Taxes on Income

Taxes on Income Taxes paid on income as well as tax refunds are usually classified as cash flows from operating activities, In the event of their specific indentification with investment or financing activities, the tax cash flow is classified as an investing or financing activity as appropriate.


Dividends While dividends paid are classified as financing activities, dividends received on investments constitute a part of investment activities. For the financial enterprises, dividends received form a pan of operating activities and dividends paid as a pan of financing activities.


Interest In general, cash flows rising from interest paid should be classified as cash flows from financing activities, say interest on loans/debts, interest paid on working capital loan and any other loan taken to finance operating activities are to be shown as a pan of operating activities. (Unless stated otherwise, interest paid is to he reported with financing activities). Interest received from short-term

Extraordinary Items

Extraordinary Items Extraordinary items are unusual in nature, not frequent in occurrence and are in amount. The cash flows with extraordinary items are divided as during from operating,  in the CFS, to enable their nature and effect on the present and future cash flows of the enterprise. Examples include attachment of the property of the enterprise and insurance proceeds from earthquake disaster settlement.

Foreign Currency Cash Flows

Foreign Currency Cash Flows Cash flows arising from transactions in a foreign currency should he 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 dare of the cash flow. A rate that approximates the actual rate may be used if the result is substantially the same as would arise if the r

Treatment of Some Major Items

Treatment of Some Major Items While most of the items (to be included in the CFS) are self-explanatory in nature, some transactions, items merit more explanation. These, relate to (i) foreign currency. (ii) extraordinary items. (iii) Interest. (iv) dividends. (v) subsidiaries associates and joint ventures. (vi) acquisitions and disposals of subsidiaries another business units. (vii) non-cash transactions, and (

Reporting Cash Flows

Reporting Cash Flows From Operating Activities An enterprise is required to report cash flows from operating activities using either direct method or indirect method. Direct Method Under this method, gross cash receipts and gross cash payments for the major items ale disclosed, such as cash receipts from customers and cash paid to suppliers. Indirect Method Under the indirect method, profit and loss account is ad

Financing Activities

Financing Activities The financing activities report the changes in the size and composition of the share/owner’s capital and debt of the enterprise. Their separate disclosure 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 arc as follows: • Cash proceeds from issue of share

Investing Activities

Investing Activities The investing activities relate to the acquisition and disposal or long-term assets and other investments not included in cash-equivalents. Their separate disclosure is is important as they represent the extent to which expenditures have been made for resources intended to generate future income and cash flows. The principal items covered under this category of activities are as follows:

Operating Activities

Operating Activities Cash inflows from operating activities primarily accrue from the major revenue producing activities (i,e., sale of goods and rendering of services) 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 as follows, • Cash receipts from the sale o