The cash flow statement summarizes the cash inflows and outflows for A Ltd. for the year ended March 31, 2012. It shows a net cash from operating activities of Rs. 86,000, net cash used in investing activities of Rs. 60,000 from purchase of fixed assets, and net cash used in financing activities of Rs. 26,000 from repayment of bank loan and dividend payment. Overall, there was no change in the closing cash and bank balance of Rs. 30,000 from the opening balance.

1. CASH FLOW
STATEMENT

2. WHAT IS A CASH FLOW STATEMENT
According to accounting standard – 3 “Cash flow statement
is statement that show flow of cash and cash equivalents
during a given period. This statement shows the net
increase or net decrease of cash and cash equivalents under
each activity separately (operating/investing/financing) and
collectively”.

3. OBJECTIVE OF CASH FLOW STATEMENT
 To ascertain the sources from activities (i.e.,
Operating/Investing/Financing Activities from
which Cash and Cash Equivalents were
generated by an enterprise.
 To ascertain the uses by activities (i.e.,
Operating/ Investing/Financing Activities from
which Cash and Cash Equivalents were
generated by an enterprise.
 To ascertain the net change in Cash and Cash
Equivalents indicating the difference between
sources and uses from or by the three activities
between the dates of two Balance Sheets.

4. USES OF CASH FLOW STATEMENT
i. Short-term Planning: Cash Flow Statement provides information about
sources and application of cash and cash equivalents for a specific
period. It helps to plan investments and assess the financial
requirements of an enterprise.
ii. Cash Flow helps in understanding Liquidity and Solvency: Solvency
is the ability of the business to meet its current liabilities. Quarterly or
monthly Cash Flow Statement helps to ascertain liquidity in a better way.
Financial institutions, like banks prefer the Cash Flow Statement to
analyse liquidity.
iii. Efficient Cash Management: Cash Flow Statement provides information
relating to surplus or deficit of cash. An enterprise, therefore, can decide
about the Short-term Investments of the surplus and can arrange the
Short-term Credit in case of deficit.
iv. Comparative Study: A comparison of the cash flows for the previous year
with the budgeted figures of the same year will indicate as to what extent
the cash resources of the business were generated and applied according
to the plan. It is, therefore, useful for the management to prepare the

5. LIMITATIONS OF CASH FLOW STATEMENT
• Non-cash Transactions are Ignored: The Cash Flow Statement
shows only inflows and outflows of cash. It does not show non-
cash transactions like the purchase of building by the issue of
shares or debentures to the vendors or issue of bonus shares.
• Not a Substitute for an Income Statement: An Income
Statement shows both cash and non-cash items. The Income
Statement shows the net income of the firm whereas the Cash
Flow Statement shows only the net cash inflows or outflows which
do not represent the net profits or losses of the enterprise.
• Historical in Nature: It rearranges the existing information
available in the Income Statement and the Balance Sheet. It will
become more useful if it is accompanied by the projected Cash
Flow Statement.
• Fundamental Accounting Concept Ignored: It ignores basic
accounting concept, i.e., accrual concept.

6. FORMAT OF
CASH FLOW

7. FORMAT OF CASH FLOW STATEMENT
for the year ended ……………..
[As per Accounting Standard-3 (Revised)]
Particulars `
I. Cash Flow from Operating Activities
Net Profit as per Statement of Profit and Loss or Difference between Closing Balance and Opening
Balance of Statement of Profit and Loss
Add: Transfer to reserve …..
Proposed dividend for current year …..
Interim dividend paid during the current year …..
Provision for tax made during the current year …..
Extraordinary item, if any, debited to the Statement of Profit and Loss …..
Less: Extraordinary item if any, credited to the Statement of Profit and Loss (….)
Refund of tax credited to Statement of Profit and Loss (….)
(A) Net Profit before Taxation and Extraordinary Items …..
Adjustment for Non-cash and Non-operating Items
(B) Add: Items to be Added
- Depreciation …..
- Preliminary Expenses/Discount on Issue of Shares and Debentures written off …..
- Goodwill, Patents and Trademarks Amortised …..
- Interest on Borrowing and Debentures …..
- Loss on Sale of Fixed Assets ….. …..
(C) Less: Items to be Deducted
- Interest Income …..
- Dividend Income …..
- Rental Home …..
- Profit on Sale of Fixed Assets ….. (…..)
(D) Operating Profit before Working Capital Changes (A + B – C) …..
(E) Add: Decrease in Current Assets and
Increase in Current Liabilities
Detail:
- Decrease in Stock/Inventories
- Decrease in Debtors/Bills Receivables (Trade Receivables) …..
- Decrease Accrued Incomes …..
- Decrease in Prepaid Expenses …..
- Increase in Creditors/Bills Payables (Trade Payables) …..
- Increase in Outstanding Expenses …..
- Increase in Advance Incomes …..
- Increase in Provision for Doubtful Debts ….. …..

8. (F) Less: Increase in Current Assets and
Decrease in Current Liabilities
Detail:
- Increases in Stock/Inventories …..
- Increases in Debtors/Bills Receivables (Trade Receivables) …..
- Increase in Accrued Incomes …..
- Increase in Prepaid Incomes …..
- Decrease in Creditors/Bills Payables (Trade Payables) …..
- Decrease in Outstanding Expenses …..
- Decrease in Advance Incomes …..
- Decrease in Provision for Doubtful Debts ….. (…..)
(G) Cash Generated from Operations (D + E – F) …..
(H) Less: Income Tax Paid (Net of Tax Refund received) (…..)
(I) Cash Flow before Extraordinary Items Extraordinary Items (+/-) …..
(J) Net Cash from (or used in) Operating Activities
II. Cash Flow from Investing Activities
- Proceeds from Sale of Fixed Assets …..
- Proceeds from sale of Investments …..
- Proceeds from sale of Intangible Assets …..
- Interest and Dividend received (For Non-financial Companies only) …..
- Rent Income (…..)
- Purchase of Fixed Assets (…..)
- Purchase of Investments (…..)
- Purchase of Intangible Assets like Goodwill Extraordinary Items (+/-) (…..)
Net Cash from (or used in) Investing Activities …..
III. Cash Flow from Financing Activities
- Proceeds from Issue of Share and Debentures …..
- Proceeds from Other Long-term Borrowings …..
- Final Dividend Paid (…..)
- Interim Dividend Paid (…..)
- Interest on Debentures and Loans Paid (…..)
- Repayment of Loans (…..)
- Redemption of Debentures/Preference Shares Extraordinary Items (+/-) (…..)
Net Cash from (or used in) Investing Activities (…..)
IV. Net Increase/Decrease in Cash and Cash Equivalents (I + II + III) …..
V. Add: Cash and Cash Equivalents in the beginning of the year …...
- Cash in Hand …..
- Cash at Bank (Less: Bank Overdraft) …..
- Short-term Deposits …..
- Marketable Securities …… …..
VI. Cash and Cash Equivalents at the end of the year …..
- Cash in Hand …..
- Cash at Bank (Less: Bank Overdraft) …..
- Short-term Deposits …..
- Marketable Securities ….. …..
…..

9. ANALYSIS OF
FINANCIAL
STATEMENT OF
COMPANIES

10. From the following information, prepare the Cash Flow Statement
BALANCE SHEETS as at 31st March
Particulars 2011 (` ) 2012 (` )
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
Share Capital 5,00,000 8,00,000
Reserves and Surplus:
Balance of Statement of Profit and Loss 2,00,000 3,50,000
2. Non-Current Liabilities
Long-term Borrowings:
6% Debentures 1,00,000 …
3. Current Liabilities …
Bank Loan 50,000
Trade Payable: 2011 (` ) 2012 (` )
Creditors 50,000 55,000
Bills Payable 50,000 20,000
1,00,000 75,000 1,00,000 75,000
Short-term Provisions: Provision for Taxation 50,000 65,000
Total 9,50,000 13,40,000
II. ASSETS
1. Non-Current Assets
(a) Fixed Assets:
(i) Tangible Assets:
Building 4,00,000 2,50,000
Plant and Machinery 3,00,000 2,70,000
Non-Current Investments 2,70,000
(ii) Intangible Assets:
Goodwill 1,00,000 50,000
2. Current Assets
Trade Receivables (Debtors) 40,000 80,000
Inventories (Stock) 60,000 50,000
Cash 40,000 90,000
Bank 10,000 2,80,000
Total 9,50,000 13,40,000
 Interim Dividend paid ` 50,000.

11. CASH FLOW STATEMENT
for the year ended 31
st
March, 2012
Particulars `
(A) Cash Flow from Operating Activities
Net Profit before Tax (WN-1) 2,65,000
Items to be added
Goodwill Written off (` 1,00,000 – ` 50,000) 50,000
Depreciation on Plant and Machinery (` 3,00,000 – ` 2,70,000) 30,000
3,45,000
Operating Profit before Working Capital Changes
Add: Decrease in Current Assets and Increase in Current Liabilities
Trade Payables (Increase in Creditors) 5,000
Inventories (Decrease in Stock) 10,000
Less: Increase in Current Assets and Decrease in Current Liabilities
Increase in Debtors (Trade Receivable) (40,000)
Decrease in Bills Payable (Trade Payable) (30,000)
2,90,000
Cash Generated by Operating Activities 50,000 2,40,000
Less: Tax Paid
Net Cash from Operating Activities
(B) Cash Flow from Investing Activities
Proceeds from Sale of Building (WN-2) 1,50,000
Purchase of Investments (2,70,000)
Net Cash used in Investing Activities (1,20,000)
(C) Cash Flow from Financing Activities
Proceeds from issue of Shares 3,00,000
Payment of Interim Dividend (50,000)
Redemption of Debentures (1,00,000)
Proceeds from raising of Bank Loan 50,000
Net Cash Flow from Financing Activities 2,00,000
(D) Net Increase in Cash and Cash Equivalent ( A + B + C) 3,20,000
Add: Opening Balance of Cash and Bank 50,000
(E) Closing Balance of Cash and Bank 3,70,000

12. From the following Balance Sheets of A Ltd., prepare the Cash Flow Statement as per AS-3 (Revised) as
at 31st
March, 2012:
BALANCE SHEETS
Particulars 2011 (` ) 2012 (` )
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
Equity Share Capital 2,00,000 2,00,000
Reserves and Surplus:
Balance of Statement of Profit and Loss 50,000 90,000
2. Current Liabilities
Short-term Borrowings:
Bank Loan 10,000 …
Trade Payables (Creditors) 15,000 20,000
3. Other Current Liabilities
Outstanding Expenses 5,000 1,000
Unclaimed Dividend … 4,000
Short-term Provisions:
Provision of Taxation 20,000 25,000
Total 3,00,000 3,40,000
II. ASSETS
1. Non-Current Assets
Fixed Assets 2,35,000 2,75,000
2. Current Assets
Inventories (Stock) 25,000 15,000
Trade Receivables (Debtors) 10,000 20,000
Cash and Cash Equivalents:
Cash 8,000 10,000
Bank 22,000 20,000
Total 3,00,000 3,40,000
 The net profit for the year after providing ` 20,000 for depreciat ion were ` 60,000. During
t he year, t he com pany declared equit y dividend @ 10% and paid ` 15,000 as Tax.

13. CASH FLOW STATEMENT
for the year ended 31
st
March, 2012
Particulars `
(A) Cash Flow from Operating Activities
Net Profit before Tax (WN-1) 80,000
Add: Depreciation 20,000
Operating Profit before Working Capital Changes 1,00,000
Add: Trade Payables (Increase in Creditors) 5,000
Inventories (Decrease in Stock) 10,000
Less: Increase in Debtors (Trade Receivable) (10,000)
Decrease in Bills Payable (Trade Payable) (4,000)
Cash Generated by Operating Activities 1,01,000
Less: Tax Paid (15,000)
Net Cash from Operating Activities 86,000
(B) Cash Flow from Investing Activities
Outflow on Purchase of Fixed Assets (WN-3) (60,000)
Net Cash used in Investing Activities (60,000)
(C) Cash Flow from Financing Activities
Payment of Bank Loan (10,000)
Payment of Dividend [` 20,000 – ` 4,000 (Unclaimed)] (16,000)
Net Cash used in Financing Activities 26,000
(D) Net Increase in Cash and Cash Equivalent ( A - B - C) Nil
Add: Opening Balance of Cash and Bank 30,000
(E) Closing Balance of Cash and Bank 30,000
Dr. PROVISION FOR TAX ACCOUNT Cr.
Particulars ` Particulars `
To Cash A/c (Tax paid) 15,000 By Balance b/d 20,000
To Balance c/d 25,000 By Statement of Profit and Loss (Provision
made)
20,000*
(Bal. Fig.)
40,000 40,000
Dr. FIXED ASSETS ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d 2,35,000 By Depreciation 20,000
To Cash A/c (Bal. Fig.) 60,000 By Balance c/d 2,75,000
(Fixed Asset Purchased)
2,95,000 2,95,000

14. THANK YOU