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Advanced Financial Reporting: Semester 2 - Module 2 Cash Flow Statement

The document provides information on cash flow statements including: 1. Cash flow analysis evaluates a company's cash inflows and outflows from operating, investing and financing activities. 2. A cash flow statement shows where a company's cash comes from and how it is used, and can assess ability to pay obligations and generate future cash flows. 3. It classifies cash flows into operating, investing and financing activities based on their nature or type of transaction. The document then provides examples and problems to practice preparing cash flow statements using both direct and indirect methods.

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412 views26 pages

Advanced Financial Reporting: Semester 2 - Module 2 Cash Flow Statement

The document provides information on cash flow statements including: 1. Cash flow analysis evaluates a company's cash inflows and outflows from operating, investing and financing activities. 2. A cash flow statement shows where a company's cash comes from and how it is used, and can assess ability to pay obligations and generate future cash flows. 3. It classifies cash flows into operating, investing and financing activities based on their nature or type of transaction. The document then provides examples and problems to practice preparing cash flow statements using both direct and indirect methods.

Uploaded by

my Vinay
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Advanced Financial

Reporting
SEMESTER 2 – MODULE 2
CASH FLOW STATEMENT
Cash Flow Statement
 Cash Flow Analysis is the evaluation of a company’s cash inflows
and outflows from operations, financing activities, and investing
activities.

 In other words, this is an examination of how the company is


generating its money, where it is coming from, and what it means
about the value of the overall company.
Cash Flow Statement
Usefulness of the Statement of Cash Flows

Provides information to help assess:

1. Entity’s ability to generate future cash flows.

2. Entity’s ability to pay dividends and obligations.

3. Reasons for difference between net income and net cash provided (used)
by operating activities.

4. Cash investing and financing transactions during the period.


Cash Flow Statement
Classification of Cash Flows

Operating Investing Financing


Activities Activities Activities
Income Statement Changes in Changes in Long-
Items Investments and Term Liabilities and
Long-Term Asset Stockholders’
Items Equity
Cash Flow Statement
Classification of Cash Flows
Cash Flow Statement
Classification of Cash Flows
Cash Flow Statement
 What are non-cash activities?
1. Issuance of common stock to purchase assets.
2. Conversion of bonds into common stock.
3. Issuance of debt to purchase assets.
4. Exchanges of plant assets.

Companies report noncash activities in either a


 separate schedule (bottom of the statement) or
 separate note to the financial statements
Cash Flow Statement
Cash Flow Statement
Classify each of these transactions by type of cash flow activity.

An Auto company borrows Rs 1000 Crore for capacity expansion. Financing activity
A Company received Rs 10,000 from the Company owner Financing activity
Sale of Stationery Items to the Retailer Store Operating Activity
A Company paid Rs 6000 for Office Equipment Investing Activity
Sale of a factory by a company would be classified as Investing Activity
Sale of services by a consulting firm would be classified as Operating Activity
Purchased two semi-trailer trucks for Rs.170,000 cash
Investing Activity
Paid employees Rs.12,000 for salaries and wages
Operating Activity
Collected Rs.20,000 cash for services provided
Operating Activity
Cash Flow Statement
Direct and Indirect Cash Flow Formats
Direct Method
Each line item of the accrual-based income statement is converted into cash receipts or cash
payments.
Simply stated, the direct method converts an accrual-basis income statement into a cash-basis
income statement.
Indirect Method
Under this method, net income is converted to operating cash flow by making adjustments for
transactions that affect net income but are not cash transactions.
These adjustments include eliminating noncash expenses (e.g., depreciation and amortization),
nonoperating items (e.g., gains and losses), and changes in balance sheet accounts resulting from
accrual accounting events.
Problem No.1
Problem No.2
Problem No. 3
Problem No. 4

 Adjustments:
 Interest Paid Rs.12500
 Dividend Paid Rs.14750
 Tangible assets purchased for
Rs.47,500
 No change in borrowings.
 Required:
 Prepare Cash Flow Statement
Problem No. 5

Additional Information
(i) During the year, a piece of machinery of
the book value of Rs.80,000 was sold for
Rs.65,000.
(ii) Depreciation provided on tangible assets
during the year amounted to Rs.2,00,000
Required:
Prepare a Cash Flow Statement.
Problem No. 6

Additional Information
(i) The Company paid interest
Rs.36000 on its long-term
borrowings
(ii) Depreciation charged on
tangible fixed assets was
Rs.1,20,000

Required:

Prepare a Cash Flow Statement.


Problem No. 7
Problem No. 8
Cash Flow Statement – Direct Method

* Extraordinary items consisted of gains or


losses from events that were unusual and
infrequent in nature. It was typically a
one-time gain or loss and was not
expected to recur in the future.

* Non-cash items such as depreciation,


preliminary expenses, debenture discount
and all ignored.
Problem No. 9
Problem No. 10
Problem No. 11
Problem No. 12
The following is the Profit and Loss Account of Yamuna Limited:

Additional Information: Income Tax paid Rs. 34,500.


Calculate Cash flow from operating activities using direct method.
Problem No. 11
The following is the Profit and Loss Account of Yamuna Limited:

Additional Information: Income Tax paid Rs. 34,500.


Calculate Cash flow from operating activities using direct method.

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