CASH FLOW STATEMENT

Learning Objective Statements

1. Understanding the purpose and utility of cash flow statement 2. Be able to differentiate and indentify transactions into one of the three categories of Cash Flows(CFO, CFF,CFI) 3. Be able to prepare Cash Flow statement using direct method 4. Analysis cash flow statement

Resources
1. Financial Management by Khan & Jain, Chapter No.5 2. AS-3: Cash Flow Statement 3. Cash Flow Statement of L&T Ltd (Page No 6 of Attached PDF)

Cash Flow statement: Fast Track Notes

Users of an enterprises financial statements are interested in how the enterprise generates and uses cash and cash equivalents The cash flow statement should report cash flows during the period classified by operating, investing and financing activities.

 Operating cashflows are directly related to production and sale of the firms products/services. Investment flows are cashflows associated with purchase/sale of both fixed assets and business interests. Financing flows are cash flows that result from debt/equity financing transactions and include incurrence and repayment of debt cash flows from the sale of shares and cash outflows to purchase shares or pay dividend.

Examples of CFO
(a) cash receipts from the sale of goods and the rendering of services; (b) cash receipts from royalties, fees, commissions and other revenue; (c) cash payments to suppliers for goods and services; (d) cash payments to and on behalf of employees;

Examples of CFO
(e) cash receipts and cash payments of an insurance enterprise for premiums and claims, annuities and other policy benefits; (f) cash payments or refunds of income taxes unless they can be specifically identified with financing and investing activities; and

Examples of CFI
(a)cash payments to acquire fixed assets (including intangibles). (b) cash receipts from disposal of fixed assets (including intangibles); (c) cash payments to acquire shares, warrants or debt instruments of other enterprises (d) Cash receipts from disposal of shares, warrants or debt instruments

Examples of CFF
(a)cash proceeds from issuing shares or other similar instruments; (b) cash proceeds from issuing debentures, loans, notes, bonds, and other short or longterm borrowings; and (c) cash repayments of amounts borrowed.

Interest and Dividends: Non Financial enterprise

Interest paid Dividend paid Interest received Dividend received CFF CFF CFI CFI

Non-cash Transactions
Any transactions that do not require the use of cash or cash equivalents should be excluded from a cash flow statement

Practice Questions
A company sold building for cash Rs. 100 Lakhs. The profit & loss account has shown Rs. 40 lakhs as profit on sale of building. How will you report this transaction in cash flow statement?

 Determine cash received from debtors Debtors @ the begn of the yr RS. 100 Lakh total sales 2000 cash sales 500 Debtors at the end of the year 300

 Determine cash paid to creditors

COGS Op stock Cl stock Creditors at the beginning of the year 480 30 50 60

Creditors at the end of the year

Cash purchases

90
40

 Determine the Amount of P&M purchased

Gross Plant at the year end

285

Gross Plant at the beginning of 127 the year Depreciation for the year Sale of assets (Gross block) 50 20

 Favor, Inc.s capital and related transactions during 2005 were as follows: 1. On January 1, $1,000,000 of 5-year 10% annual interest bonds were issued to Cover Industries in exchange for old equipment owned by Cover. 2. On June 30, Favor paid $50,000 of interest to Cover. 3. On July 1, Cover returned the bonds to Favor in exchange for $1,500,000 par value 6% preferred stock. 4. On December 31, Favor paid preferred stock dividends of $45,000 to Cover. Calculate Favor, Inc.s cash flow from financing (CFF) for 2005

 Juniper Corp. has the following transactions in 2005. 1. Junipers equipment with a book value of $55,000 was sold for $85,000 cash. 2. A parcel of land was purchased for $100,000 worth of Juniper common stock. 3. ABC company paid Juniper preferred dividends of $40,000. 4. Juniper declared and paid a $100,000 cash dividend. what is cash flow from financing (CFF) for Juniper for 2005?

Calculate CFI & CFF from the following:

Cash paid to suppliers for purchase of merchandise Cash received from customers Cash paid for purchase of equipment Dividends paid Cash received from issuance of preferred stock Interest received on Long-term investments Wages paid $5,000 14,000 22,000 2,000 10,000 1,000 4,000

Repayment of loan to the bank

Cash from sale of land

5,000
12,000

Calculate COGS & cash paid to suppliers

Beginning accounts receivable Ending accounts receivable Sales Beginning inventory

$180 225 11,000 2,000

Ending inventory
Purchases Beginning accounts payable Ending accounts payable

2,300
8,100 1,600 1,200