Page 110 - DCOM302_MANAGEMENT_ACCOUNTING

Unit 6: Cash Flow Statement

Notes
!
Caution 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 fl ows

relating to such transactions are cash flows from investing activities.
Figure 6.1: Diagrammatic Presentation of Cash Flows from Operating Activities
Cash Flows

Cash Inflows Cash Outflows

Cash Sales Receipts Receipts Refund of Receipts
from from Tax from
Debtors Royalties Future
Fees, Commission Contracts
and Others

Cash Payment Payment Payment Payment
Purchases of of of of
Salaries Tax Contracts Creditors

6.2.2 Cash Flow from Investing Activities

Investing activities of an enterprise include the purchase of fixed assets (as plant and machinery,
land and buildings, furniture and fixtures) with an intention to generate the future incomes.

On account of being an important activity, a separate disclosure of the cash fl ows from these
activities is made. Examples of cash flows arising from investing activities are in AS-3 (revised)

as follows:
(a) cash payments of acquired fixed assets (including intangibles). These payments include

those relating to capitalized research and development costs and self-constructed fi xed
assets;
(b) cash receipts from disposal of fixed assets (including intangibles);

(c) cash payments to acquired 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 from disposal of shares, warrants or debt instruments of other enterprises and
interests in joint ventures (other than receipts from those instruments considered to be cash
equivalents and those held for dealing or trading purposes);
(e) cash advances and loans made to third parties (other than advances and loans made by a
fi nancial enterprise);

(f) cash receipts from the repayment of advances and loans made to third parties (other than
advances and loans of a fi nancial enterprise);
(g) cash payments for future contracts, forward contracts, option contracts and swap contracts
except when the contracts are held for dealing or trading purposes, or the payments are
classifi ed as financing activities; and

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