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Cash Flow Statement
Cash Flow Statement
Definition
A statement of changes in the financial position of a firm on cash basis is called
cash flow statement
Such as a statement effect of a various business transaction on cash and takes
into account receipts and disbursement of cash. It summarizes the causes of
changes in cash position of an enterprise between dates of two balance sheets. It’s
called cash flow statement because it describes the cash inflow (sources) and cash
outflow (uses).
Preparation of cash flow statement
Cash flow statement shows the impact of various transactions on cash position
of a firm it prepared with the help of financial statement such balance sheet,
income statement or profit& loss account and some additional information . It
starts with opening balance of cash and balance at bank. All the inflow of cash is
added to opening balance and out flow of cash is deducted from total. The
preparation of cash flow involves the determining of
• Inflow (sources)of cash
• Out flow (application)of cash
2. Leasehold
“Lease” is written agreement made according to law, by which
the use of a building, land, or any other property, is given by its owner to some
body else for certain time in return of rent. The owner of the property is called
“lessor” and tenet is called lessess.the owner retains the title to the leased
property and transfer the rights to use that property for defined period. E.g. a
house is acquired on lease of 10 years at cost of 300000.this mean that right to
use the house is purchased for 10 years against advance payment of 300000.
3. Patents
A patent is an exclusive right granted by the government for
manufacturing using or selling a particular patent is generally granted for 19-years
and period of amortization must not exceed this. However if the patent is likely to
lose its usefulness in less than 19 years, the amortization should the shorter period.
Assumed that a patent is purchased for 30000 for a period of 5
years. It will be amortized for 6000 annually .every year book value of patent will
decreased by this amount and at the end of fifth year its value will be zero.
4. Copyright
A copyright is an exclusive right granted to protect the production and
sale of literary and artistic material. Copyright are usually granted for a period up
to 28 years. If the cost of acquiring the copyright is minor, then it’s admissible to
charge the expense account. In case it is heavy expenditure than its treated as
capital expenditure and its amortized every year by mean of following general
journal entry:-
Amortization exp (copyright) (dr)
Copyright (cr)
5. Trade marks:-
This mean a permanent exclusive right to use a trade mark,
brand name or commercial symbol, this trade mark have unlimited legal life as
such they are carried without amortization at their original cost its written off
when its use is abandoned or when its contribution to earning become doubtful.