Cash flow statements

MEANING OF CASH FLOW STATEMENT

 Cash flow Statement (CFS) is an additional information provided to the users of
accounts in the form of a statement, which reflects
 the various sources from where cash was generated (inflow of cash) and
 how these inflows were utilised (outflow of cash)
by an enterprise during the relevant accounting year.
 MEANING OF CASH & CASH EQUIVALENTS
Cash  It comprises
 Cash in Hand and
 Demand Deposits with the bank (cash at bank)
Cash  These are short term highly liquid investments, readily convertible into known
Equivalents amounts of cash and subject to insignificant risk of change in value.
 Any investment will qualify as cash equivalent only if it has short maturity of
3 months or less from the date of acquisition.
 Example – Treasury Bill, Marketable Securities etc.
MEANING OF CASH FLOWS
Meaning These are inflows and outflows of cash & cash equivalents.
How does it  Cash flow arises when the net effect of transaction is to
arise?  either increase
 or decrease
the amount of cash and cash equivalents.
FORMAT OF CASH FLOW STATEMENT
Name of Company
Cash Flow Statement
For year ending ………………
S.No. Particulars Amount (₹)
A. Cash Flow from Operating Activities
B. Cash Flow from Investing Activities
C. Cash Flow from Financing Activities
Net Cash and Cash Equivalents Generated during the year
+ Opening balance of Cash and Cash Equivalents
= Closing balance of Cash and Cash Equivalents
OPERATING ACTIVITIES

These are the principle revenue producing activities of enterprise and other activities which are not
investing or financing.
Cash Flow from Operating Activities (Direct Method)
Particulars Amount (₹)
Cash Sales
+ Cash received from Debtors
- Cash Purchases
- Cash made to Suppliers
- Payment made for operating expenses
(Example : Wages & Salaries, Office & Administration expenses, Manufacturing
Overheads, Selling & Distribution Expenses etc.)
= Cash Generated from Operations before Tax
- Income Tax Paid
+ Extraordinary items
(Example : Insurance Claim received w.r.t. stock lost by fire)
Cash Flow from Operating Activities (Indirect Method)
Particulars Amount (₹)

Profit earned during the year

+ Dividend
+ Transfer to Reserve
+ Provision for Tax
- Refund of Tax
- Extra-ordinary item credited to P/L A/c
(Insurance proceeds w.r.t. loss due to earthquake)
+ Extra-ordinary item debited to P/L A/c
(Loss due to earthquake)

= Net Profit before Tax & Extra-ordinary Item

: Adjustment for non-cash and non-operating items
+ Depreciation
+ Interest on Loan/ Debentures
+ Preliminary Expenses/ Intangible Assets etc. written off
+ Loss on sale of Investments/ Fixed Assets
- Profit on sale of Investments/ Fixed Assets
- Rental/ Dividend/ Interest Income
= Operating Profit before Working Capital Changes
+ Decrease in Current Assets
- Increase in Current Assets
- Decrease in Current Liabilities
+ Increase in Current Liabilities
= Cash Generated from Operations
- Income Tax Paid
+ Extraordinary items
(Insurance claim received w.r.t. stock lost by fire)

INVESTING ACTIVITIES
These are the acquisition and disposal of long-term assets and other investments not included in
cash equivalents.
Cash Flow from Investing Activities
Particulars Amount (₹)
Sale of Fixed Assets/ Investment
- Purchase of Fixed Assets/ Investment
+ Interest/ Dividend/ Rental Income Received

- Loans and advances granted to others

+ Repayment of Loans and advances received
- Income Tax paid (Capital Gain tax on sale of asset)
+ Extraordinary items
(Example : Insurance Claim received w.r.t. destruction of fixed asset)

FINANCING ACTIVITIES
These are the activities that result in changes in the size and composition of the owners’ capital
(including preference share capital) and borrowings (including short term borrowings) of the
enterprise.
Cash Flow from Financing Activities
Particulars Amount (₹)

Issue of share capital/ debentures for cash

+ Loan raised
- Buy back of equity shares
- Redemption of preference shares/ debentures
- Loan repaid
- Interest/ Dividend paid

SOME IMPORTANT ACCOUNTS

Provision for Tax A/c

Particulars Amount Particulars Amount

To Advance Tax By Balance b/d
To Balance c/d By P/L A/c
Total Total
Advance Tax A/c
Particulars Amount Particulars Amount
To Balance b/d By Provision for Tax A/c
To Bank A/c By Balance c/d
Total Total
Dividend Payable A/c
Particulars Amount Particulars Amount
To Bank A/c By Balance b/d
To Balance c/d By P/L A/c
Total Total
Investment A/c

Particulars Amount Particulars Amount

To Balance b/d By Bank A/c
To Bank A/c By P/L A/c
To P/L A/c By Dividend
By Balance c/d
Total Total
Particulars Amount Particulars Amount
To Balance b/d By Bank A/c
To Bank A/c By P/L A/c
To P/L A/c By Dividend
By Balance c/d
Total Total
Fixed Asset A/c
 Particulars Amount Particulars Amount
To Balance b/d By Depreciation
To Bank A/c By Bank A/c
To P/L A/c By P/L A/c
By Balance c/d
Total Total
Fixed Asset A/c

Particulars Amount Particulars Amount

To Balance b/d By Accumulated Depreciation
To Bank A/c By Bank A/c
To P/L A/c By P/L A/c
By Accumulated Depreciation
By Balance c/d
Total Total
Accumulated Depreciation A/c
Particulars Amount Particulars Amount
To Fixed Asset A/c By Balance b/d
To Fixed Asset A/c By Depreciation
To Balance c/d

Total Total

FINAL ACCOUNTS OF COMPANIES

 CONCEPT MANAGERIAL REMUNERATION – ADEQUATE PROFITS

WTD/ MD/ Only 1

Manager More than 1
Part Time In presence of WTD/ MD/ Manager
Directors In absence of WTD/ MD/ Manager
Company in general meeting may authorize the payment of remuneration exceeding 11% of net profits.
CONCEPT COMPUTATION OF NET PROFITS
Forward Approach Backward Approach

Gross Profit Net Profit

+ Allowed Incomes + Disallowed Expenses
- Allowed Expenses - Disallowed Incomes
Disallowed  Any type of provision
Expenses  Any appropriation
 Capital expenditure
 Commission to manager/ director

 Salary to manager/ director

Allowed  Subsidies received from government
Incomes  Interest on investment
 Transfer fees
 Profit on sale of fixed asset (Revenue Nature)
Disallowed  Profit on sale of fixed asset (Capital Nature)
Incomes  Premium on issue of shares/ debentures
 Any other capital income

CONCEPT MANAGERIAL REMUNERATION – INADEQUATE or NO

PROFITS

Where in any financial year during the currency of tenure of a managerial person, a company has no
profits or its profits are inadequate, it may, pay remuneration to the managerial person as follows :

Effective Capital of Company Maximum yearly Remuneration

Negative or less than 5 crores
5 crores and above but less than 100 crores
100 crores and above but less than 250 crores

250 crores and above

 Remuneration in excess of above limits may be paid if shareholders pass a special

resolution.
 For a period less than one year, the limits should be pro-rated.

CONCEPT EFFECTIVE CAPITAL

S. No. Particulars Amt. (₹)
1. Paid up Capital
2. Reserves & Surplus
3. Long term borrowings

4. Accumulated Losses
5. Preliminary Expenses not written off

6. Investment

CONCEPT PAYMENT OF DIVIDEND OUT OF RESERVES

General Rule  Dividend can be declared and paid by a company only out of the profits or free
reserves.

Exception  In the event of inadequacy or absence of profits in any year, a company may
declare dividend out of the accumulated profits earned by it in previous years
and transferred by it to the reserves, , subject to the fulfilment of the
following conditions as per Companies (Declaration and Payment of Dividend)
Rules, 2014.

Condition 1
Condition 2
Condition 3

CONCEPT PREPARATION OF FINAL ACCOUNTS

 Companies Act, 2013 The Third Schedule (Section 129)

Part 1 BALANCE SHEET

Name of the Company
Balance Sheet as at (₹ in )

S. No. Particulars Note Figures as at Figures as at

No. the end of the end of
current previous
reporting period reporting period
A. Equity & Liabilities
1. Shareholders' funds
a Share capital
Special Disclosure
 Shares issued for consideration other than cash
 Shares issued as fully paid bonus shares
 Shares bought back
b Reserves and Surplus
 Show all types of Reserves here

 Show all the appropriations here only (in Surplus A/c)

 Debit balance of statement of P/L shall be shown as a negative figure under the
head ‘Surplus’
c Money received against share warrants
2. Share application money pending
allotment
3. Non-current liabilities
a Long-term borrowings
 To be classified as secured or unsecured
 If secured, nature of security to be specified
b Deferred tax liabilities (Net)
c Other long term liabilities
 d Long-term provisions
 Includes provision for employee benefits usually
4. Current liabilities
a Short-term borrowings
 Loan from bank repayable on demand
 Loans and advances from related parties
 To be classified as secured or unsecured
 If secured, nature of security to be specified
b Trade Payables
c Other current liabilities
Current liabilities for which there is no specific head. It will generally include following:
 Interest accrued but not due on borrowings
 Interest accrued and due on borrowings
 Current maturities of long-term debt
 Unpaid dividends
 Share application money pending refund
d Short-term provisions
Total
B. Assets
1. Non-current assets
a
i Property, Plant and Equipment
It will mainly include the following :
 Land
 Building
 Plant & Equipment etc.
For each of these, disclose the following :
 Original Cost – Accumulated Depreciation = WDV/ BV
 Any addition or disposal
ii Intangible assets
 It will mainly include the following :
 Goodwill
 Patents etc.
For each of these, disclose the following :
 Amount of amortization
 Any addition or disposal
iii Capital Work-in-progress
iv Intangible assets under development
b Non-current investments
It denotes the investments done for long-term. Following shall be disclosed :
 Aggregate amount of quoted investments and its market value
 Aggregate amount of unquoted investments
 Aggregate provision for diminution
c Deferred tax assets (Net)
d Long-term loans and advances
 Amount due by others beyond 12 months.
 To be classified as secured, unsecured or doubtful.
 Amount due by directors should be separately stated.
 Loans and advances to the related party to be separately stated.
e Other non-current assets
2. Current assets
a Current investments
It denotes the investments done for short-term. Following shall be disclosed :
 Basis of valuation
 Aggregate amount of quoted investments and its market value
 Aggregate amount of unquoted investments

 Aggregate provision for diminution

b Inventories
 Inventories are to be classified as :
 Raw Material
 WIP
 FG
 Stock in trade
 Stores and spares
 Loose Tools
Mode of valuation of inventories must also be stated.
c Trade receivables
 It includes debtors and B/R.
 Debts due for > 6 months are to be separately stated.
d Cash and cash equivalents
It is to be classified as :
 Balance with banks
 Cheques or drafts in hand
 Cash in hand
Balance with banks is to be stated as
 With scheduled banks
 With other banks
e Short-term loans and advances
 Loans and advances to the related party to be separately stated.
f Other current assets
Current assets for which there is no specific head. It will generally include following:
 Prepaid expense
 Interest accrued on investments
Total
 Form II
STATEMENT OF PROFIT AND LOSS
Name of the Company
Profit and loss statement for the year ended
(₹ in )
S. No. Particulars Note Current Previous
No. reporting period reporting period
I Revenue from operations
II Other income
III Total Revenue (I + II)
IV Expenses:
Cost of materials consumed
Purchases of Stock-in-Trade
Changes in inventories of finished goods,
work-in-progress and Stock-in-Trade
Employee benefits expense
Finance costs
Depreciation and amortization expense
Other expenses
Total expenses
V Profit before tax (III - IV)
VI Provision for Tax
VII Profit after tax (V - VI)
CONCEPT BONUS ISSUE - BASICS

 Bonus issue means an issue of additional shares to existing shareholders

free of cost in proportion to their existing holding.
 Bonus issue is also known as ‘Capitalisation of Profits’. Capitalisation of profits refers
to the process of converting profits or reserves into paid up capital.

CONCEPT TYPES OF BONUS ISSUE

Issuing Fully Paid Bonus Shares Converting Partly paid up shares into fully
paid up

Utilisation of Reserves Issuing Fully Paid Bonus Converting Partly paid-up

Shares shares into fully paid up
CRR

Securities Premium

Capital Reserve

General Reserve/ Revenue Reserve

 P/L A/c

Issuing Fully Paid Bonus Shares Converting Partly paid up shares into fully
paid up
Making the provision of Bonus Issue Making the Call due

Capital Redemption Reserve A/c Equity Share Final Call A/c

Securities Premium A/c To Equity Share Capital A/c

Capital Reserve A/c

General Reserve A/c Allocation of Reserves

Profit & Loss A/c Capital Reserve A/c

To Bonus to Shareholders A/c General Reserve A/c

Profit & Loss A/c

On issue of Bonus Shares To Bonus to Shareholders A/c

Bonus to Shareholders A/c

To Equity Share Capital A/c Adjustment of Final Call

Bonus to Shareholders A/c

To Equity Share Final Call A/c

CONCEPT CHANGES IN AUTHORISED CAPITAL

CONCEPT RIGHT ISSUE
Meaning  Rights issue is an issue of rights by the company to it’s existing shareholders
that entitles them to buy additional shares directly from the company in
proportion to their existing holdings, within a fixed time period.
 The subscription price is generally at a discount to the current market price.

Options with Accept the offer Reject the offer Right of Renunciation
the Shareholder surrenders the right to buy shares and transfers such right to any other
shareholder person. This renunciation of right is valuable & can be sold at a price “Value of Right”.

CONCEPT FINDING THE VALUE OF RIGHT