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)

Particulars	₹	₹
1. Cash Flow from Operating Activities:
Profit & Loss Appropriation Account (Current Year)	XXXX
Less: Profit & Loss Appropriation Account (Previous Year)	(XXXX)	XXXX
Add: Proposed Dividend for the Current Year		XXXX
Add: Interim Dividend Paid during the Current Year		XXXX
Add: Transfer to Reserve		XXXX
Add: Provision for Tax made during the Current Year		XXXX
Less: Refund of Tax credited to Profit & Loss Account		(XXXX)
Less: Extraordinary Item (if any) credited to Profit & Loss Account            (i.e., Insurance proceeds from earthquake disaster settlement)		(XXXX)
Net Profit before Taxation and Extraordinary Items		XXXX
Adjustment related to Non-cash and Non-operating Items:
Add: Depreciation on Fixed Assets	XXXX
Interest on Borrowings	XXXX
Preliminary Expenses/Underwriting Commission/Discount on Issue of Debentures/Shares Written-off	XXXX
Goodwill/Patents/Trade Marks/Copyright Amortised	XXXX
Loss on Sale of Machinery, Land and Building, Investments, etc.	XXXX
Premium Payable on redemption of Preference Shares/Debentures	XXXX	XXXX
Less: Interest Income	(XXXX)
Dividend Income	(XXXX)
Discount on redemption of Preference Shares/Debentures	(XXXX)
Profit on Sale of Machinery, Land and Building, Investments, etc.	(XXXX)	(XXXX)
Operating Profit before Working Capital Changes		XXXX
Adjustments related to Change in Current Assets and Current Liabilities:
Add: Decrease in Current Assets and Increase in Current Liabilities:	XXXX
Decrease in Stock	XXXX
Decrease in Trade Receivables (Debtors and Bills Receivable)	XXXX
Decrease in Prepaid Expenses	XXXX
Decrease in Accrued Income	XXXX
Increase in Trade Payables (Creditors and Bills Payable)	XXXX
Increase in Outstanding Expenses	XXXX
Increase in Income Received in Advance	XXXX	XXXX
Less: Increase in Current Assets and Decrease in Current Liabilities:	(XXXX)
Increase in Inventories (Stock)	(XXXX)
Increase in Trade Receivables (Debtors and Bills Receivable)	(XXXX)
Increase in Accrued Incomes	(XXXX)
Increase in Prepaid Expenses	(XXXX)
Decrease in Trade Payables (Creditors and Bills Payable)	(XXXX)
Decrease in Outstanding Expenses	(XXXX)
Decrease in Advanced Incomes	(XXXX)	(XXXX)
Cash generated from Operations		XXXX
Less: Income Taxes paid (Net of Refund)		(XXXX)
Cash Flow from Extraordinary Items		XXXX
Less: Extraordinary Items		(XXXX)
Net Cash Inflow/Outflow from Operating Activities		XXXX
2. Cash Flow from Investing Activities:
Add: Proceeds from Sale of Machinery/Land and Building	XXXX
Add: Proceeds from Sale of Investments	XXXX
Add: Proceeds from Sale of Patents/Trade Marks/Copyrights	XXXX
Add: Rent/Dividend/Interest Received	XXXX
Less: Purchase of Machinery/Land and Building	(XXXX)
Less: Purchase of Investments	(XXXX)
Less: Purchase of Patents/Trademarks/Copyrights/Goodwill	(XXXX)	XXXX
Net Cash Inflow/Outflow from Investing Activities		XXXX
3. Cash Flow from Financing Activities:
Add: Proceeds from Insurance of Share Capital	XXXX
Add: Proceeds from Long-term Borrowings	XXXX
Less: Redemption of Preference Shares/Buy-back of Equity Shares	(XXXX)
Less: Repayment of Borrowings	(XXXX)
Less: Interest Paid on Borrowings	(XXXX)
Less: Interim Dividend Paid	(XXXX)
Less: Final Dividend Paid	(XXXX)	XXXX
Net Cash Inflow/Outflow from Financing Activities		XXXX
4. Net Increase (Decrease) in Cash and Cash Equivalent [1 + 2 + 3]		XXXX
5. Add: Cash and Cash Equivalent at the beginning of period (Cash in Hand + Cash at Bank + Marketable Securities/Short-term Deposits)		XXXX
6. Cash and Cash Equivalent at the end of period [4 + 5] (Cash in Hand + Cash at Bank + Marketable Securities/Short-term Deposits)		XXXX

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: