- Applicability under Companies Act, 2013:
- All companies required to prepare cash flow statements.
- Exemptions for One Person Company (OPC), Small Company, and Dormant Company.
- Cash and Cash Equivalents:
- Criteria for investments to qualify as cash equivalents.
- Exclusion of movements between cash or cash equivalents from operating, financing, and investing activities.
- Presentation of Cash Flow:
- Classification into operating, investing, and financing activities.
- Importance of grouping activities for assessing financial position.
- Operating Activities:
- Predominantly revenue-generating activities.
- Examples include cash receipts from sales and payments to suppliers.
- Investing Activities:
- Outflows for resources intended to generate future income.
- Includes cash paid for acquiring fixed assets and investments.
- Financing Activities:
- Changes in composition and size of owner’s capital and borrowings.
- Involves cash received from issuing shares, loans, or repayments on borrowings.
- Cash Flow Reporting Methods:
- Direct method: Presents major classes of cash receipts and payments.
- Indirect method: Adjusts net profit for non-cash transactions.
- Foreign Currency Cash Flows:
- Conversion of foreign currency cash flows to reporting currency.
- Impact of exchange rate changes on cash equivalents.
- Extraordinary Items, Dividends & Interests:
- Categorization of cash flows from extraordinary items.
- Separate disclosure of dividends and interest received and paid.
- Taxes on Income:
- Separate disclosure of cash flows related to taxes on income.
- Reporting as cash flows from operating activities unless explicitly related to investing or financing.
- Acquisitions and Disposal of Business Units:
- Separate reporting of cash flows from acquisitions and disposals.
- Presentation of purchase or disposal values and cash equivalents used.
- Non-Cash Transactions:
- Exclusion of non-cash transactions from cash flow statements.
- Presentation elsewhere in financial statements for relevant information.
- Disclosure Requirements:
- Disclosure of substantial cash and cash equivalents not available for use.
- Disclosure of commitments arising from discounted bills of exchange.
- Comparison with Ind AS 7:
- Major differences in treatment of bank overdrafts, extraordinary activities, changes in ownership of interests in subsidiaries, accounting for investments, and disclosure requirements.
Conclusion:
Understanding AS 3 Cash Flow Statements is crucial for companies to ensure compliance with financial reporting standards and provide transparent information to stakeholders. Awareness of its applicability, presentation methods, and disclosure requirements is essential for accurate financial reporting and effective decision-making.
