
risk o
f
chan
g
es
i
nvalue.
5.3 Cash
f
lows are in
f
lows and out
f
lows o
f
cash and cash equivalents.
5.4 Operating activities are the principal revenue-producing activities
of the enterprise and other activities that are not investing o
r
financing activities.
5.5 Investing activities are the acquisition and disposal of long-term
assets and other investments not included in cash equivalents.
5.6
F
inancin
g
activities are activities tha
t
resul
t
i
nchan
g
es
i
nthe siz
e
and composition of the owners’ capital (including preference shar
e
capital in the case of a company) and borrowings of the enterprise.
20 AS
3
Cash and Cash Equivalents
6. Cash equivalents are held for the purpose of meeting short-term cas
h
commitments rather than for investment or other purposes. For an investment
to qualify as a cash equivalent, it must be readily convertible to a know
n
amount of cash and be subject to an insignificant risk of changes in value
.
Therefore, an investment normally qualifies as a cash equivalent only whe
n
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, i
n
substance, cash equivalents; for example, preference shares of a compan
y
acquired shortly before their specified redemption date (provided there i
s
only an insignificant risk of failure of the company to repay the amount a
t
maturity).
7. Cash flows exclude movements
b
etween items that constitute cash o
r
cash equivalents because these components are part of the cash management
of an enterprise rather than part of its operating, investing and financin
g
activities. Cash management includes the investment of excess cash in cas
h
equivalents.
Presentation of a Cash Flow Statement
8. The cash flow statement should report cash flows during the
p
erio
d
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
b
usiness
.
Classification by activity provides information that allows users to assess th
e
impact of those activities on the financial position of the enterprise and th
e
amount of its cash and cash equivalents. This information may also be use
d
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 asse
t
acquired on deferred payment basis includes both interest and loan, the interes
t
element is classified under financing activities and the loan element i
s
classified under investing activities.
Operatin
g
Activities
11. The amount of cash flows arising from operating activities is a ke
y
indicator of the extent to which the operations of the enterprise have generate
d
sufficient cash flows to maintain the operatin
g
capabilit
y
of the enterprise
,
Cash Flow Statements 21
p
ay dividends, repay loans an
d
make new investments without recourse t
o
external sources of financing. Information about the specific components o
f
historical operating cash flows is useful, in conjunction with other information,
in forecasting future operating cash flows.
12. Cash flows fro
m
operating activities a
r
e primarily derive
d
from the
p
rincipal revenue-producing activities of the enterprise. Therefore
,
they generally result from the transactions and other events that ente
r
into the determination of net profit or loss. Examples of cash flows fro
m
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 fo
r
premiums and claims, annuities and other policy benefits;
(f) cash payments or refunds of income taxes unless they can
b
e
specifically identified with financing and investing activities; and
(g) cash receipts and payments relating to futures contracts, forwar
d
contracts, option contracts and swap contracts when the contract
s
are held for dealing or trading purposes.
13. Some transactions, such as the sale of an ite
m
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 fro
m
investi
n
g
activities.
14. An enterprise may hold securities and loans for dealing or trading
p
urposes, in which case they are similar to inventory acquired specificall
y
for resale. Therefore, cash flows arising from the purchase and sale of dealing
or trading securities are classified as operating activities. Similarly, cas
h
advances and loans made by financial enterprises are usually classified a
s
operating activities since they relate to the main revenue-producing activit
y
of that enterprise.
Investin
g
Activities
15. The separate disclosure of cash flows arising from investing activities
22 AS
3
is importa
n
t
b
ecause the cash flows represent the extent
t
o which expenditures
have been made for resources intended to generate future income and cas
h
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 an
d
development costs and self-constructed fixed assets;
(
b
)
cash recei
p
ts fro
m
dis
p
osal of fixe
d
asse
t
s
(
includi
n
g
intan
g
ibles
)
;
(c) cash payments to acqui
r
eshares,warrantso
r
debt instruments o
f
other enterprises and interests in joint ventures (other tha
n
payments for those instruments considered to be cash equivalent
s
and those held for dealing or trading purposes);
(d) cash receipts fro
m
disposal of shares, warrants o
r
debt instrument
s
of other enterprises and interests in joint ventures (other tha
n
receipts from those instruments considered to be cash equivalent
s
and those held for dealing or trading purposes);
(e) cash advances and loans made to third parties (other tha
n
advances and loans ma
d
eb
y
a financial enterprise);
(f) cash receipts fro
m
the repayment of advances an
d
loans made to
third parties (other than advances and loans of a financial
enterprise);
(g) cash payments for futures contracts, forward contracts, optio
n
contracts and swap contracts except when the contracts are hel
d
for dealing or trading purposes, or the payments are classified a
s
financing activities; and
(h) cash receipts fro
m
futures contracts, forwa
r
d contracts, optio
n
contracts and swap contracts except when the contracts are hel
d
for dealing or trading purposes, or the receipts are classified a
s
financing activities.
16. Whe
n
a contrac
t
is accounted fo
r
as a hedge of an identifiable position,
the cash flows of the contract are classified in the same manner as the cas
h
flows of the position being hedged.
Financin
g
Activities
Cash Flow Statements 23
17. The separate disclosure of cash flows arising fro
m
financing activities
is important because it is useful in predicting claims on future cash flows
by
p
roviders of funds (both capital and borrowings) to the enterprise. Examples
of cash flows arising from financing activities are:
(
a
)
cash
p
roceeds fro
m
issuin
g
shares o
r
othe
r
simila
r
instruments;
(b) cash proceeds from issuing debentures, loans, notes,
b
onds, an
d
other short or long-term borrowings; and
(c) cash repayments of amounts borrowed.
Reportin
g
Cash Flo
w
sfromOperatin
g
Activities
18. An enterprise should report cash flows from operating activities
using either:
(a) the direc
t
method
,
whereb
y
ma
j
o
r
classes o
f
g
ross cash receipts
and gross cash payments are disclosed; or
(b) the indirect method, whereby net profit or loss is adjusted
f
o
r
the effects of transactions of a non-cash nature, any de
f
erral
s
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
b
e useful i
n
estimating future cash flows and which is not available under the indirec
t
method and is, therefore, considered more appropriate than the indirec
t
method. Under the direct method, information about major classes of gros
s
cash receipts and gross cash payments may be obtained either:
(a) fro
m
the accounting records of the enterprise; or
(b) by adjusting sales, cost of sales (interest and similar income an
d
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;
24 AS
3
ii) other non-cash items; and
iii) other items for which the cash effects are investing or
financing cash flows.
20. Unde
r
the indirect method, the net cash flow fro
m
operating activities
is determined by adjusting net profit or loss for the effects of:
(a) changes during the perio
d
in inventories an
d
operating receivable
s
and payables;
(b) non-cash items such as depreciation, provisions, deferred taxes,
and unrealise
d
forei
g
nexchan
g
e
g
ains an
d
losses; and
(c) all othe
r
ite
m
sfo
r
which the cash effects a
r
einvesti
n
go
r
financin
g
cash flows.
Alternativel
y
, the net cash flow from operating activities may
b
e presente
d
under the indirect method by showing the operating revenues and expense
s
excluding non-cash items disclosed in the statement of profit and loss an
d
the changes during the period in inventories and operating receivables an
d
p
ayables.
Reporti
n
g
Cash Flo
w
sfromInvesti
n
g
a
n
dFinancin
g
Activities
21. An enterprise should report separately major classes of gross cas
h
receipts and gross cash payments arising from investing and
f
inancin
g
activities, except to the extent that cash flows described in
p
ara
g
raph
s
22 and 24 are reported on a net basis.
Reportin
g
Cash Flows on a Net Basis
22. Cash flows arising from the following operating, investing o
r
f
inancing activities may be reported on a net basis:
(a) cash receipts and
p
a
y
men
t
sonbeha
l
f
o
f
custome
r
swhen the
cash flows reflect the activities of the customer rather than
those of the enterprise; and
Cash Flow Statements 25
(b) cash receip
t
s and
p
a
y
men
t
s
f
or items
i
n which the turnove
r
is quick, the amounts are large, and the maturities are short.
23. Examples of cash receipts an
d
payments referre
d
to in paragraph 22(a)
are:
(
a
)
the acce
p
tance an
d
re
p
a
y
ment of deman
d
de
p
osits
b
y
a
b
ank;
(
b
)
funds hel
d
fo
r
customers b
y
an investment enter
p
rise; an
d
(c) rents collected on
b
ehalf of, and paid over to, the owners o
f
properties.
Examples of cash receipts an
d
payments referre
d
to in paragraph 22(b) ar
e
advances made for, and the repayments of:
(
a
)
p
rinci
p
al amounts relatin
g
to credit ca
r
dcustomers;
(b) the purchase an
d
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
f
inancial enterprise may be reported on a net basis:
(a) cash receipts and payments for the acceptance and repa
y
ment
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
f
orei
g
n currency amount the exchange rate between the reportin
g
currency and the foreign currency at the date of the cash flow. A rat
e
that approximates the actual rate may be used if the result is substantiall
y
the same as would arise if the rates at the dates of the cash flows were
26 AS
3
used
.
The e
ff
ect o
f
chan
g
es in exchan
g
e rates on cash and cash
equivalents held in a foreign currency should be reported as a separat
e
p
a
r
t of the reconciliation of the changes in cash and cash equivalent
s
during the period.
26. Cash flows denominate
d
in foreign currency a
r
ereporte
d
in a manne
r
consistent with Accounting Standard (AS) 11, The Effects of Changes i
n
Foreign Exchange Rates. This permits the use of an exchange rate tha
t
approximates the actual rate. For example, a weighted average exchang
e
rate for a period may be used for recording foreign currency transactions.
27. Unrealise
d
gains an
d
losses arising fro
m
changes in foreign exchange
rates are not cash flows. However, the effect of exchange rate changes o
n
cash and cash equivalents held or due in a foreign currency is reported i
n
the cash flow statement in order to reconcile cash and cash equivalents a
t
the beginning and the end of the period. This amount is presented separatel
y
from cash flows from operating, investing and financing activities and include
s
the differences, if any, had those cash flows been reported at the end-of
-
p
eriod exchange rates.
Extraordinary Items
28. The cash flows associated with extraordinary items should b
e
classified as arising from operating, investing or financing activities a
s
appropriate and separately disclosed.
29. The cash flows associated with extraordinary items are disclose
d
separately as arising from operating, investing or financing activities in th
e
cash flow statement, to enable users to understand their nature and effect o
n
the present and future cash flows of the enterprise. These disclosures are i
n
addition to the separate disclosures of the nature and amount of extraordinar
y
items required by Accounting Standard (AS) 5, Net Profit or Loss for th
e
Period, Prior Period Items and Changes in Accounting Policies.
Interest and Dividends
30. Cash flows from interest and dividends received and paid shoul
d
each be disclosed separately. Cash flows arising from interest paid an
d
interest and dividends received in the case of a financial enterpris
e
s
hou
l
d be classified as cash flows arising from operating activities.
In
the case of other enterprises, cash flows arising from interest paid shoul
d
be classified as cash flows from financing activities while interest an
d
dividends received should be classified as cash flows from investin
g
