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ACCOUNTING STANDARD (AS) - 3

Cash Flow Statements

Contents

OBJECTIVE

SCOPE Paragraphs 1-2

BENEFITS OF CASH FLOW INFORMATION 3-4

DEFINITIONS 5-7

Cash and Cash Equivalents 6-7

PRESENTATION OF A CASH FLOW STATEMENT 8-17

Operating Activities 11-14

Investing Activities 15-16

Financing Activities 17

REPORTING CASH FLOWS FROM OPERATING
ACTIVITIES 18-20

REPORTING CASH FLOWS FROM INVESTING AND
FINANCING ACTIVITIES 21

REPORTING CASH FLOWS ON A NET BASIS 22-24

FOREIGN CURRENCY CASH FLOWS 25-27

EXTRAORDINARY ITEMS 28-29

INTEREST AND DIVIDENDS 30-33

TAXES ON INCOME 34-35

INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND
JOINT VENTURES 36

ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES
AND OTHER BUSINESS UNITS 37-39

NON-CASH TRANSACTIONS 40-41

COMPONENTS OF CASH AND CASH EQUIVALENTS 42-44

OTHER DISCLOSURES 45-48

APPENDICES

(This Accounting Standard includes paragraphs set in bold italic type
and plain type, which have equal authority. Paragraphs in bold italic type
indicate the main principles. This Accounting Standard should be read in
the context of its objective and the Preface to the Statements of Accounting
Standards1.)

The following is the text of the Accounting Standard.

Objective

Information about the cash flows of an enterprise is useful in providing
users of financial statements with a basis to assess the ability of the
enterprise to generate cash and cash equivalents and the needs of the
enterprise to utilise those cash flows. The economic decisions that are taken
by users require an evaluation of the ability of an enterprise to generate cash and cash equivalents and the timing and certainty of their generation.
The Statement deals with the provision of information about the historical
changes in cash and cash equivalents of an enterprise by means of a cash
flow statement which classifies cash flows during the period from operating,
investing and financing activities.

Scope

1. An enterprise should prepare a cash flow statement and should present it for each period for which financial statements are presented.

2. Users of an enterprise’s financial statements are interested in how the
enterprise generates and uses cash and cash equivalents. This is the case
regardless of the nature of the enterprise’s activities and irrespective of
whether cash can be viewed as the product of the enterprise, as may be the
case with a financial enterprise. Enterprises need cash for essentially the
same reasons, however different their principal revenue-producing activities
might be.They need cash to conduct their operations, to pay their obligations, and to provide returns to their investors.

Benefits of Cash Flow Information

3. A cash flow statement, when used in conjunction with the other financial
statements, provides information that enables users to evaluate the changes
in net assets of an enterprise, its financial structure (including its liquidity
and solvency) and its ability to affect the amounts and timing of cash flows
in order to adapt to changing circumstances and opportunities. Cash flow
information is useful in assessing the ability of the enterprise to generate
cash and cash equivalents and enables users to develop models to assess
and compare the present value of the future cash flows of different
enterprises. It also enhances the comparability of the reporting of operating
performance by different enterprises because it eliminates the effects of
using different accounting treatments for the same transactions and events.

4. Historical cash flow information is often used as an indicator of the
amount, timing and certainty of future cash flows. It is also useful in checking
the accuracy of past assessments of future cash flows and in examining the
relationship between profitability and net cash flow and the impact of
changing prices.

Definitions

5. The following terms are used in this Statement with the meanings
specified:

Cash comprises cash on hand and demand deposits with banks.

Cash equivalents are short term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

Cash flows are inflows and outflows of cash and cash equivalents.

Operating activities are the principal revenue-producing activities of the enterprise and other activities that are not investing or financing activities.

Investing activities are the acquisition and disposal of long-term assets
and other investments not included in cash equivalents.

Financing activities are activities that result in changes in the size and
composition of the owners’ capital (including preference share capital in the case of a company) and borrowings of the enterprise.

Cash and Cash Equivalents

6. Cash equivalents are held for the purpose of meeting short-term cash
commitments rather than for investment or other purposes. For an investment to qualify as a cash equivalent, it must be readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition. Investments in shares are excluded from cash equivalents unless they are, in substance, cash equivalents; for example, preference shares of a company acquired shortly before their specified redemption date (provided there is only an insignificant risk of failure of the company to repay the amount atmaturity).

7. Cash flows exclude movements between items that constitute cash or
cash equivalents because these components are part of the cash management of an enterprise rather than part of its operating, investing and financing activities. Cash management includes the investment of excess cash in cash equivalents.

Presentation of a Cash Flow Statement

8. The cash flow statement should report cash flows during the period
classified by operating, investing and financing activities.

9. An enterprise presents its cash flows from operating, investing and
financing activities in a manner which is most appropriate to its business.
Classification by activity provides information that allows users to assess
the impact of those activities on the financial position of the enterprise and
the amount of its cash and cash equivalents. This information may also be
used to evaluate the relationships among those activities.

10. A single transaction may include cash flows that are classified
differently. For example, when the instalment paid in respect of a fixed
asset acquired on deferred payment basis includes both interest and loan,
the interest element is classified under financing activities and the loan
element is classified under investing activities.

Operating Activities

11. The amount of cash flows arising from operating activities is a key
indicator of the extent towhich the operations of the enterprise have generated sufficient cash flows to maintain the operating capability of the enterprise, pay dividends, repay loans and make new investments without recourse to external sources of financing. Information about the specific components of historical operating cash flows is useful, in conjunction with other information, in forecasting future operating cash flows.

12. Cash flows from operating activities are primarily derived from the
principal revenue-producing activities of the enterprise. Therefore,
they generally result from the transactions and other events that enter
into the determination of net profit or loss. Examples of cash flows from
operating activities are:

(a) cash receipts fromthe sale of goods and the rendering of services;

(b) cash receipts fromroyalties, fees, commissions and other revenue;

(c) cash payments to suppliers for goods and services;

(d) cash payments to and on behalf of employees;

(e) cash receipts and cash payments of an insurance enterprise for
premiums and claims, annuities and other policy benefits;

(f) cash payments or refunds of income taxes unless they can be
specifically identified with financing and investing activities; and

(g) cash receipts and payments relating to futures contracts, forward
contracts, option contracts and swap contractswhen the contracts
are held for dealing or trading purposes.

13. Some transactions, such as the sale of an item of plant, may give rise
to a gain or loss which is included in the determination of net profit or loss.
However, the cash flows relating to such transactions are cash flows from
investing activities.

14. An enterprise may hold securities and loans for dealing or trading
purposes, in which case they are similar to inventory acquired specifically
for resale.Therefore, cash flows arising fromthe purchase and sale of dealing or trading securities are classified as operating activities. Similarly, cash advances and loans made by financial enterprises are usually classified as operating activities since they relate to the main revenue-producing activity of that enterprise.

Investing Activities

15. The separate disclosure of cash flows arising from investing activities
is important because the cash flows represent the extent towhich expenditures have been made for resources intended to generate future income and cash flows. Examples of cash flows arising from investing activities are:

(a) cash payments to acquire fixed assets (including intangibles).
These payments include those relating to capitalised research and
development costs and self-constructed fixed assets;

(b) cash receipts fromdisposal of fixed assets (including intangibles);

(c) cash payments to acquire shares, warrants or debt instruments of
other enterprises and interests in joint ventures (other than
payments for those instruments considered to be cash equivalents
and those held for dealing or trading purposes);

(d) cash receipts fromdisposalof shares,warrants or debt instruments
of other enterprises and interests in joint ventures (other than
receipts fromthose instruments considered to be cash equivalents
and those held for dealing or trading purposes);

(e) cash advances and loansmade to third parties (other than advances
and loans made by a financial enterprise);

(f) cash receipts from the repayment of advances and loans made to
third parties (other than advances and loans of a financial
enterprise);

(g) cash payments for futures contracts, forward contracts, option
contracts and swap contracts except when the contracts are held
for dealing or trading purposes, or the payments are classified as
financing activities; and

(h) cash receipts from futures contracts, forward contracts, option
contracts and swap contracts except when the contracts are held
for dealing or trading purposes, or the receipts are classified as
financing activities.

16. When a contract is accounted for as a hedge of an identifiable position,
the cash flows of the contract are classified in the same manner as the cash
flows of the position being hedged.

Financing Activities

17. The 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. Examples
of cash flows arising from financing activities are:

(a) cash proceeds from issuing shares or other similar instruments;

(b) cash proceeds from issuing debentures, loans, notes, bonds, and
other short or long-term borrowings; and

(c) cash repayments of amounts borrowed.

Reporting Cash Flows from Operating Activities

18. An enterprise should report cash flows from operating activities using either:

(a) the direct method, whereby major classes of gross cash receipts
and gross cash payments are disclosed; or

(b) the indirect method, whereby net profit or loss is adjusted for
the effects of transactions of a non-cash nature, any deferrals
or accruals of past or future operating cash receipts or
payments, and items of income or expense associated with
investing or financing cash flows.

19. The direct method provides information which may be useful in
estimating future cash flows and which is not available under the indirect
method and is, therefore, considered more appropriate than the
indirect method. Under the direct method, information about major classes
of gross cash receipts and gross cash payments may be obtained either:

(a) from the accounting records of the enterprise; or

(b) by adjusting sales, cost of sales (interest and similar income and
interest expense and similar charges for a financial enterprise)
and other items in the statement of profit and loss for:

i) changes during the period in inventories and operating
receivables and payables;

ii) other non-cash items; and

iii) other items for which the cash effects are investing or
financing cash flows.

20. Under the indirect method, the net cash flow from operating activities
is determined by adjusting net profit or loss for the effects of:

(a) changes during the period in inventories and operating receivables
and payables;

(b) non-cash items such as depreciation, provisions, deferred taxes,
and unrealised foreign exchange gains and losses; and

(c) all other items forwhich the cash effects are investing or financing
cash flows.

Alternatively, the net cash flow from operating activities may be presented
under the indirect method by showing the operating revenues and expenses
excluding non-cash items disclosed in the statement of profit and loss and
the changes during the period in inventories and operating receivables and
payables.

Reporting Cash Flows from Investing and
Financing Activities

21. An enterprise should report separately major classes of gross cash
receipts and gross cash payments arising from investing and financing
activities, except to the extent that cash flows described in paragraphs 22 and 24 are reported on a net basis.

Reporting Cash Flows on a Net Basis

22. Cash flows arising from the following operating, investing or
financing activities may be reported on a net basis:

(a) cash receipts and payments on behalf of customers when the
cash flows reflect the activities of the customer rather than those
of the enterprise; and

(b) cash receipts and payments for items in which the turnover is
quick, the amounts are large, and the maturities are short.

23. Examples of cash receipts and payments referred to in paragraph 22(a)
are:

(a) the acceptance and repayment of demand deposits by a bank;

(b) funds held for customers by an investment enterprise; and

(c) rents collected on behalf of, and paid over to, the owners of
properties.

Examples of cash receipts and payments referred to in paragraph 22(b) are
advances made for, and the repayments of:

(a) principal amounts relating to credit card customers;

(b) the purchase and sale of investments; and

(c) other short-term borrowings, for example, those which have a
maturity period of three months or less.

24. Cash flows arising from each of the following activities of a financial enterprise may be reported on a net basis:

(a) cash receipts and payments for the acceptance and repayment
of deposits with a fixed maturity date;

(b) the placement of deposits with and withdrawal of deposits from
other financial enterprises; and

(c) cash advances and loans made to customers and the repayment
of those advances and loans.

Foreign Currency Cash Flows

25. Cash flows arising from transactions in a foreign currency should
be recorded in an enterprise’s reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the cash flow. Arate that approximates the actual rate may be used if the result is substantially the same as would arise if the rates at the dates of the cash flows were used. The effect of changes in exchange rates on cash and cash equivalents held in a foreign currency should be reported as a separate part of the reconciliation of the changes in cash and cash equivalents during the period.

26. Cash flows denominated in foreign currency are reported in a manner
consistent with Accounting Standard (AS) 11,Accounting for the Effects of
Changes in Foreign Exchange Rates4. This permits the use of an exchange
rate that approximates the actual rate. For example, a weighted average
exchange rate for a period may be used for recording foreign currency
transactions.

27. Unrealised gains and losses arising from changes in foreign exchange
rates are not cash flows. However, the effect of exchange rate changes on
cash and cash equivalents held or due in a foreign currency is reported in
the cash flow statement in order to reconcile cash and cash equivalents at
the beginning and the end of the period. This amount is presented separately from cash flows from operating, investing and financing activities
and includes the differences, if any, had those cash flows been reported at
the end-of-period exchange rates.

Extraordinary Items

28. The cash flows associated with extraordinary items should be
classified as arising from operating, investing or financing activities as
appropriate and separately disclosed.

29. The cash flows associated with extraordinary items are disclosed
separately as arising from operating, investing or financing activities in the
cash flow statement, to enable users to understand their nature and effect on the present and future cash flows of the enterprise. These disclosures are in addition to the separate disclosures of the nature and amount of extraordinary items required by Accounting Standard (AS) 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies.

Interest and Dividends

30. Cash flows from interest and dividends received and paid should
each be disclosed separately. Cash flows arising from interest paid and interest and dividends received in the case of a financial enterprise
should be classified as cash flows arising from operating activities. In the case of other enterprises, cash flows arising from interest paid should be classified as cash flows from financing activities while interest and dividends received should be classified as cash flows from investing activities.Dividends paid should be classified as cash flows fromfinancing activities.

31. The total amount of interest paid during the period is disclosed in the
cash flow statement whether it has been recognised as an expense in the

statement of profit and loss or capitalised in accordance with Accounting
Standard (AS) 10, Accounting for Fixed Assets.

32. Interest paid and interest and dividends received are usually classified
as operating cash flows for a financial enterprise. However, there is no
consensus on the classification of these cash flows for other enterprises.
Some argue that interest paid and interest and dividends received may be
classified as operating cash flows because they enter into the determination
of net profit or loss. However, it is more appropriate that interest paid and
interest and dividends received are classified as financing cash flows and
investing cash flows respectively, because they are costof obtainingfinancial
resources or returns on investments.

33. Some argue that dividends paid may be classified as a component of
cash flows from operating activities in order to assist users to determine the
ability of an enterprise to pay dividends out of operating cash flows.However, it is considered more appropriate that dividends paid should be classified as cash flows from financing activities because they are cost of obtaining financial resources.

Taxes on Income

34. Cash flows arising from taxes on income should be separately
disclosed and should be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities.

35. Taxes on income arise on transactions that give rise to cash flows that
are classified as operating, investing or financing activities in a cash flow
statement. While tax expense may be readily identifiable with investing or
financing activities, the related tax cash flows are often impracticable to
identify and may arise in a different period from the cash flows of the
underlying transactions. Therefore, taxes paid are usually classified as cash
flows from operating activities. However, when it is practicable to identify
the tax cash flow with an individual transaction that gives rise to cash flows
that are classified as investing or financing activities, the tax cash flow is
classified as an investing or financing activity as appropriate.When tax cash
flow are allocated over more than one class of activity, the total amount of
taxes paid is disclosed.

Investments in Subsidiaries, Associates and Joint
Ventures

36. When accounting for an investment in an associate or a subsidiary
or a joint venture, an investor restricts its reporting in the cash flow
statement to the cash flows between itself and the investee/joint venture, for example, cash flows relating to dividends and advances.
Acquisitions and Disposals of Subsidiaries and Other Business Units

37. The aggregate cash flows arising from acquisitions and from
disposals of subsidiaries or other business units should be presented
separately and classified as investing activities.

38. An enterprise should disclose, in aggregate, in respect of both
acquisition and disposal of subsidiaries or other business units during
the period each of the following:

(a) the total purchase or disposal consideration; and

(b) the portion of the purchase or disposal consideration discharged
by means of cash and cash equivalents.

39. The separate presentation of the cash flow effects of acquisitions and
disposals of subsidiaries and other business units as single line items helps
to distinguish those cash flows from other cash flows. The cash flow effects
of disposals are not deducted from those of acquisitions.

Non-cash Transactions

40. Investing and financing transactions that do not require the use of
cash or cash equivalents should be excluded from a cash flow statement. Such transactions should be disclosed elsewhere in the financial statements in a way that provides all the relevant information about these investing and financing activities.

41. Many investing and financing activities do not have a direct impact on
current cash flows although they do affect the capital and asset structure of
an enterprise. The exclusion of non-cash transactions from the cash flow
statement is consistent with the objective of a cash flow statement as these
items do not involve cash flows in the current period. Examples of non-cash
transactions are:

(a) the acquisition of assets by assuming directly related liabilities;

(b) the acquisition of an enterprise by means of issue of shares; and

(c) the conversion of debt to equity.

Components of Cash and Cash Equivalents

42. An enterprise should disclose the components of cash and cash
equivalents and should present a reconciliation of the amounts in its cash flow statement with the equivalent items reported in the balance sheet. 43. In view of the variety of cash management practices, an enterprise discloses the policy which it adopts in determining the composition of cash and cash equivalents.

44. The effect of any change in the policy for determining components of
cash and cash equivalents is reported in accordance with Accounting
Standard (AS) 5, Net Profit or Loss for the Period, Prior Period Items and
Changes in Accounting Policies.

Other Disclosures

45. An enterprise should disclose, together with a commentary by
management, the amount of significant cash and cash equivalent balances held by the enterprise that are not available for use by it.

46. There are various circumstances in which cash and cash equivalent
balances held by an enterprise are not available for use by it. Examples
include cash and cash equivalent balances held by a branch of the enterprise that operates in a countrywhere exchange controls or other legal restrictions apply as a result of which the balances are not available for use by the enterprise.

47. Additional information may be relevant to users in understanding
the financial position and liquidity of an enterprise. Disclosure of this
information, together with a commentary by management, is
encouraged and may include:

(a) the amount of undrawn borrowing facilities thatmay be available
for future operating activities and to settle capital commitments,
indicating any restrictions on the use of these facilities; and

(b) the aggregate amount of cash flows that represent increases in
operating capacity separately from those cash flows that are
required to maintain operating capacity.

48. The separate disclosure of cash flows that represent increases in
operating capacity and cash flows that are required to maintain operating
capacity is useful in enabling the user to determine whether the enterprise is
investing adequately in the maintenance of its operating capacity. An
enterprise that does not invest adequately in themaintenance of its operating
capacity may be prejudicing future profitability for the sake of current
liquidity and distributions to owners.

APPENDIX I

Cash Flow Statement for an Enterprise other than a
Financial Enterprise

The appendix is illustrative only and does not form part of the accounting
standard. The purpose of this appendix is to illustrate the application of the
accounting standard.

1. The example shows only current period amounts.

2. Information from the statement of profit and loss and balance sheet is
provided to show how the statements of cash flows under the direct method
and the indirect method have been derived. Neither the statement of profit
and loss nor the balance sheet is presented in conformity with the disclosure
and presentation requirements of applicable laws and accounting standards.
The working notes given towards the end of this appendix are intended to
assist in understanding the manner in which the various figures appearing
in the cash flow statement have been derived. These working notes do not
formpart of the cash flow statement and, accordingly, need not be published.

3. The following additional information is also relevant for the preparation
of the statement of cash flows (figures are in Rs.’000).

(a) An amount of 250 was raised from the issue of share capital and
a further 250 was raised from long term borrowings.

(b) Interest expense was 400 of which 170 was paid during the period.
100 relating to interest expense of the prior period was also paid
during the period.

(c) Dividends paid were 1,200.

(d) Tax deducted at source on dividends received (included in the
tax expense of 300 for the year) amounted to 40.

(e) During the period, the enterprise acquired fixed assets for 350.
The payment was made in cash.

(f) Plant with original cost of 80 and accumulated depreciation of
60 was sold for 20.

(g) Foreign exchange loss of 40 represents the reduction in the
carrying amount of a short-term investment in foreign-currency
designated bonds arising out of a change in exchange rate
between the date of acquisition of the investment and the
balance sheet date.

(h) Sundry debtors and sundry creditors include amounts relating to
credit sales and credit purchases only.

Balance Sheet as at 31.12.1996

(Rs. ’000)

1996 1995

Assets

Cash on hand and balances with banks 1996=200 1995=25

Short-term investments 1996=670 1995=135

Sundry debtors 1996=1,700 1995=1,200

Interest receivable 1996=100 –

Inventories 1996=900 1995=1,950

Long-term investments 1996=2,500 1995=2,500

Fixed assets at cost1996= 2,180 1995=1,910

Accumulated depreciation 1996=(1,450) 1995=(1,060)

Fixed assets (net) 1996=730 1995=850

Total assets 1996=6,800 1995=6,660

Liabilities

Sundry creditors 1996=150 1995=1,890

Interest payable1996= 230 1995=100

Income taxes payable1996= 400 1995=1,000

Long-term debt 1996=1,110 1995=1,040

Total liabilities 1996=1,890 1995=4,030

Shareholders’ Funds

Share capital 1996=1,500 1995=1,250

Reserves 1996=3,410 1995=1,380

Total shareholders’ funds 1996=4,910 1995=2,630

Total liabilities and shareholders’ funds 1996=6,800 1995=6,660

Statement of Profit and Loss for the period ended 31.12.1996
(Rs. ’000)

Sales 30,650

Cost of sales (26,000)

Gross profit 4,650

Depreciation (450)

Administrative and selling expenses (910)

Interest expense (400)

Interest income 300

Dividend income 200

Foreign exchange loss (40)

Net profit before taxation and extraordinary item 3,350

Extraordinary item – Insurance proceeds from
earthquake disaster settlement 180

Net profit after extraordinary item 3,530

Income-tax (300)

Net profit 3,230

Direct Method Cash Flow Statement [Paragraph 18(a)]
(Rs. ’000)

1996

Cash flows from operating activities

Cash receipts from customers 30,150

Cash paid to suppliers and employees (27,600)

Cash generated from operations 2,550

Income taxes paid (860)

Cash flow before extraordinary item 1,690

Proceeds from earthquake disaster settlement 180

Net cash from operating activities 1,870

Cash flows from investing activities

Purchase of fixed assets (350)

Proceeds from sale of equipment 20

Interest received 200

Dividends received 160

Net cash from investing activities 30

Cash flows from financing activities

Proceeds from issuance of share capital 250

Proceeds from long-term borrowings 250

Repayment of long-term borrowings (180)

Interest paid (270)

Dividends paid (1,200)

Net cash used in financing activities (1,150)

Net increase in cash and cash equivalents 750

Cash and cash equivalents at beginning of period
(see Note 1) 160

Cash and cash equivalents at end of period
(see Note 1) 910

Indirect Method Cash Flow Statement [Paragraph 18(b)]
(Rs. ’000)

Cash flows from operating activities

Net profit before taxation, and extraordinary item 3,350

Adjustments for:

Depreciation 450

Foreign exchange loss 40

Interest income (300)

Dividend income (200)

Interest expense 400

Operating profit before working capital changes 3,740

Increase in sundry debtors (500)

Decrease in inventories 1,050

Decrease in sundry creditors (1,740)

Cash generated from operations 2,550

Income taxes paid (860)

Cash flow before extraordinary item 1,690

Proceeds from earthquake disaster settlement 180

1996

Net cash from operating activities 1,870

Cash flows from investing activities

Purchase of fixed assets (350)

Proceeds from sale of equipment 20

Interest received 200

Dividends received 160

Net cash from investing activities 30

Cash flows from financing activities

Proceeds from issuance of share capital 250

Proceeds from long-term borrowings 250

Repayment of long-term borrowings (180)

Interest paid (270)

Dividends paid (1,200)

Net cash used in financing activities (1,150)

Net increase in cash and cash equivalents 750

Cash and cash equivalents at beginning of period
(see Note 1) 160

Cash and cash equivalents at end of period (see Note 1) 910

Notes to the cash flow statement

(direct method and indirect method)

1. Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and balances with banks, and investments in money-market instruments. Cash and cash equivalents included in the cash flow statement comprise the following balance sheet amounts.

1996 1995

Cash on hand and balances with banks 200 25

Short-term investments 670 135

Cash and cash equivalents 870 160

Effect of exchange rate changes 40 –

Cash and cash equivalents as restated 910 160

Cash and cash equivalents at the end of the period include deposits with
banks of 100 held by a branch which are not freely remissible to the company because of currency exchange restrictions. The company has undrawn borrowing facilities of 2,000 of which 700 may be used only for future expansion.

2. Total tax paid during the year (including tax deducted at source on
dividends received) amounted to 900.

Alternative Presentation (indirect method)

As an alternative, in an indirect method cash flow statement, operating profit
before working capital changes is sometimes presented as follows:

Revenues excluding investment income 30,650

Operating expense excluding depreciation (26,910)

Operating profit before working capital changes 3,740

Working Notes

The working notes given below do not form part of the cash flow statement
and, accordingly, need not be published. The purpose of these working
notes is merely to assist in understanding the manner in which various
figures in the cash flow statement have been derived. (Figures are in
Rs. ’000.)

1. Cash receipts from customers

Sales 30,650

Add: Sundry debtors at the beginning of the year 1,200
31,850

Less : Sundry debtors at the end of the year 1,700
30,150

2. Cash paid to suppliers and employees
Cost of sales 26,000

Administrative and selling expenses 910
26,910

Add: Sundry creditors at the beginning of the 1,890
year

Inventories at the end of the year 900 2,790
29,700

Less:Sundry creditors at the end of the year 150

Inventories at the beginning of the year 1,950 2,100
27,600

3. Income taxes paid (including tax deducted at source from dividends
received)

Income tax expense for the year (including tax deducted 300
at source from dividends received)

Add : Income tax liability at the beginning of the year 1,000
1,300

Less: Income tax liability at the end of the year 400
900

Out of 900, tax deducted at source on dividends received (amounting to 40)
is included in cash flows from investing activities and the balance of 860 is
included in cash flows from operating activities (see paragraph 34).

4. Repayment of long-term borrowings

Long-term debt at the beginning of the year 1,040

Add : Long-term borrowings made during the year 250
1,290

Less : Long-term borrowings at the end of the year 1,110
180

5. Interest paid

Interest expense for the year 400

Add: Interest payable at the beginning of the year 100
500

Less: Interest payable at the end of the year 230
270

APPENDIX II

Cash Flow Statement for a Financial Enterprise

The appendix is illustrative only and does not form part of the accounting
standard. The purpose of this appendix is to illustrate the application of the
accounting standard.

1. The example shows only current period amounts.

2. The example is presented using the direct method.

Cash flows from operating activities

Interest and commission receipts 28,447

Interest payments (23,463)

Recoveries on loans previously written off 237

Cash payments to employees and suppliers (997)

Operating profit before changes in operating assets 4,224

(Increase) decrease in operating assets:

Short-term funds (650)

Deposits held for regulatory or monetary control purposes 234

Funds advanced to customers (288)

Net increase in credit card receivables (360)

Other short-term securities (120)

Increase (decrease) in operating liabilities:

Deposits from customers 600

Certificates of deposit (200)

Net cash from operating activities before income tax 3,440

Income taxes paid (100)

(Rs. ’000)

1996

Net cash from operating activities 3,340

Cash flows from investing activities

Dividends received 250

Interest received 300

Proceeds from sales of permanent investments 1,200

Purchase of permanent investments (600)

Purchase of fixed assets (500)

Net cash from investing activities 650

Cash flows from financing activities

Issue of shares 1,800

Repayment of long-term borrowings (200)

Net decrease in other borrowings (1,000)

Dividends paid (400)

Net cash from financing activities 200

Net increase in cash and cash equivalents 4,190

Cash and cash equivalents at beginning of period 4,650

Cash and cash equivalents at end of period 8,840