Page 248 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

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

13.4 Summary Notes

Cash flow statement indicates sources of cash inflows and transactions of cash outfl ows
prepared for a period.

It is an important tool of financial analysis and is mandatory for all the listed companies.

The cash flow statement indicates inflow and outflow in terms of three components:
(1) Operating, (2) Financing, and (3) Investment activities.

Cash inflows include sale of assets or investments, and raising of fi nancial resources.

Cash outflows include purchase lo assets or investments and redemption of fi nancial
resources.

There are two methods of converting net profit into net cash flows from operating
activities:
Direct method, and
Indirect method.

13.5 Keywords

Cash: It includes cash in hand and demand deposits with bank.

Cash Equivalents: Refer short-term risk free highly liquid investment

Cash Flow Statement: The statement which indicates the flow (movement) of cash during a
period.

Flow of Cash: It means the change in cash. It also includes the inflow and outflow of cash.

13.6 Review Questions

1. The comparative balance sheets of M/s Ram Brothers for the two years were as follows:
Liabilities Mar, 31 Assets Mar, 31
2004 2005 2004 2005
Capital 3,00,000 3,50,000 Land &Building 2,20,000 3,00,000
Loan from Bank 3,20,000 2,00,000 Machinery 4,00,000 2,80,000
Creditors 1,80,000 2,00,000 Stock 1,00,000 90.000
Bills payable 1,00,000 80,000 Debtors 1,40,000 1,60,000
Loan from SBI 50,000 Cash 40,000 50,000
9,00,000 8,80,000 9,00,000 8,80,000

Additional Information:
(a) Net profit for the year 2005 amounted to ` 1,20,000.

(b) During the year a machine costing ` 50,000 (accumulated depreciation ` 20,000) was
sold for ` 26,000. The provision for depreciation against machinery as on 31 Mar.,
2004 was ` 1,00,000 and 31st Mar., 2005 ` 1,70,000.
You are required to prepare a cash fl ow statement.

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