Cash Flow Statement for an Enterprise other than a Financial Enterprise :
This illustration does not form part of the accounting standard. Its purpose is to illustrate the application of the accounting standard.
1. The illustration 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 illustration 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 These working notes do not form part of the cash flow statement and, accordingly, need not be published.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 | 200 | 25 | ||
| Short-term investments | 670 | 135 | ||
| Sundry debtors | 1,700 | 1,200 | ||
| Interest receivable | 100 | – | ||
| Inventories | 900 | 1,950 | ||
| Long-term investments | 2,500 | 2,500 | ||
| Fixed assets at cost | 2,180 | 1,910 | ||
| Accumulated depreciation | (1,450) | (1,060) | ||
| Fixed assets (net) | 730 | 850 | ||
| Total assets 6,800 6,660 | 6,800 | 6,660 | ||
| Liabilities | ||||
| Sundry creditors | 150 | 1,890 | ||
| Interest payable | 230 | 100 | ||
| Income taxes payable | 400 | 1000 | ||
| Long-term debt | 1,110 | 1,040 | ||
| Total liabilities
|
1,890 | 4,030 | ||
| Shareholders’ Funds | ||||
| Share capital |
1,500 |
1,250 | ||
| Reserves |
3,410 |
1,380 | ||
| Total shareholders’ funds |
4,910 |
2,630 | ||
| Total liabilities and shareholders’ funds |
6,800 |
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 | 3,350 | |
| Extraordinary item – Insurance proceeds from | ||
| earthquake disaster settlement | ____180____
3,530 |
|
| Net profit after extraordinary item
Income-tax |
||
| _(300)_ | ||
| Net profit 3,230 | _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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Indirect Method Cash Flow Statement [Paragraph 18(b)]
(Rs. ’000)
1996
| 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) | |
| 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 | 1,690 | |
| Proceeds from earthquake disaster settlement 180 | _180_ | |
| Net cash from operating activities | 1,870 | |
| Cash flows from investing activities | ||
| Purchase of fixed assets Dividends received 160 | (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) | (180) | |
| Interest paid | (270) | |
| Dividends paid (1,200) | (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 | 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 | 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 | 26,000 | |
| Administrative and selling expenses 910 | __910__ | |
| 26,910 | ||
| Add: Sundry creditors at the beginning of the year | 1,800 | |
| Inventories at the end of the year 900 | _ 900 | _2,790_ |
| 29,700 | ||
| Less:Sundry creditors at the end of the year 150 | 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 |
__ 100___ |
|
| 500 | ||
| Less: Interest payable at the end of the year | _230_ | |
|
_270_ |
Illustration II
Cash Flow Statement for a Financial Enterprise
This illustration does not form part of the accounting standard. Its purpose is to illustrate the application of the accounting standard.
1. The illustration shows only current period amounts.
2. The illustration is presented using the direct method.
(Rs. ’000)
1996
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 Income taxes paid | (100) | |
| Net cash from operating activities | 3,340 | |
| Cash flows from investing activities | ||
| Dividends received | 250 | |
| Interest received 300 | 300 | |
| Proceeds from sales of permanent investments 1,200 | 1,200 | |
| Purchase of permanent investments (600 | (600) | |
| Purchase of fixed assets (500) | (500) | |
| Net cash from investing activities | 650 | |
| Cash flows from financing activities | ||
| Issue of shares 1,800 | 1,800 | |
| Repayment of long-term borrowings (200) | (200) | |
| Net decrease in other borrowings (1,000) | (1,000) | |
| Dividends paid (400) | (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 | |