“ Statement of Cash Flows” are covered by AS-3 “ Cash Flow Statement ” issued by ICAI*.
As per clause 32 of Listing agreement the company shall provide a cash flow statement along with Balance Sheet and Profit and Loss a/c. The cash flow will be prepared in accordance with the Accounting Standard on Cash Flows (AS-3) issued by the Institute of Chartered Accountants of India, and the Cash Flows shall be presented only under indirect method as given in AS-3. It is mandatory on all Level-I companies on or after 01.04.2001.
Demand deposits : from banks & other financial institutions
Short term highly liquidated investment that are readily convertible to a known amount of cash and that are subject to an insignificant risk of changes in value. (guidance note indicates that an investment normally meets the definition of a cash equivalents when it has a maturity of 3 months or less from the date of acquisition)
Equity investment are normally excluded, unless they are, in substance , cash equivalents.
Bank Overdrafts : which are repayable on demand and which form an integral part of an enterprise’s cash management are also included as a component of cash and cash equivalents.
The Indirect method adjust accrual basis net profits or loss for the effects of non cash transactions. Cash flows section of the statement of cash flows under indirect method would appear something like this :-
Profit before Interest and Income Taxes xxx Add back Deprciation xxx Add back amortisation of Goodwill xxx Increase in receivables xxx Decrease in Inventories xxx Increase in Trade Payables xxx Interest expense xxx Less: Interest accrued but not yet paid xxx Interest paid xxx Income tax paid xxx Net cash flows from Operating Activities xxxx