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Unit 13: Cash Flow Analysis (As Per AS-3)

and dividend is considered into financing activities. This cash flow arising from Notes

interest and dividend paid or received is disclosed separately.
4. Taxes on Income: If no adverse information is given relating to taxes paid on incomes,
cash flow arising from the taxes paid as income is classified in operating activities.

If taxes are paid on such income which is relating to finance, such a cash flow will be

classifi ed into fi nancial activities.
5. Non-cash Transactions: The non-cash transactions are not recorded in cash fl ow
statement because they do not have a direct impact on the current cash fl ow while

they affect the capital and assets as purchase of fixed assets by the issue of shares or
debentures. In AS-3 (revised) examples of non-cash transactions are mentioned as
below:
(a) The acquisition of assets by assuming directly related liabilities,
(b) The acquisition of an enterprise by means of issue of shares, and
(c) The conversion of debt to equity
6. Balances of Foreign Branches: In some situations, the balance of cash and cash
equivalent held with foreign branches are not available due to foreign exchange
control or other legal restrictions. So the management should use that amount which
can be measured in cash and cash equivalent.

Self Assessment

Fill in the blanks:
4. Cash flows from ..................... activities are earned from the principal revenue - producing

activities of an enterprise.
5. ..................... activities of an enterprise include the purchase of fi xed assets.

6. Cash proceeds from issuing shares or other similar instruments are the examples of cash

flow from ..................... activities.

7. The ..................... are not recorded in cash flow statement because they do not have a direct
impact on the current cash flow while they affect the capital and assets as purchase of fi xed

assets by the issue of shares or debentures.

8. Cash flow arising from the ..................... is shown in the cash flow statement after classifying
it into operating, investing and fi nancing activities.
13.3 Preparation of Cash Flow Statement

Cash flow statement provides information about the cash receipts and payments of an enterprises

for a given period. It provides important information that supplements the profit and loss account

and balance sheet.
The statement of cash flows is required to be reported by Accounting Standard-3 (Revised ) issued

by the Institute of Chartered Accountants of India in March 1997 Which replaces the ‘Changes in
Financial Position’ as per AS-3.
There are certain changes in the preparation of cash flow statement from the previous methods

as a result of the introduction of AS-3 (Revised).

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