CA Pankaj Kumar Agrawal 

Article discusses applicability of cash flow statement or cash flow applicability under Companies Act 2013.

CA Pankaj Kumar AgrawalCompanies Act 2013 – Financial Statements to include Cash Flow Statement and Statement for Changes in Equity

The Companies Act, 2013 (the Act or New Act) brought in many changes which directly impact preparation of financial statements and require understanding of the new definitions and provisions. Earlier, The Company act 1956 didn’t include cash flow statement in the Definition of Financial statement. The Applicability of Cash Flow Statements is governed by the Companies (Accounting Standards) Rules, 2006. However as per the company act 2013, the Cash flow statement shall to prepare and included in Financial Statements subject to certain exemption specified in the act.

Definition of Financial Statement as per CA, 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):

Exemption from Applicability of Cash Flow Statements

Provided that the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement i.e. there is an exemption given to OPC, small company and dormant Company for preparing the Cash flow statement for purpose of inclusion in financial statement.

What is OPC, Small Company and dormant company ?

a) 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.


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

(1) 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 fulfill the requirements of this Act or any other law;

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

(d) payments for maintenance of its office and records


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 (Rs 50 Lakhs ) or such higher amount as may be prescribed which shall not be more than five crore rupees; ( Rs 5 Crores) or

(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees ( Rs 2 crore ) or such higher amount as may be prescribed which shall not be more than twenty crore rupees ( Rs 20 crores ).

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;

Analysis of Small Company:-

(1) A public company will never be a small company.

(2) A Private company should have a maximum of :-

(a) Paid up capital of Rs 50 Lakhs

(b) Turnover of Rs 2 Crores.

(3) Holding and Subsidiary will always be out of the picture of small companies.

Scenario as per old Companies Act, 1956

Such definition of ‘Financial statement’ neither was available under the CA, 1956 nor was the term used in any sections in that Act. Earlier, the Companies (Accounting Standards) Rules, 2006 exempted ‘SMCs’ from preparing the cash flow statement.

Format to be used for preparing Cash Flow Statement

Since no format is prescribed in Schedule III to the CA, 2013, the cash flow statement shall be prepared in the format prescribed in the AS-3 –Cash Flow Statement only.

Applicability of Accounting Standards

Section 129 of the CA, 2013 requires that the financial statements shall comply with the accounting standards notified under Section 133 and Section 133 provides that the Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by the Institute of Chartered Accountants of India, in consultation with and after examination of the recommendations made by the National Financial Reporting Authority.

Rule 7 of the Companies (Accounts) Rules, 2014 provides that as a transition provision, the standards of accounting as specified under the Companies Act, 1956 (i.e. the Companies (Accounting Standards) Rules, 2006) shall be deemed to be the accounting standards until accounting standards are specified by the Central Government under Section 133.


The inclusion of cash flow along with balance sheet and P&L for all companies is a new requirement. Earlier only listed companies under listing agreement clause no. 32 are required to prepare cash flow statement as per AS 3 of Accounting standards issued by the ICAI.

Simply, We can state that the cash flow statement is applicable for all companies (including Private Company) however the certain exemption is provided to OPC, Dormant Companies and Small Companies in respect of Applicability of Cash Flow Statement.

Since the Companies Act, 2013 does not lay down any format for preparation of cash flow statement, companies will need to follow AS 3 in this regard. In respect of listed companies, the listing agreement requires the indirect method for preparing cash flow statements. Thus, under the Companies Act, 2013, non-listed companies will have a choice of either applying the direct or indirect method under AS 3 to prepare the cash flow statement. Due to the listing agreement requirement, that choice will not be available to listed companies.

This means a private limited company with paid up share capital of less than 50 lakh rupees or such higher amount as may be prescribed (not exceeding 5 crore ruppes) or with a turnover of less than 2 crore rupees or such higher amount as may be prescribed (not exceeding 20 crore rupees) is not required to prepare cash flow statements while preparing financial statements at the end of the financial year or say Cash Flow Statement is not applicable to Such Companies.

Please remember, it’s not a mandatory provision. Despite non Applicability of Cash Flow Statement If a small companies want then they can prepare their cash flow statements and file it with registrar of companies or ROC.

(Author can be reached at

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  1. mayur joshi says:

    the definition of small comany had been amended before this article was uploaded to replace or with and. but the change has not been incorporated in the definition.

  2. Aishwarya says:

    According to clause (85) of section 2, a company may be treated as a ‘small company’ if it meets
    either of the conditions provided therein thereby making the second limit unrestricted or inconsequential.
    Difficulties have arisen in this regard as companies which, though, meet one of the criteria but exceed the
    monetary limit in respect of second criteria excessively are also getting classified as ‘small companies’;
    In section 2, in clause (85), in sub-clause (i), for the word “or” occurring at the end, the word “and” shall be substituted;
    Please do make necessary changes

  3. Deepak Soni says:

    very very poor article on an important professional matter. the author has neither the drafting skill nor any command over the subject.the editorial board should not have approved the article for the publication.

  4. Chitta Ranjan Pani says:

    does it requires to give comparative previous year figures even though preparation of cash Flow Statement was not applicable in previous year?

  5. Rohit Modi says:


    My client company having a share capital of Rs 2,05,000 and the Turnover is Rs 2,14,00,000 . Is the company required to make cash flow statement as per the new Company’s Act 2013

  6. CA.Deepak Kumar sahoo says:

    Hi Pankoj Yuor topic is a very good one which clear my doubt as regards the mandatory requirement of cash flow statement.

    As i understand

    1. Cash flow statement is not compulsorily required for
    a) OPC(One Person Comapny)
    b)Dormant Company
    c) Small Company

  7. Jayesh Sarvaiya says:

    Dear sir,
    I have following query:

    The turnover in previous year (FY1415) is more then 2 crores but less then 20 crores and Paid up capital is more hen 50 Lakhs but less then 5 crores.

    So this is SMC or not?

    Does this company requires to make CFS?

    Such higher amount as mentioned in the SMC definition (viz 20 crore and 5 crore) is applicable to which company?

  8. Shubham Goyal says:

    My companies turnover in last FY was Rs 8 crore which is more than 2 crores but less than 20 crores (as the conditions given above). So is my company SMC or not?

    Does my company requires to make CFS?

  9. Urvesh says:

    What does the last profit and loss account mean.Does it mean for considering cash flow statement of 14-15 turnover of 13-14 should be used.

    1. tanuja agrawal says:

      In small companies defination turnover of last Profit & Loss account should be considered.
      while filing annual filing of FY 2015 turnover of which year should be considered FY 2014 or FY 2015

  10. CA NIRMAL says:

    In the Companies Act, 2013 (hereinafter referred to as the said Act),—
    (a) in section 2, in clause (85), in sub-clause (i), for the word “or” occurring at the end, the word “and” shall
    be substituted;

    SO as per sec 2(85) read with Companies Removal of Difficulties order 2015, small company means (1) HAVING PAID UP CAPITAL DOES NOT EXCEED 50 LAKHS AND (2) TURN OVER LESS THAN 2 CRORE.

    SO “AND” is very important in definition of “SMALL COMPANY”

  11. B.Chackrapani Warrier says:

    The author had left out the amendment made in the definition of ‘small company’. Readers are requested to go through Companies (Removal of Difficulties) Order 2015 dated 13-2-2015 for the said change.

    1. Amit Gupta says:

      “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; 3[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:

      Substituted vide F. No. 1/13/2013-CL.V-Part – Dated 13-2-2015, before it was read as, “or”

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