Statement of Cash Flows (IND AS -7) by incorporating Companies (Indian Accounting Standards) Amendment Rules 2022
Statement of Cash Flows is an integral part of Financial Statements as per Indian Accounting Standards regime. Following are important Financial Statements of a Joint Stock Company as per IND AS regime.
1. Statement of Profit or Loss
2. Statement of Changes in Equity
3. Balance Sheet.
4. Statement of Cash Flows.
I. Scope
Entities to which the IND ASs are applicable should prepare Statement of Cash Flows. Statement of Cash Flows is considered as the integral part of financial statements.
II. The statement of cash flow should include three items
a. Cash flow from operating activities
b. cash flow from investing activities
c. cash flow from financing activities.
III. Important Definitions.
a. Cash: It includes Cash on hand and demand deposits.
b. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk if changes in value.
c. Cash flows are inflows and outflows of cash and cash equivalents.
IV. Cash Flow from Operating Activities.
They are principal revenue producing activities of the entities other than investing and financing activities. Examples are the following:
a. Cash receipts from the sale of goods and rendering of services
b. Cash receipts from royalties, fees, commissions and other revenue.
c. Cash payments to suppliers.
d. Cash payments to employees.
e. Cash receipts and cash payments of an insurance entity for premiums and related items.
f. Cash payments or refunds of income taxes.
g. Cash receipts and payments from contracts held for dealing or trading purposes.
V. Cash Flow from Investing Activities.
The activities of acquisition and disposal of long-term assets and other investments not included in cash equivalents are investing activities.
a. Cash Payments and receipts related with acquisition and disposal of Property, Plant and Equipments respectively.
b. Cash payments to acquire shares, warrants or debt instruments of other entities and interests in joint ventures.
c. Cash receipts from disposal of shares, warrants or debt instruments of other entities and interests in joint ventures.
d. Cash advances and loans made to other parties.
e. Cash receipts from the repayment of advances and loans made to other parties.
VI .Cash Flow from Financing Activities.
Financing activities are activities that results in changes in the size and composition of the contributed equity and borrowings of the entity.
Examples:
a. Cash Proceeds from Issuing shares or other equity instruments.
b. Cash Proceeds from issue of debentures ,loans, notes, bonds etc
c. Cash repayments of amounts borrowed
d. Cash Payments to owners to acquire or redeem the entity’s shares.
VII. Two methods can be applied to prepare the statement of Cash Flows:
a. Direct Method
b. Indirect method
VIII. Treatment of Interest and dividend in normal companies
a. Cash flow from operating activities —Nil
b. cash flow from investing activities —Interest and dividends received.
c. cash flow from financing activities.—Dividends Paid and Interest paid.
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