Cash Flow Notes2

Study Material & Notes for the Chapter 12

CASH FLOW STATEMENT

II.  CASH FLOW FROM OPERATING ACTIVITIES

i. Operating Activities
  • Operating activities are the activities that constitute the primary or main activities of an enterprise
  • These are the principal revenue generating activities (or the main activities) of the enterprise and these activities are not investing or financing activities.
  • Cash flows from operating activities generally result from the transactions and other events that enter into the determination of net profit or loss
  • The amount of cash from operations’ indicates the internal solvency level of the company, and is regarded as the key indicator of the extent to which the operations of the enterprise have generated sufficient cash flows to maintain the operating capability of the enterprise, paying dividends, making of new investments and repaying of loans without recourse to external source of financing.
ii. Operating Activities - Manufacturing/Trading/Service Co
Cash Flow 2.1
iii. Operating Activities – Finance Companies
Presentation in the Cash Flow Statement
SN Particulars Amount
(A) Net Profit before Tax and Extraordinary Items (as per Working Note)
Net Profit as per Statement of Profit & Loss or Difference between Closing Balance and Opening Balance of Surplus, i.e., Balance in Statement of Profit & Loss
Add Transfer to Reserves
Dividend Payable (Proposed Dividend of previous year) paid during the year Interim Dividend paid during the year
Provision for Tax for the current year
Extraordinary Items, if any, debited to the Statement of Profit & Loss
Less Extraordinary Items, if any, credited to the Statement of Profit & Loss
Refund of Tax credited to the Statement of Profit & Loss
Net Profit before Tax and Extraordinary Items
(B) Items to be Added
Depreciation
Interest on Bank Overdraft/Cash Credit
Interest on Borrowings (Short-term and Long term) and Debentures
Writing off Underwriting Commission/Share Issue Expenses
Loss on Sale of Fixed Assets
Increase in Provision for Doubtful Debts*
(C) Items to be Deducted
Interest Income
Dividend Income
Rental Income
Gain (Profit) on Sale of Fixed Assets
Decrease in Provision for Doubtful Debts*
(D) Operating Profit before Working Capital Changes (A+B-C)
(E) Add: Decrease in Current Assets and Increase in Current Liabilities
Decrease in Inventories (Stock)
Decrease in Trade Receivables (Debtors and Bills Receivable)
Decrease in Accrued Incomes
Decrease in Prepaid Expenses
Increase in Trade Payables (Creditors and Bills Payable)
Increase in Outstanding Expenses
Increase in Advance Incomes
(F) Less: Increase in Current Assets and Decrease in Current Liabilities
Increase in Inventories (Stock)
Increase in Trade Receivables (Debtors and Bills Receivable)
Increase in Accrued Incomes
Increase in Prepaid Expenses
Decrease in Trade Payables (Creditors and Bills Payable)
Decrease in Outstanding Expenses
Decrease in Advance Incomes
(G) Cash Generated from Operations (D+E-F)
(H) Less: Income Tax Paid (Net of Tax Refund)
(I) Cash Flow before Extraordinary Items
Extraordinary Items (+/-)
(J) Cash Flow from (or Used in) Operating Activities
Working Note
SN Particulars Amount
Net Profit as per Profit & Loss Account or Closing – Opening P&L
Add:
Proposed Dividend (Previous year) paid during the year
Interim/Final Dividend paid on Equity/Preference Shares
Provision for Taxation (Current Year’s only) – Net of refund
Transfer from P&L A/c to Reserves
Loss/Expenses due to extraordinary items debited to P&L
Less:
Refund of Tax credited to P&L A/c
Gain/Income due to extraordinary items
Net Profit before Tax and Extraordinary Items
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