Preparation of a Cash Flow Statement with the help of audited/unaudited/imaginary Balance
Sheets of a company for two consecutive accounting years or two consecutive quarters of an
accounting year could be taken along with at least five additional information (Depreciation,
Purchase/Sale of Fixed Assets, Dividend paid/proposed, Tax paid/proposed, amortisation of
Intangible assets, profit or loss on sale of fixed assets including provision for depreciation on
them and profit or loss on sale of investment),
• The results of the Operating, Investing and Financing Activities could be shown graphically
and/or pictorially (bar diagrams and pie charts),
Answers
Answer:
Cash Flow Statements 53
Accounting Standard (AS) 3
Cash Flow Statements
(This Accounting Standard includes paragraphs set in bold italic type
and plain type, which have equal authority. Paragraphs in bold italic
type indicate the main principles. This Accounting Standard should be
read in the context of its objective and the General Instructions
contained in part A of the Annexure to the Notification.)
This Accounting Standard is not mandatory for Small and Medium Sized
Companies, as defined in the Notification. Such companies are however
encouraged to comply with the Standard.
Objective
Information about the cash flows of an enterprise is useful in providing users
of financial statements with a basis to assess the ability of the enterprise
to generate cash and cash equivalents and the needs of the enterprise to
utilise those cash flows. The economic decisions that are taken by users
require an evaluation of the ability of an enterprise to generate cash and
cash equivalents and the timing and certainty of their generation.
The Standard deals with the provision of information about the historical
changes in cash and cash equivalents of an enterprise by means of a cash
flow statement which classifies cash flows during the period from operating,
investing and financing activities.
Scope
1. An enterprise should prepare a cash flow statement and should
present it for each period for which financial statements are presented.
2. Users of an enterprise’s financial statements are interested in how the
enterprise generates and uses cash and cash equivalents. This is the case
regardless of the nature of the enterprise’s activities and irrespective of
whether cash can be viewed as the product of the enterprise, as may be the
case with a financial enterprise. Enterprises need cash for essentially the
same reasons, however different their principal revenue-producing activities
might be. They need cash to conduct their operations, to pay their obligations,
and to provide returns to their investors.Benefits of Cash Flow Information
3. A cash flow statement, when used in conjunction with the other financial
statements, provides information that enables users to evaluate the changes
in net assets of an enterprise, its financial structure (including its liquidity and
solvency) and its ability to affect the amounts and timing of cash flows in
order to adapt to changing circumstances and opportunities. Cash flow
information is useful in assessing the ability of the enterprise to generate
cash and cash equivalents and enables users to develop models to assess
and compare the present value of the future cash flows of different
enterprises. It also enhances the comparability of the reporting of operating
performance by different enterprises because it eliminates the effects of
using different accounting treatments for the same transactions and events.
4. Historical cash flow information is often used as an indicator of the
amount, timing and certainty of future cash flows. It is also useful in checking
the accuracy of past assessments of future cash flows and in examining the
relationship between profitability and net cash flow and the impact of
changing prices.
Definitions
5.
Operating Activities
11. The amount of cash flows arising from operating activities is a key