‘Cash flow’ implies inflow and outflow of cash and cash equivalents. A cash flow statement provides information about the historical changes in cash and cash equivalents of an enterprise by classifying cash flows into operating, investing and financing activities between the dates of two balance sheets.ĥ.Give the meaning of cash (All India 2014 Delhi 2011)Īns. Why is a cash flow statement prepared? (Delhi 2010 c)Īns. It is classified under ‘financing activity’.Ĥ.State the purpose or objective of preparing a cash flow statement.(Delhi 2014,2012,2011C All India 2014,2012) Separate disclosure of cash flows from investing activities is important because they represent to which investment have been made for resources, intended to generate future income and cash flows.ģ.Dividend paid by a financial company is classified under which type of activity, while preparing cash flow statement? (Compartment 2014)Īns. Separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of funds (both capital and borrowings) to the enterprise.Ģ.Why is separate disclosure of cash flow from investing activities important while preparing cash flow statement? (All India 2014)Īns. (vii)Premiums and claims received (viii) Premiums and claims paidįor a Real Estate (Infrastructure) Companyħ.Cash Flow from Investing Activities As per AS-3, investing activities are the acquisition and disposal of the long-term assets and other investments, not included in cash equivalents.Ĭash flow from investing activities are exhibited as follows:Ĩ.Cash Flow from Financing Activities Financing activities are the activities which result in change in the size and composition of the owner’s capital (including preference share capital) and borrowings (including debentures) of the enterprise from other sources.Ĭash flow arising from financing activities are exhibited as follows:ġ.Why is specific disclosure of cash flow from financing activities important while preparing cash flow statement? (All India 2014)Īns. (vi)Sale of securities (vii) Purchase of securities (v)Cash received for interest and dividends (vi) Cash paid for interest (iii)Cash flow from financing activities.Ħ.Cash Flow from Operating Activities Operating activities are the principal revenue producing activities of the enterprise and other activities that are not investing or financing activities. (v)Cash flow statement is not a substitute for income statement.ĥ.Classification of Business Activities Accounting Standard-3 (Revised) requires that the changes resulting in inflows and outflows of cash and cash equivalents will be classified into following three activities: (iv)No adherence of basic accounting principles. (v)Used for assessment of cash flow from various activities, viz operating, investing and financing activities. (iv)Assists in preparation of cash budget. (iii)Helpful in formulation of business policies. (i)Useful in short-term financial planning. Receipt of cash from a non-cash item is termed as ‘cash inflow’, while cash payment in respect of such item is termed as ‘cash outflow’.Ĭash Cash comprises of cash in hand and demand deposits with the bank.Ĭash Equivalents Cash equivalents are ‘short-term highly liquid investments that are readily convertible into known amount of cash and which are subjected to an insignificant risk of change in value’. It implies movement-in and movement-out of cash and cash equivalents. 2.Cash Flows Cash flows are inflows and outflows of cash and cash equivalent.
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