Cash Flow Statement
This section covers Cash Flow Statement. BSEB tests AS-3 (revised) classification into operating, investing and financing activities, and adjustments for non-cash and non-operating items.
Core rules
- Operating activities: cash from main revenue operations, adjusted for non-cash items and working capital changes; tax paid is usually operating.
- Investing activities: purchase/sale of fixed assets and investments; interest and dividend received by a non-financial company are investing.
- Financing activities: issue of shares/debentures, borrowings, repayment, interest paid and dividends paid.
- Non-cash transactions, such as depreciation, amortisation, and asset purchases by issue of shares, are excluded from the cash flow statement but adjusted in reconciliation.
Worked example
Net profit before tax ₹1,00,000; depreciation ₹20,000; loss on sale of machinery ₹5,000; increase in trade receivables ₹10,000; decrease in trade payables ₹5,000; tax paid ₹15,000. Cash from operating activities = 1,00,000 + 20,000 + 5,000 − 10,000 − 5,000 − 15,000 = ₹95,000. Add back depreciation and loss because they reduced profit without using cash; deduct the increase in receivables because sales exceeded cash collection.
Traps
Do not add a gain on sale of an asset; deduct it. Do not treat an increase in a current liability as a subtraction-it is an addition. Do not include non-cash transactions. Classify bank overdraft carefully; it is usually a financing cash flow, not an operating adjustment.