Cash Flow Statement: Two Examples

The movement of cash & cash equivalents or inflow and outflow of cash is known as Cash Flow. Cash inflows are the transactions that result in an increase in cash & cash equivalents; whereas cash outflows are the transactions that result in a reduction in cash & cash equivalents. Hence, a statement showing flows of cash & cash equivalent during a specified time period is known as a Cash Flow Statement. One can prepare a cash flow statement if the two comparative balance sheets of a company are given. The transactions of a cash flow statement are categorised into three activities; namely, Cash flow from Operating Activities, Cash flow from Investing Activities, and Cash flow from Financing Activities. The Institute of Chartered Accountants in India has issued Accounting Standard AS – 3 revised for the preparation of cash flow statements. Besides, with the introduction of the Companies Act 2013, the preparation of a Cash Flow Statement is now mandatory for every type of company except OPC (One Person Company) [Section 2(40)].

A cash flow statement is prepared under three parts; viz., Part A, B, and C. 

Part A includes Cash Flow from Operating Activities

Part B includes Cash Flow from Investing Activities

Part C includes Cash Flow from Financing Activities

Format of Cash Flow Statement: 

Cash Flow Statement
For the year ended 31^st March 20XX
(AS-3 Indirect Method)

Note: The Cash Flow Statement of a Company will not include Issue of Shares/Debentures for consideration other than cash and purchase of a Non-current Asset against the issue of Shares/Debentures because these transactions do not involve any inflow/outflow of cash. 

Illustration 1:

Prepare a Cash Flow Statement of Gaurav Ltd. on the basis of the information given in the Balance Sheet:

 

Solution:

 

Note: It is assumed that the Debenture Interest is paid during the year & Redemption is made at the end of the year.

Illustration 2:

From the information given in the following Balance Sheet of Kashish Ltd. as on 31^st March 2021, prepare its Cash Flow Statement:

 

Notes to Accounts:

 

Additional Information:

1. Machinery costing ₹50,000 on which depreciation charged was ₹35,000 was sold at a profit of 20% on book value. Depreciation charged during the year was ₹35,000.

2. Preference Shares were redeemed at par on 31^st March 2021.

3. Equity Shares were issued on 1^st April 2020, and Debentures were redeemed on 1^st January 2021. 

4. The company declared and paid an interim dividend on Equity Shares @ ₹20 per share out of General Reserve. It did not propose final dividend on Equity Shares. 

5. Non-current Investments costing ₹30,000 were sold at a profit of 20%.

6. Income Tax ₹22,500 was provided. 

Solution:

 

Working Notes:

1. Net Profit before Taxation and Extraordinary Items:

 

*i) The interim dividend on equity shares is paid out of General Reserve, instead of appropriated out of Surplus; i.e., Balance in Statement of Profit & Loss. Therefore, it is not included while calculating Net Profit before Taxation and Extraordinary Items. However, Preference Dividend is appropriated out of Surplus. Therefore, it is included while calculating Net Profit before Taxation and Extraordinary Items. 

ii) Dividend to shareholders of Preference Shares is paid if the dividend is paid on Equity Shares. Kashish Ltd. has not proposed its final dividend on Equity Shares but has paid interim dividend on Equity Shares. Therefore, it should pay dividends on Preference Shares. 

2. Provision for Tax:

 

3. Machinery:

 

4. Non-current Investments: