Accounting Standard-3 Cash Flow Statements(Key Points)

1).The standard sets out the requirement that where the cash flow statement is presented, it shall disclose a

movement in "cash and cash equivalents" segregating various transactions into operating, investing and

financing activity.

2). It requires certain specific items to be addressed in the cash flows and certain supplemental

disclosures for non-cash transactions.

3).Cash comprises cash on hand and demand deposits with banks.

4).Cash equivalents are short-term, highly liquid investments that are readily convertible into known amounts

of cash and which are subject to an insignificant risk of changes in value.

5).Cash flows are inflows and outflows of cash and cash equivalents.

6).Operating activities are the principal revenue-generating activities of the enterprise and other activities that

are not investing or financing activities. Examples, cash receipts from the sale of goods and the rendering of

services; cash receipts from royalties, fees, commissions and other revenue; cash payments to suppliers for

goods and services; cash payments to and on behalf of employees.

7).Investing activities are the acquisition and disposal of long-term assets and other investments not included in

cash equivalents. Examples, cash payments to acquire fixed assets (including intangibles). These payments

include those relating to capitalised research and development costs and self-constructed fixed assets; cash

receipts from disposal of fixed assets (including intangibles); cash payments to acquire 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).

8).Financing activities are activities that result in changes in the size and composition of the owners’ capital

(including preference share capital in the case of a company) and borrowings of the enterprise. Example, cash

proceeds from issuing shares or other similar instruments; cash proceeds from issuing debentures, loans,

notes, bonds, and other short- or long-term borrowings; and cash repayments of amounts borrowed.

Additionally certain items are required to be disclosed separately, like Income Tax, Dividends, etc.

9).The enterprise can choose either direct method or indirect method for presentation of its cash flows.

10).Cash flows arising from transactions in a foreign currency should be recorded in an enterprise’s reporting

currency by applying to the foreign currency amount the exchange rate between the reporting currency and

the foreign currency at the date of the cash flow. A rate that approximates the actual rate may be used if the

result is substantially the same as would arise if the rates at the dates of the cash flows were used. The effect

of changes in exchange rates on cash and cash equivalents held in a foreign currency should be reported as a

separate part of the reconciliation of the changes in cash and cash equivalents during the period.