Corporate Cash Flow

Lecture 19
Learning Objectives
 Features of cash flow statement
 AS 3 – Cash Flow Statement
 Meaning & Significance
 Scope and coverage
 Principles and norms of standard a/c treatment
 Disclosure requirements
Features of Cash Flow Statement
 Prepared for a given period
 Comparative position
 Vertically drawn
 Cash flows from Operating, Investing &
Financial Activities
 Signed by Preparers & Auditors
 A Derived Statement
AS-3 Cash flow statement
 Meaning
 A cash flow statement provides information about
the historical changes in cash and cash
equivalents of an enterprise by classifying cash
flows during the period from operating, investing
and financing activities.
 Cash equivalents are short-term, highly liquid
investments that are readily convertible into
known amounts of cash.
 Cash flows refer to the inflows and outflows of
cash and cash equivalents.
Significance
1. It enables users to evaluate the changes in net assets
of an enterprise, its financial structure, including
liquidity and solvency.
2. In assessing the ability of an enterprise to generate
cash and cash equivalents and enable users to develop
models.
3. It enhances the comparability of the reporting of
operating performance.
4. Historical cash flow information is often used as an
indicator of the amount, timing and certainty of future
cash flows.
Principles & norms of standard
a/c treatment
 Basis for classification of activities
 Methods of reporting cash flows
 Issues requiring special considerations]non-
cash investing and financing transactions
Basis for classification of
activities
 Operating activities
 It represents the principal revenue-producing activities
of an enterprise
 Investing activities
 It relates to the acquisition and disposal of long-term
assets and other investments
 Financing activities
 It represent activities that result in changes in the size
and composition of the share capital and borrowings of
the company
Methods of reporting cash
flows
 From operating activities
 The indirect method
 The direct method
 From investing activities
 From financing activities
 Reporting cash flows on a net basis
 Pro forma
Issues requiring special
considerations
 Single transaction involving two activities
 Foreign currency transactions
 Extraordinary items
 Interest & dividends paid and received
 Acquisitions and disposals of subsidiaries,
associates and joint ventures
 Transactions with subsidiaries, associates and joint
venture
 Non cash investing and financing activities
Disclosures in cash flow
statement
 Disclosure of cash flows from operating
activities using either the direct method or
indirect method
 Separate disclosure of major classes of gross
cash receipts and gross cash payments
 Separate disclosures relating to special
issues
 Disclosures regarding non-cash investing
and financing transactions