CBSE Class 12 Accountancy Partnership Cash Flow Statement Notes

CBSE Class 12 Partnership - Cash-Flow Statement Notes. Learning the important concepts is very important for every student to get better marks in examinations. The concepts should be clear which will help in faster learning. The attached concepts made as per NCERT and CBSE pattern will help the student to understand the chapter and score better marks in the examinations.

Cash Flow Statement

Basic Concepts

Cash Flow Statement: A Cash Flow Statement shows the flow of cash and cash equivalents during a given period of time. It shows the net increase or net decrease of cash and cash equivalents under each activity, such as Operating, Investing, Financing and collectively.

Objectives of Cash Flow Statement: The basic objective of a Cash Flow Statement is to highlight the changes in the cash position including the sources from which cash was obtained by the enterprise and specific uses to which cash was applied. A Cash Flow Statement has the following objectives:

• To depict inflows and outflows of cash, meaning, sources and uses of cash.
• To facilitate formulation of financial policies such as dividend policy, etc.
• To ascertain the liquidity of the enterprise.
• To ascertain the net change in cash and cash equivalents.
• To study the trend of cash receipts and cash payments.
• To know the deviation of cash from earnings.
• To enable a more realistic assessment of the financial condition of the enterprise and to anticipate the cash position.

Operating Activities: Operating Activities are the main revenue generating activities of a business firm. Operating activities are those transactions and events whose cash flows affect the net profit or loss of a business firm.

Examples of Cash Flows from Operating Activities: AS-3 (Revised) gives the following examples of cash flows from operating activities:

The major inflows and outflows in case of financial companies:

Investing Activities: Investing Activities are those activities which are related to the acquisition and disposal of long-term assets and other investments not included in the cash equivalents.

Examples: AS-3 (Revised) gives the following examples of cash flows from Investing Activities:

Financing Activities: Financing Activities are those activities that result in the changes in size and composition of the owners' capital (including Preference Share Capital in the case of a company) and borrowings of the business firm.

Examples of Cash Flows from Financing Activities: AS-3 (Revised) gives the following examples of cash flows from Financing Activities:

Format of Cash Flow Statement:

Cash Flow Statement of ..............

for the year ended ....................

[As per Accounting Standard (AS-3) (Revised) (Indirect Method)]

Adjustment for Non-Cash and Non-operating Items

(B) Items to be added back:

• Depreciation
• Interest on Borrowings and Debentures
• Preliminary Expenses/Discount on Issue of Debentures written off
• Goodwill/Patents/Trade Marks/Copyrights Amortised
• Loss on Sale of fixed assets
• Increase in provision for Doubtful Debts
• Premium on Redemption of Debentures

(C) Items to be Deducted:

• Interest Income
• Dividend Income
• Rental Income
• Profit on Sale of Fixed Assets
• Liability/Provisions written back (Decrease in Provision for Doubtful Debts)

(D) Operating profit before working capital changes (A + B - C)

(E) Add: Decrease in Current Assets

• Increase in Current Liabilities

(F) Less: Increase in Current Assets

• Decrease in Current Liabilities

(G) Cash generated from Operations (D + E - F)

(H) Less: Income tax paid (Net of Refund of Tax)

(I) Net Cash from (or used in) Operating Activities (X)

2. Cash Flow from Investing Activities:

• Proceeds from Sale of Tangible Fixed Assets
• Proceeds from Sale of Intangible Fixed Assets
• Proceeds from Sale of Non-current Investments
• Interest and Dividend received (for Non-financial Companies only)
• Rental Income
• Purchase of Tangible Fixed Assets
• Purchase of Intangible Assets like Goodwill, Patents, etc.
• Purchase of Non-current Investments
• Extraordinary Items (e.g. Insurance claim on machinery against fire)
• Net Cash from (or used in) Investing Activities (Y)

3. Cash Flow from Financing Activities:

• Proceeds from Issue of Share Capital and Debentures
• Proceeds from Long-term Borrowings
• Increase/Decrease in Bank Overdraft and Cash Credit
• Payment of Shares Issue Expenses
• Final Dividend Paid
• Interim Dividend Paid
• Interest on Long-term Borrowings Paid
• Redemption of Debentures/Preference Shares
• Extraordinary Items (eg. Buy-back of shares)
• Net Cash from (or used in) Financing Activities (Z)

4. Net Increase/Decrease in Cash and Cash Equivalents (X + Y + Z)

5. Add: Cash and Cash Equivalents in the beginning of the year (WN 2)

6. Cash and Cash Equivalents at the end of the year (WN 3)

Note: Figures in brackets represent negative items.

Working Note:

1. Calculation of Net Profit before Tax and Extraordinary Items

2. Calculation of Cash and Cash Equivalents in the beginning

3. Calculation of Cash and Cash Equivalents at the end

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