CASH FLOW STATEMENT

CASH FLOW STATEMENT

Introduction to cash flow statement:-

                                                                 Three major financial statements are ordinarily required for external reports an income statement, a balance sheet, and a statement of cash flows. The purpose of the statement of cash flow is to highlight the major activities that directly and indirectly impact cash flows and hence affect the overall cash balance.

DEFINITION:-

                             The statement of cash flows is one of the main financial statements. The cash flow statement reports the cash generated and used during the time interval specified in its heading. The period of time that the statement covers is chosen by the company.

The cash flow statement organizes and reports the cash generated and used in the following categories:

1.	Operating activities	–	Converts the items reported on the income statement from the accrual basis of accounting to cash.
2.	Investing activities	–	Reports the purchase and sale of long-term investments and property, plant and equipment.
3.	Financing activities	–	Reports the issuance and repurchase of the company's own bonds and stock and the payment of dividends.

Operating Activities:

                                                        Operating activities involve the cash effects of transactions that enter into the determination of net income, such as cash receipts from sales of goods and services and cash payments to suppliers and employees for acquisition of inventory and expenses.

Investing Activities:

                                                       Investing activities generally involve long term assets and include making and collecting loans acquiring and disposing of investments and productive long lived assets.

Financing Activities:

                                                        Financing activities involve liability and stock holder's equity items and include obtaining cash from creditors and repaying the amounts borrowed and obtaining capital from owners and providing them with a return on, and a return of, their investment.

 FORMAT OF CASH FLOW STATEMENT

The cash flow statement is divided into three sections:

o Cash flow from operating activities: shows the results of cash inflows and outflows related to the fundamental operations of the basic line or lines of business in which the company engages. (Example: cash receipts from the sale of goods or services and cash outflows for purchasing inventory and paying rent and taxes.)

o Cash flow from investing activities: associated with purchases and sales of non-current assets (Example: building and equipment purchases or sales of investments or subsidiaries.)

o Cash flow from financing activities: associated with financing the firm (Example: selling and paying off bonds and issuing stock and paying dividends)

Statement of Cash Flows
Cash Flow from Operating Activities
Net Income	XXX,XXX
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization	XX,XXX
Changes in other accounts affecting operations:
(Increase)/decrease in accounts receivable	X,XXX
(Increase)/decrease in inventories	X,XXX
(Increase)/decrease in prepaid expenses	X,XXX
Increase/(decrease) in accounts payable	X,XXX
Increase/(decrease) in taxes payable	X,XXX
Net cash provided by operating activities	XXX,XXX
Cash Flow from Investing Activities
Capital expenditures	(XXX,XXX)
Proceeds from sales of equipment	XX,XXX
Proceeds from sales of investments	XX,XXX
Investments in subsidiary	(XXX,XXX)
Net cash provided by investing activities	(XXX,XXX)
Cash Flow from Financing Activities
Payments of long-term debt	(XX,XXX)
Proceeds from issuance of long-term debt	XX,XXX
Proceeds from issuance of common stock	XXX,XXX
Dividends paid	(XX,XXX)
Purchase of treasury stock	(XX,XXX)
Net cash provided by financing activities	(XX,XXX)
Increase (Decrease) in Cash	XX,XXX

IAS-16 PROPERTY, PLANT AND EQUIPMENT

IAS-16 PROPERTY, PLANT AND EQUIPMENT

Introduction:-

IAS-16 Property, Plant and Equipment were issued in December 2003 and are applicable to annual periods beginning on or after 1 January 2005.

IAS-16 prescribes the accounting treatment for property, plant and equipment, unless

another standard requires or permits a different accounting treatment. For example,

IFRS-5 Non-current assets Held for Sale and Discontinued Operations applies to

Property, plant and equipment classified as held for sale.

DEFINITION:-

                                    IAS-16 defines the property, plant and equipment as tangible items that are held for use in the production or supply of goods or services, for rental to others, or for administrative purpose and expected to be used during more than one accounting period.

Measurement of property, plant and equipment:-

                                                                                              IAS 16 requires that property plant and equipment should initially be measured at cost.

§  The cost of purchase, any trade discount plus any import duties and non refundable sales tax.

§  Any cost charging on bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

OBJECTIVE:-

                        The objective of this Standard is to prescribe the accounting treatment for property, plant and equipment. The principal issues in accounting for property, plant and equipment are the recognition of the assets, the determination of their carrying amounts and the depreciation charges and impairment losses to be recognized in relation to them.

The principal issues associated with accounting for PP&E are:-

• Recognition of the assets when they are acquired

• Determination of the carrying amounts of these assets in subsequent periods

• Determination of depreciation charges and any impairment losses to be recognized

in relation to these assets.

SCOPE:-

                        IAS-16 addresses accounting for property, plant, and equipment, except in cases when another Standard requires or permits a different accounting treatment. It would not apply, for Instance, to livestock or other assets that are accounted for in accordance with IAS-41 Agriculture or to PP&E classified as held for sale in accordance with IFRS-5 Non-current Assets Held for Sale and Discontinued Operations. With respect to property being constructed or developed for future use as investment property, IAS-16 applies until the point where construction is complete and the asset satisfies the definition of an “investment property”; at that point, IAS-40 Investment Property takes effect.

Depreciation:-

                                                IAS-16 defines the depreciation as the depreciable amount is the cost of an asset, cost less residual value or other amount. The depreciation method used should reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity. A method can be used to allocate the depreciate amount of an asset on a systematic basis over its useful life. These methods include the straight-line method, the diminishing balance method. Straight-line depreciation results in a constant charge over the useful life if the asset's residual value does not change.

When an item of property, plant, and equipment is revalued, any accumulated depreciation at the date of the revaluation is treated in one of two ways:-

A) Restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount. This method is often used when an asset is revalued by means of applying an index to determine its depreciated replacement cost; or

B) Eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset. This method is often used for buildings.