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Thread: 03 Accounting Standard 3 - Cash Flow Statements - AS 3

  1. #11
    Accounting Standards
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    Default Reporting Cash Flows from Operating Activities of Accounting Standard 3 - Cash Flow Statements - AS 3

    Reporting Cash Flows from Operating Activities of Accounting Standard 3 - Cash Flow Statements - AS 3


    18. An enterprise should report cash flows fromoperating activities using either:


    (a) the direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed; or

    (b) the indirect method, whereby net profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows.


    19. The direct method provides information which may be useful in estimating future cash flows and which is not available under the indirect method and is, therefore, considered more appropriate than the indirect method. Under the direct method, information about major classes of gross cash receipts and gross cash payments may be obtained either:

    (a) from the accounting records of the enterprise; or

    (b) by adjusting sales, cost of sales (interest and similar income and interest expense and similar charges for a financial enterprise) and other items in the statement of profit and loss for:
    i) changes during the period in inventories and operating receivables and payables;
    ii) other non-cash items; and
    iii) other items for which the cash effects are investing or financing cash flows.


    20. Under the indirect method, the net cash flow from operating activities is determined by adjusting net profit or loss for the effects of:

    (a) changes during the period in inventories and operating receivables and payables;

    (b) non-cash items such as depreciation, provisions, deferred taxes, and unrealised foreign exchange gains and losses; and

    (c) all other items forwhich the cash effects are investing or financing cash flows.


    Alternatively, the net cash flow from operating activities may be presented under the indirect method by showing the operating revenues and expenses excluding non-cash items disclosed in the statement of profit and loss and the changes during the period in inventories and operating receivables and payables.

  2. #12
    Accounting Standards
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    Default Reporting Cash Flows from Investing and Financing Activities of Accounting Standard 3 - Cash Flow Statements - AS 3

    Reporting Cash Flows from Investing and Financing Activities of Accounting Standard 3 - Cash Flow Statements - AS 3


    21. An enterprise should report separately major classes of gross cash receipts and gross cash payments arising from investing and financing activities, except to the extent that cash flows described in paragraphs 22 and 24 are reported on a net basis.

  3. #13
    Accounting Standards
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    Default Reporting Cash Flows on a Net Basis of Accounting Standard 3 - Cash Flow Statements - AS 3

    Reporting Cash Flows on a Net Basis of Accounting Standard 3 - Cash Flow Statements - AS 3


    22. Cash flows arising from the following operating, investing or financing activities may be reported on a net basis:


    (a) cash receipts and payments on behalf of customers when the cash flows reflect the activities of the customer rather than those of the enterprise; and


    (b) cash receipts and payments for items in which the turnover is quick, the amounts are large, and the maturities are short.

    23. Examples of cash receipts and payments referred to in paragraph 22(a) are:

    (a) the acceptance and repayment of demand deposits by a bank;
    (b) funds held for customers by an investment enterprise; and
    (c) rents collected on behalf of, and paid over to, the owners of properties.

    Examples of cash receipts and payments referred to in paragraph 22(b) are advances made for, and the repayments of:

    (a) principal amounts relating to credit card customers;
    (b) the purchase and sale of investments; and
    (c) other short-term borrowings, for example, those which have a maturity period of three months or less.



    24. Cash flows arising from each of the following activities of a financial enterprise may be reported on a net basis:

    (a) cash receipts and payments for the acceptance and repayment of deposits with a fixed maturity date;

    (b) the placement of deposits with and withdrawal of deposits from other financial enterprises; and

    (c) cash advances and loans made to customers and the repayment of those advances and loans.

  4. #14
    Accounting Standards
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    Default Foreign Currency Cash Flows of Accounting Standard 3 - Cash Flow Statements - AS 3

    Foreign Currency Cash Flows of Accounting Standard 3 - Cash Flow Statements - AS 3


    25. Cash flows arising from transactions in a foreign currency should be recorded in an enterprise’s reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the cash flow. Arate that approximates
    the actual rate may be used if the result is substantially the same as would arise if the rates at the dates of the cash flows were used. The effect of changes in exchange rates on cash and cash equivalents held in a foreign currency should be reported as a separate part of the reconciliation of the changes in cash and cash equivalents during the period.


    26. Cash flows denominated in foreign currency are reported in a manner consistent with Accounting Standard (AS) 11,Accounting for the Effects of Changes in Foreign Exchange Rates4. This permits the use of an exchange rate that approximates the actual rate. For example, a weighted average
    exchange rate for a period may be used for recording foreign currency transactions.


    27. Unrealised gains and losses arising from changes in foreign exchange rates are not cash flows. However, the effect of exchange rate changes on cash and cash equivalents held or due in a foreign currency is reported in the cash flow statement in order to reconcile cash and cash equivalents at
    the beginning and the end of the period. This amount is presented separately from cash flows from operating, investing and financing activities and includes the differences, if any, had those cash flows been reported at the end-of-period exchange rates.

  5. #15
    Accounting Standards
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    Default Extraordinary Items of Accounting Standard 3 - Cash Flow Statements - AS 3

    Extraordinary Items of Accounting Standard 3 - Cash Flow Statements - AS 3


    28. The cash flows associated with extraordinary items should be classified as arising from operating, investing or financing activities as appropriate and separately disclosed.


    29. The cash flows associated with extraordinary items are disclosed separately as arising from operating, investing or financing activities in the cash flow statement, to enable users to understand their nature and effect on the present and future cash flows of the enterprise. These disclosures are in addition to the separate disclosures of the nature and amount of extraordinary items required by Accounting Standard (AS) 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies.

  6. #16
    Accounting Standards
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    Default Interest and Dividends of Accounting Standard 3 - Cash Flow Statements - AS 3

    Interest and Dividends of Accounting Standard 3 - Cash Flow Statements - AS 3


    30. Cash flows from interest and dividends received and paid should each be disclosed separately. Cash flows arising from interest paid and interest and dividends received in the case of a financial enterprise should be classified as cash flows arising from operating activities. In the case of other enterprises, cash flows arising from interest paid should be classified as cash flows from financing activities while interest and dividends received should be classified as cash flows from investing
    activities.Dividends paid should be classified as cash flows fromfinancing activities.


    31. The total amount of interest paid during the period is disclosed in the cash flow statement whether it has been recognised as an expense in the statement of profit and loss or capitalised in accordance with Accounting Standard (AS) 10, Accounting for Fixed Assets.


    32. Interest paid and interest and dividends received are usually classified as operating cash flows for a financial enterprise. However, there is no consensus on the classification of these cash flows for other enterprises. Some argue that interest paid and interest and dividends received may be
    classified as operating cash flows because they enter into the determination of net profit or loss. However, it is more appropriate that interest paid and interest and dividends received are classified as financing cash flows and investing cash flows respectively, because they are costof obtaining financial resources or returns on investments.


    33. Some argue that dividends paid may be classified as a component of cash flows from operating activities in order to assist users to determine the ability of an enterprise to pay dividends out of operating cash flows.However, it is considered more appropriate that dividends paid should be classified as cash flows from financing activities because they are cost of obtaining financial resources.

  7. #17
    Accounting Standards
    Guest

    Default Taxes on Income of Accounting Standard 3 - Cash Flow Statements - AS 3

    Taxes on Income of Accounting Standard 3 - Cash Flow Statements - AS 3


    34. Cash flows arising from taxes on income should be separately disclosed and should be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities.


    35. Taxes on income arise on transactions that give rise to cash flows that are classified as operating, investing or financing activities in a cash flow statement. While tax expense may be readily identifiable with investing or financing activities, the related tax cash flows are often impracticable to identify and may arise in a different period from the cash flows of the underlying transactions. Therefore, taxes paid are usually classified as cash flows from operating activities. However, when it is practicable to identify the tax cash flow with an individual transaction that gives rise to cash flows that are classified as investing or financing activities, the tax cash flow is
    classified as an investing or financing activity as appropriate.When tax cash flow are allocated over more than one class of activity, the total amount of taxes paid is disclosed.

  8. #18
    Accounting Standards
    Guest

    Default Investments in Subsidiaries, Associates and Joint Ventures of Accounting Standard 3 - Cash Flow Statements - AS 3

    Investments in Subsidiaries, Associates and Joint Ventures of Accounting Standard 3 - Cash Flow Statements - AS 3


    36. When accounting for an investment in an associate or a subsidiary or a joint venture, an investor restricts its reporting in the cash flow statement to the cash flows between itself and the investee/joint venture, for example, cash flows relating to dividends and advances.

  9. #19
    Accounting Standards
    Guest

    Default Acquisitions and Disposals of Subsidiaries and Other Business Units of Accounting Standard 3 - Cash Flow Statements - AS 3

    Acquisitions and Disposals of Subsidiaries and Other Business Units of Accounting Standard 3 - Cash Flow Statements - AS 3


    37. The aggregate cash flows arising from acquisitions and from disposals of subsidiaries or other business units should be presented separately and classified as investing activities.


    38. An enterprise should disclose, in aggregate, in respect of both acquisition and disposal of subsidiaries or other business units during the period each of the following:


    (a) the total purchase or disposal consideration; and

    (b) the portion of the purchase or disposal consideration discharged by means of cash and cash equivalents.


    39. The separate presentation of the cash flow effects of acquisitions and disposals of subsidiaries and other business units as single line items helps to distinguish those cash flows from other cash flows. The cash flow effects of disposals are not deducted from those of acquisitions.

  10. #20
    Accounting Standards
    Guest

    Default Non - cash Transactions of Accounting Standard 3 - Cash Flow Statements - AS 3

    Non-cash Transactions of Accounting Standard 3 - Cash Flow Statements - AS 3


    40. Investing and financing transactions that do not require the use of cash or cash equivalents should be excluded from a cash flow statement. Such transactions should be disclosed elsewhere in the financial statements in a way that provides all the relevant information about these investing
    and financing activities.


    41. Many investing and financing activities do not have a direct impact on current cash flows although they do affect the capital and asset structure of an enterprise. The exclusion of non-cash transactions from the cash flow statement is consistent with the objective of a cash flow statement as these items do not involve cash flows in the current period. Examples of non-cash transactions are:

    (a) the acquisition of assets by assuming directly related liabilities;

    (b) the acquisition of an enterprise by means of issue of shares; and

    (c) the conversion of debt to equity.

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