1. Under section-2(40) of Companies Act, 2013, the cash flow statement is included in the definition of financial statements.
2. As per accounting standard-3 discloure of cash flow statement is mandatory from 1-4-2004 and onwards for certain business enterprises.
3. The indentification of operating activities of each business is based on the nature of business.
4. Salary, wages, bonus to employees, employees welfare expenses are always included in operating activities.
5. Purchase of non-current assets like purchase of machine, purchase of furniture etc. are always included in investing activities.
6. Dividend paid on share capital is a transaction linked with capital, so it is considered as financing activity.
7. In the payment of hire purchase instalment method, payment of principle is known as investing activity and payment of interest is known as financing activity.
8. In any cash deposit or withdraw from bank is known as cash transaction. It is not considered as cash flow.
9. There is inverse relation between current asset and cash and cash equivalent. If current assets increases then cash and cash equivalent decreases and if current assets decreases then cash and cash equivalent increases. There is direct relation between current liabilities and cash and cash equivalent. If current liabilities increases then cash and cash equivalent increases and if current liabilities decreases then cash and cash equivalent decreases.
10. At the time of calculation of cash flow from investing activities if the amount of depreciation, profit on sale of assets, loss on sale of assets, selling price of assets, purchase price of assets is not given in question then find out that amount by preparing respective assets account.
11. The following transactions show changes in size/composition of owners capital and borrowed capital of business entity. Still these are not considered as cash flow from financing activities.
- Increase in equity share capital due to issue of bonus share
- There is conversion of debenture into share.
12. When issue of equity share/debenture is done of premium, the amount of premium is considered as cash inflow of financing activities.
13. Underwriting commission paid at the time of issue of share or debentures is financing activity and is shown as cash outflow of financing activity.
