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CA Deepak Rathore

Before Companies Act 2013

The Company act 1956 didn’t include cash flow statement in the Definition of Financial statement. The Applicability of Cash Flow Statements governed by the Companies (Accounting Standards) Rules, 2006.

Enterprises which fall in any one or more of the following categories, at any time during the accounting period, are classified as Level I enterprises:

i. Enterprises whose equity or debt securities are listed whether in India or outside India.

ii. Enterprises which are in the process of listing their equity or debt securities as evidenced by the board of directors’ resolution in this regard.

iii. Banks including co-operative banks.

iv. Financial institutions.

v. Enterprises carrying on insurance business.

vi. All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting period on the basis of audited financial statements exceeds Rs. 50 crore. Turnover does not include ‘other income’.

vii. All commercial, industrial and business reporting enterprises having borrowings, including public deposits, in excess of Rs. 10 crore at any time during the accounting period.

viii. Holding and subsidiary enterprises of any one of the above at any time during the accounting period.

Therefore earlier companies have to satisfied aforesaid limits to check the applicability of cash flow statement.

After Companies Act 2013

As per Section 2(40) of the CA, 2013 “financial statement” in relation to a company, includes—

(i) a balance sheet as at the end of the financial year;

(ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year;

(iii) cash flow statement for the financial year;

(iv) a statement of changes in equity, if applicable; and

(v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv)

Provided that the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement;

It means all the companies whether private or public needs to include cash flow statement in its financial statement except the One Person Company, small company and dormant company. Now we have to check the definition of One Person Company, small company and dormant company

One Person Company: As per sec 2(62) of The CA, 2013 -One Person Company” means a company which has only one person as a member;

Small company

Sec 2(85) ‘small company’’ means a company, other than a public company,—

(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; and

(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees: Provided that nothing in this clause shall apply to—

(A) a holding company or a subsidiary company;

(B) a company registered under section 8; or

(C) a company or body corporate governed by any special Act;

Dormant company

As per sec 455 of The CA, 2013 “Dormant Company” means a company

(i) Where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar in such manner as may be prescribed for obtaining the status of a dormant company.

Explanation.—For the purposes of this section,—

(i) “inactive company” means a company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years;

(ii) “significant accounting transaction” means any transaction other than—

(a) payment of fees by a company to the Registrar;

(b) payments made by it to fulfil the requirements of this Act or any other law;

(c) allotment of shares to fulfil the requirements of this Act; and

(d) payments for maintenance of its office and records.

Crux and comparison analysis:

A public company will never be a small company, therefore incase of private companies , the limit has been decreased as far as turnover is concerned earlier it was exceeds 50 crores. Now it has been decreased to 2 crores resulted in increase in the compliance of the companies. In nutshell , it is applicable to almost all the private companies as 2 crores turnover is very nominal amount. Also there is no limits of borrowing as specified in accounting standards.MCA has also put a check on paid-up share capital for the applicability of CFS( Which is 50Lacs)

(For queries author can be reached at deepakrathore.8888@gmail.com)

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13 responses to “Applicability Of Cash Flow Statement to Private Companies under Companies Act, 2013”

  1. Shivani Sethi says:

    In case Cash Flow was applicable in the previous year but in the current year limits specified aren’t exceeding , Will it be mandatory to prepare Cash Flow Statement in the current year ?

  2. husain says:

    what if it is a small company Sec 2(85) so may not include the cash flow statement but as per Companies (Accounting Standards) Rules, 2006 aplicable via Section 129 of the CA, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014 read with the company is a Level I enterprise which make cash flow statement Applicab

    does Section 129 of the CA, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014 override Section 2(40) of the CA, 2013?

    can anyone answer?

  3. Amit Jalan says:

    Thanks a lot. It really helped me.

  4. vijay bansal says:

    No. if both conditions are fulfilled, only than it is a small co.

  5. a.g.ayaz says:

    will it be applicable to a pvt ltd if paid up capital is less than 50lakhs but turnover exceed two crore ?

    • jitendra T.Pancholi says:

      share capital Rs.10,00,000/- turnover of Rs.480,00,000/- Csh flow applicable our company name silvan Chemical Private Limited.

  6. mital says:

    definition of small company

    turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees: –

    what does “last year” mean….? for AY 2015-16

  7. Avinash says:

    Thank you for your very helpful article

  8. siddharth Duge says:

    If a Pvt. Ltd has capital below 50 lakhs but turnover above 2 crores , will it qualify ad small company ?

  9. Maneesh says:

    Small Companies

    Small Companies:-

    (ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees: Provided that nothing in this clause shall apply to—

    (A) a holding company or a subsidiary company;

    It means all the holding or Subsidiary companies will have to compulsorily prepare Cash Flow statement whatever be the share capital or Turnover.

  10. CS Narendra Bijlani says:

    Sir,
    The definition of small company is changed in section 2, in clause (85), in sub-clause (i), for the word “or” occurring at the end, the word “and” shall be substituted under (Removal of Difficulties) Order, 2015 w.e.f 13/02/2015

    • Divyam Garg says:

      Sir,

      In case Holding Company is in US, Will Exemption Relating To Preparation of Cash Flow Statement be Withdrawn.?

  11. AKHIL AGRAWAL says:

    Also refer to the Companies (Removal of Difficulties) Order, 2015 dated 13.02.2015 wherein in the definition of Small Company, the Word “or” is Substituted as “and” and now both the Conditions to be Satisfied for the Applicability of the Small Company definition.

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