NCERT Textbook - Cash Flow Statements | Accountancy Class 12 - Commerce PDF Download

 Page 1


T
iill now you have learnt about the financial
statements being primarily inclusive of Position
Statement (showing the financial position of an
enterprise as on a particular date) and Income
Statement (showing the result of the operational
activities of an enterprise over a particular period).
There is also a third important financial statement
known as Cash flow statement, which shows inflows
and outflows of the cash and cash equivalents. This
statement is usually  prepared by companies which
comes as a tool in the hands of users of financial
information to know about the sources and uses of
cash and cash equivalents of an enterprise over a
period of time from various activities of an
enterprise. It has gained substantial importance in
the last decade because of its practical utility to the
users of financial information.
Financial Statement of companies are prepared
following the accounting standards prescribed in
the companies Act, 2013. Accounting Standards
are notified under section 133 of the Companies
Act, 2013 vide Accounting Standards Rules, 2006
and are mandatory in nature. Companies Act, 2013
also specifies that if the accounting standards are
not followed, financial statements will not be true
and fair, which is a quality of financial statement.
Financial Statements are defined in Companies Act,
2013 (Section 2 (40)] and includes Cash Flow
Statement prepared in accordance with Accounting
Standard- 3 (AS-3)- Cash Flow Statement.
A cash flow statement provides information
about the historical changes in cash and cash
LEARNING OBJECTIVES
After studying this chapter ,
you will be able to :
• state the purpose
and preparation of
statement of cash flow
statement;
• distinguish between
operating activities,
investing activities and
financing activities;
• prepare the statement
of cash flows using
direct method;
• prepare the cash
flow statement using
indirect method.
Cash Flow Statement 6
2024-25
Page 2


T
iill now you have learnt about the financial
statements being primarily inclusive of Position
Statement (showing the financial position of an
enterprise as on a particular date) and Income
Statement (showing the result of the operational
activities of an enterprise over a particular period).
There is also a third important financial statement
known as Cash flow statement, which shows inflows
and outflows of the cash and cash equivalents. This
statement is usually  prepared by companies which
comes as a tool in the hands of users of financial
information to know about the sources and uses of
cash and cash equivalents of an enterprise over a
period of time from various activities of an
enterprise. It has gained substantial importance in
the last decade because of its practical utility to the
users of financial information.
Financial Statement of companies are prepared
following the accounting standards prescribed in
the companies Act, 2013. Accounting Standards
are notified under section 133 of the Companies
Act, 2013 vide Accounting Standards Rules, 2006
and are mandatory in nature. Companies Act, 2013
also specifies that if the accounting standards are
not followed, financial statements will not be true
and fair, which is a quality of financial statement.
Financial Statements are defined in Companies Act,
2013 (Section 2 (40)] and includes Cash Flow
Statement prepared in accordance with Accounting
Standard- 3 (AS-3)- Cash Flow Statement.
A cash flow statement provides information
about the historical changes in cash and cash
LEARNING OBJECTIVES
After studying this chapter ,
you will be able to :
• state the purpose
and preparation of
statement of cash flow
statement;
• distinguish between
operating activities,
investing activities and
financing activities;
• prepare the statement
of cash flows using
direct method;
• prepare the cash
flow statement using
indirect method.
Cash Flow Statement 6
2024-25
242 Accountancy : Company Accounts and Analysis of Financial Statements
equivalents of an enterprise by classifying cash flows into operating, investing
and financing activities. It requires that an enterprise should prepare a cash
flow statement and should present it for each accounting period for which
financial statements are presented. This chapter discusses this technique and
explains the method of preparing a cash flow statement for an accounting
period.
6.1 Objectives of Cash Flow Statement
A Cash flow statement shows inflow and outflow of cash and cash equivalents
from various activities of a company during a specific period. The primary objective
of cash flow statement is to provide useful information about cash flows (inflows
and outflows) of an enterprise during a particular period under various heads,
i.e., operating activities, investing activities and financing activities.
This information is useful in providing users of financial statements with a
basis to assess the ability of the enterprise to generate cash and cash equivalents
and the needs of the enterprise to utilise those cash flows. The economic decisions
that are taken by users require an evaluation of the ability of an enterprise to
generate cash and cash equivalents and the timing and certainty of their
generation.
6.2 Benefits of Cash Flow Statement
Cash flow statement provides the following benefits :
? A cash flow statement when used along with other financial statements
provides information that enables users to evaluate changes in net assets
of an enterprise, its financial structure (including its liquidity and
solvency) and its ability to affect the amounts and timings of cash flows
in order to adapt to changing circumstances and opportunities.
? Cash flow information is useful in assessing the ability of the enterprise
to generate cash and cash equivalents and enables users to develop
models to assess and compare the present value of the future cash
flows of different enterprises.
? It also enhances the comparability of the reporting of operating
performance by different enterprises because it eliminates the effects of
using different accounting treatments for the same transactions and
events.
? It also helps in balancing its cash inflow and cash outflow, keeping in
response to changing condition. It is also helpful in checking the
accuracy of past assessments of future cash flows and in examining
the relationship between profitability and net cash flow and impact of
changing prices.
2024-25
Page 3


T
iill now you have learnt about the financial
statements being primarily inclusive of Position
Statement (showing the financial position of an
enterprise as on a particular date) and Income
Statement (showing the result of the operational
activities of an enterprise over a particular period).
There is also a third important financial statement
known as Cash flow statement, which shows inflows
and outflows of the cash and cash equivalents. This
statement is usually  prepared by companies which
comes as a tool in the hands of users of financial
information to know about the sources and uses of
cash and cash equivalents of an enterprise over a
period of time from various activities of an
enterprise. It has gained substantial importance in
the last decade because of its practical utility to the
users of financial information.
Financial Statement of companies are prepared
following the accounting standards prescribed in
the companies Act, 2013. Accounting Standards
are notified under section 133 of the Companies
Act, 2013 vide Accounting Standards Rules, 2006
and are mandatory in nature. Companies Act, 2013
also specifies that if the accounting standards are
not followed, financial statements will not be true
and fair, which is a quality of financial statement.
Financial Statements are defined in Companies Act,
2013 (Section 2 (40)] and includes Cash Flow
Statement prepared in accordance with Accounting
Standard- 3 (AS-3)- Cash Flow Statement.
A cash flow statement provides information
about the historical changes in cash and cash
LEARNING OBJECTIVES
After studying this chapter ,
you will be able to :
• state the purpose
and preparation of
statement of cash flow
statement;
• distinguish between
operating activities,
investing activities and
financing activities;
• prepare the statement
of cash flows using
direct method;
• prepare the cash
flow statement using
indirect method.
Cash Flow Statement 6
2024-25
242 Accountancy : Company Accounts and Analysis of Financial Statements
equivalents of an enterprise by classifying cash flows into operating, investing
and financing activities. It requires that an enterprise should prepare a cash
flow statement and should present it for each accounting period for which
financial statements are presented. This chapter discusses this technique and
explains the method of preparing a cash flow statement for an accounting
period.
6.1 Objectives of Cash Flow Statement
A Cash flow statement shows inflow and outflow of cash and cash equivalents
from various activities of a company during a specific period. The primary objective
of cash flow statement is to provide useful information about cash flows (inflows
and outflows) of an enterprise during a particular period under various heads,
i.e., operating activities, investing activities and financing activities.
This information is useful in providing users of financial statements with a
basis to assess the ability of the enterprise to generate cash and cash equivalents
and the needs of the enterprise to utilise those cash flows. The economic decisions
that are taken by users require an evaluation of the ability of an enterprise to
generate cash and cash equivalents and the timing and certainty of their
generation.
6.2 Benefits of Cash Flow Statement
Cash flow statement provides the following benefits :
? A cash flow statement when used along with other financial statements
provides information that enables users to evaluate changes in net assets
of an enterprise, its financial structure (including its liquidity and
solvency) and its ability to affect the amounts and timings of cash flows
in order to adapt to changing circumstances and opportunities.
? Cash flow information is useful in assessing the ability of the enterprise
to generate cash and cash equivalents and enables users to develop
models to assess and compare the present value of the future cash
flows of different enterprises.
? It also enhances the comparability of the reporting of operating
performance by different enterprises because it eliminates the effects of
using different accounting treatments for the same transactions and
events.
? It also helps in balancing its cash inflow and cash outflow, keeping in
response to changing condition. It is also helpful in checking the
accuracy of past assessments of future cash flows and in examining
the relationship between profitability and net cash flow and impact of
changing prices.
2024-25
243 Cash Flow Statement
6.3 Cash and Cash Equivalents
As stated earlier, cash flow statement shows inflows and outflows of cash and
cash equivalents from various activities of an enterprise during a particular
period. As per AS-3, ‘Cash’ comprises cash in hand and demand deposits with
banks, and  ‘Cash equivalents’ means 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. An investment normally qualifies as
cash equivalents only when it has a short maturity, of say, three months or less
from the date of acquisition. Investments in shares are excluded from cash
equivalents unless they are in substantial cash equivalents. For example,
preference shares of a company acquired shortly before their specific redemption
date, provided there is only insignificant risk of failure of the company to repay
the amount at maturity. Similarly, short-term marketable securities which can
be readily converted into cash are treated as cash equivalents and is liquidable
immediately without considerable change in value.
6.4 Cash Flows
‘Cash Flows’  implies movement of cash in and out due to some non-cash items.
Receipt of cash from a non-cash item is termed as cash inflow while cash payment
in respect of such items as cash outflow. For example, purchase of machinery
by paying cash  is cash outflow while sale proceeds received from sale of
machinery is cash inflow. Other examples of cash flows include collection of
cash from trade receivables, payment to trade payables, payment to employees,
receipt of dividend, interest  payments, etc.
Cash  management includes the investment of excess cash in cash equivalents.
Hence, purchase of marketable securities or short-term investment which
constitutes cash equivalents is not considered while preparing cash flow
statement.
6.5 Classification of Activities for the Preparation of Cash Flow
Statement
You know that various activities of an enterprise result into cash flows (inflows
or receipts and outflows or payments) which is the subject matter of a cash flow
statement. As per AS-3, these activities are to be classified into three categories:
(1) operating, (2) investing, and (3) financing activities so as to show separately
the cash flows generated (or used) by (in) these activities. This helps the users of
cash flow statement to assess the impact of these activities on the financial
position of an enterprise and also on its cash and cash equivalents.
2024-25
Page 4


T
iill now you have learnt about the financial
statements being primarily inclusive of Position
Statement (showing the financial position of an
enterprise as on a particular date) and Income
Statement (showing the result of the operational
activities of an enterprise over a particular period).
There is also a third important financial statement
known as Cash flow statement, which shows inflows
and outflows of the cash and cash equivalents. This
statement is usually  prepared by companies which
comes as a tool in the hands of users of financial
information to know about the sources and uses of
cash and cash equivalents of an enterprise over a
period of time from various activities of an
enterprise. It has gained substantial importance in
the last decade because of its practical utility to the
users of financial information.
Financial Statement of companies are prepared
following the accounting standards prescribed in
the companies Act, 2013. Accounting Standards
are notified under section 133 of the Companies
Act, 2013 vide Accounting Standards Rules, 2006
and are mandatory in nature. Companies Act, 2013
also specifies that if the accounting standards are
not followed, financial statements will not be true
and fair, which is a quality of financial statement.
Financial Statements are defined in Companies Act,
2013 (Section 2 (40)] and includes Cash Flow
Statement prepared in accordance with Accounting
Standard- 3 (AS-3)- Cash Flow Statement.
A cash flow statement provides information
about the historical changes in cash and cash
LEARNING OBJECTIVES
After studying this chapter ,
you will be able to :
• state the purpose
and preparation of
statement of cash flow
statement;
• distinguish between
operating activities,
investing activities and
financing activities;
• prepare the statement
of cash flows using
direct method;
• prepare the cash
flow statement using
indirect method.
Cash Flow Statement 6
2024-25
242 Accountancy : Company Accounts and Analysis of Financial Statements
equivalents of an enterprise by classifying cash flows into operating, investing
and financing activities. It requires that an enterprise should prepare a cash
flow statement and should present it for each accounting period for which
financial statements are presented. This chapter discusses this technique and
explains the method of preparing a cash flow statement for an accounting
period.
6.1 Objectives of Cash Flow Statement
A Cash flow statement shows inflow and outflow of cash and cash equivalents
from various activities of a company during a specific period. The primary objective
of cash flow statement is to provide useful information about cash flows (inflows
and outflows) of an enterprise during a particular period under various heads,
i.e., operating activities, investing activities and financing activities.
This information is useful in providing users of financial statements with a
basis to assess the ability of the enterprise to generate cash and cash equivalents
and the needs of the enterprise to utilise those cash flows. The economic decisions
that are taken by users require an evaluation of the ability of an enterprise to
generate cash and cash equivalents and the timing and certainty of their
generation.
6.2 Benefits of Cash Flow Statement
Cash flow statement provides the following benefits :
? A cash flow statement when used along with other financial statements
provides information that enables users to evaluate changes in net assets
of an enterprise, its financial structure (including its liquidity and
solvency) and its ability to affect the amounts and timings of cash flows
in order to adapt to changing circumstances and opportunities.
? Cash flow information is useful in assessing the ability of the enterprise
to generate cash and cash equivalents and enables users to develop
models to assess and compare the present value of the future cash
flows of different enterprises.
? It also enhances the comparability of the reporting of operating
performance by different enterprises because it eliminates the effects of
using different accounting treatments for the same transactions and
events.
? It also helps in balancing its cash inflow and cash outflow, keeping in
response to changing condition. It is also helpful in checking the
accuracy of past assessments of future cash flows and in examining
the relationship between profitability and net cash flow and impact of
changing prices.
2024-25
243 Cash Flow Statement
6.3 Cash and Cash Equivalents
As stated earlier, cash flow statement shows inflows and outflows of cash and
cash equivalents from various activities of an enterprise during a particular
period. As per AS-3, ‘Cash’ comprises cash in hand and demand deposits with
banks, and  ‘Cash equivalents’ means 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. An investment normally qualifies as
cash equivalents only when it has a short maturity, of say, three months or less
from the date of acquisition. Investments in shares are excluded from cash
equivalents unless they are in substantial cash equivalents. For example,
preference shares of a company acquired shortly before their specific redemption
date, provided there is only insignificant risk of failure of the company to repay
the amount at maturity. Similarly, short-term marketable securities which can
be readily converted into cash are treated as cash equivalents and is liquidable
immediately without considerable change in value.
6.4 Cash Flows
‘Cash Flows’  implies movement of cash in and out due to some non-cash items.
Receipt of cash from a non-cash item is termed as cash inflow while cash payment
in respect of such items as cash outflow. For example, purchase of machinery
by paying cash  is cash outflow while sale proceeds received from sale of
machinery is cash inflow. Other examples of cash flows include collection of
cash from trade receivables, payment to trade payables, payment to employees,
receipt of dividend, interest  payments, etc.
Cash  management includes the investment of excess cash in cash equivalents.
Hence, purchase of marketable securities or short-term investment which
constitutes cash equivalents is not considered while preparing cash flow
statement.
6.5 Classification of Activities for the Preparation of Cash Flow
Statement
You know that various activities of an enterprise result into cash flows (inflows
or receipts and outflows or payments) which is the subject matter of a cash flow
statement. As per AS-3, these activities are to be classified into three categories:
(1) operating, (2) investing, and (3) financing activities so as to show separately
the cash flows generated (or used) by (in) these activities. This helps the users of
cash flow statement to assess the impact of these activities on the financial
position of an enterprise and also on its cash and cash equivalents.
2024-25
244 Accountancy : Company Accounts and Analysis of Financial Statements
6.5.1 Cash from Operating Activities
Operating activities are the activities that constitute the primary or main activities
of an enterprise. For example, for a company manufacturing garments, operating
activities are procurement of raw material, incurrence of manufacturing expenses,
sale of garments, etc. These are the principal  revenue generating activities (or
the main activities) of the enterprise and these activities are not investing or
financing activities. The amount of cash from operations’ indicates the internal
solvency level of the company, and is regarded as the key indicator of the extent
to which the operations of the enterprise have generated sufficient cash flows to
maintain the operating capability of the enterprise, paying dividends, making of
new investments and repaying of loans without recourse to external source of
financing.
Cash flows from operating activities are primarily derived from the main
activities of the enterprise. They generally result from the transactions and other
events that enter into the determination of net profit or loss. Examples of cash
flows from operating activities are:
Cash Inflows from operating activities
? cash receipts from sale of  goods and the rendering of services.
? cash receipts from royalties, fees, commissions and other revenues.
Cash Outflows from operating activities
? Cash payments to suppliers for goods and services.
? Cash payments to and on behalf of the employees.
? Cash payments to an insurance enterprise for premiums and claims,
annuities, and other policy benefits.
? Cash payments of income taxes unless they can be specifically identified
with financing and investing activities.
The net position is shown in case of operating cash flows.
An enterprise may hold securities and loans for dealing or for trading
purposes. In either case they represent Inventory specifically held for resale.
Therefore, cash flows arising from the purchase and sale of dealing or trading
securities are classified as operating activities. Similarly, cash advances and
loans made by financial enterprises are usually classified as operating activities
since they relate to main activity of that enterprise.
6.5.2 Cash from Investing Activities
As per AS-3, investing activities are the acquisition and  disposal of long-term
assets and other investments not included in cash  equivalents. Investing
activities relate to purchase and sale of long-term assets or fixed assets such
2024-25
Page 5


T
iill now you have learnt about the financial
statements being primarily inclusive of Position
Statement (showing the financial position of an
enterprise as on a particular date) and Income
Statement (showing the result of the operational
activities of an enterprise over a particular period).
There is also a third important financial statement
known as Cash flow statement, which shows inflows
and outflows of the cash and cash equivalents. This
statement is usually  prepared by companies which
comes as a tool in the hands of users of financial
information to know about the sources and uses of
cash and cash equivalents of an enterprise over a
period of time from various activities of an
enterprise. It has gained substantial importance in
the last decade because of its practical utility to the
users of financial information.
Financial Statement of companies are prepared
following the accounting standards prescribed in
the companies Act, 2013. Accounting Standards
are notified under section 133 of the Companies
Act, 2013 vide Accounting Standards Rules, 2006
and are mandatory in nature. Companies Act, 2013
also specifies that if the accounting standards are
not followed, financial statements will not be true
and fair, which is a quality of financial statement.
Financial Statements are defined in Companies Act,
2013 (Section 2 (40)] and includes Cash Flow
Statement prepared in accordance with Accounting
Standard- 3 (AS-3)- Cash Flow Statement.
A cash flow statement provides information
about the historical changes in cash and cash
LEARNING OBJECTIVES
After studying this chapter ,
you will be able to :
• state the purpose
and preparation of
statement of cash flow
statement;
• distinguish between
operating activities,
investing activities and
financing activities;
• prepare the statement
of cash flows using
direct method;
• prepare the cash
flow statement using
indirect method.
Cash Flow Statement 6
2024-25
242 Accountancy : Company Accounts and Analysis of Financial Statements
equivalents of an enterprise by classifying cash flows into operating, investing
and financing activities. It requires that an enterprise should prepare a cash
flow statement and should present it for each accounting period for which
financial statements are presented. This chapter discusses this technique and
explains the method of preparing a cash flow statement for an accounting
period.
6.1 Objectives of Cash Flow Statement
A Cash flow statement shows inflow and outflow of cash and cash equivalents
from various activities of a company during a specific period. The primary objective
of cash flow statement is to provide useful information about cash flows (inflows
and outflows) of an enterprise during a particular period under various heads,
i.e., operating activities, investing activities and financing activities.
This information is useful in providing users of financial statements with a
basis to assess the ability of the enterprise to generate cash and cash equivalents
and the needs of the enterprise to utilise those cash flows. The economic decisions
that are taken by users require an evaluation of the ability of an enterprise to
generate cash and cash equivalents and the timing and certainty of their
generation.
6.2 Benefits of Cash Flow Statement
Cash flow statement provides the following benefits :
? A cash flow statement when used along with other financial statements
provides information that enables users to evaluate changes in net assets
of an enterprise, its financial structure (including its liquidity and
solvency) and its ability to affect the amounts and timings of cash flows
in order to adapt to changing circumstances and opportunities.
? Cash flow information is useful in assessing the ability of the enterprise
to generate cash and cash equivalents and enables users to develop
models to assess and compare the present value of the future cash
flows of different enterprises.
? It also enhances the comparability of the reporting of operating
performance by different enterprises because it eliminates the effects of
using different accounting treatments for the same transactions and
events.
? It also helps in balancing its cash inflow and cash outflow, keeping in
response to changing condition. It is also helpful in checking the
accuracy of past assessments of future cash flows and in examining
the relationship between profitability and net cash flow and impact of
changing prices.
2024-25
243 Cash Flow Statement
6.3 Cash and Cash Equivalents
As stated earlier, cash flow statement shows inflows and outflows of cash and
cash equivalents from various activities of an enterprise during a particular
period. As per AS-3, ‘Cash’ comprises cash in hand and demand deposits with
banks, and  ‘Cash equivalents’ means 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. An investment normally qualifies as
cash equivalents only when it has a short maturity, of say, three months or less
from the date of acquisition. Investments in shares are excluded from cash
equivalents unless they are in substantial cash equivalents. For example,
preference shares of a company acquired shortly before their specific redemption
date, provided there is only insignificant risk of failure of the company to repay
the amount at maturity. Similarly, short-term marketable securities which can
be readily converted into cash are treated as cash equivalents and is liquidable
immediately without considerable change in value.
6.4 Cash Flows
‘Cash Flows’  implies movement of cash in and out due to some non-cash items.
Receipt of cash from a non-cash item is termed as cash inflow while cash payment
in respect of such items as cash outflow. For example, purchase of machinery
by paying cash  is cash outflow while sale proceeds received from sale of
machinery is cash inflow. Other examples of cash flows include collection of
cash from trade receivables, payment to trade payables, payment to employees,
receipt of dividend, interest  payments, etc.
Cash  management includes the investment of excess cash in cash equivalents.
Hence, purchase of marketable securities or short-term investment which
constitutes cash equivalents is not considered while preparing cash flow
statement.
6.5 Classification of Activities for the Preparation of Cash Flow
Statement
You know that various activities of an enterprise result into cash flows (inflows
or receipts and outflows or payments) which is the subject matter of a cash flow
statement. As per AS-3, these activities are to be classified into three categories:
(1) operating, (2) investing, and (3) financing activities so as to show separately
the cash flows generated (or used) by (in) these activities. This helps the users of
cash flow statement to assess the impact of these activities on the financial
position of an enterprise and also on its cash and cash equivalents.
2024-25
244 Accountancy : Company Accounts and Analysis of Financial Statements
6.5.1 Cash from Operating Activities
Operating activities are the activities that constitute the primary or main activities
of an enterprise. For example, for a company manufacturing garments, operating
activities are procurement of raw material, incurrence of manufacturing expenses,
sale of garments, etc. These are the principal  revenue generating activities (or
the main activities) of the enterprise and these activities are not investing or
financing activities. The amount of cash from operations’ indicates the internal
solvency level of the company, and is regarded as the key indicator of the extent
to which the operations of the enterprise have generated sufficient cash flows to
maintain the operating capability of the enterprise, paying dividends, making of
new investments and repaying of loans without recourse to external source of
financing.
Cash flows from operating activities are primarily derived from the main
activities of the enterprise. They generally result from the transactions and other
events that enter into the determination of net profit or loss. Examples of cash
flows from operating activities are:
Cash Inflows from operating activities
? cash receipts from sale of  goods and the rendering of services.
? cash receipts from royalties, fees, commissions and other revenues.
Cash Outflows from operating activities
? Cash payments to suppliers for goods and services.
? Cash payments to and on behalf of the employees.
? Cash payments to an insurance enterprise for premiums and claims,
annuities, and other policy benefits.
? Cash payments of income taxes unless they can be specifically identified
with financing and investing activities.
The net position is shown in case of operating cash flows.
An enterprise may hold securities and loans for dealing or for trading
purposes. In either case they represent Inventory specifically held for resale.
Therefore, cash flows arising from the purchase and sale of dealing or trading
securities are classified as operating activities. Similarly, cash advances and
loans made by financial enterprises are usually classified as operating activities
since they relate to main activity of that enterprise.
6.5.2 Cash from Investing Activities
As per AS-3, investing activities are the acquisition and  disposal of long-term
assets and other investments not included in cash  equivalents. Investing
activities relate to purchase and sale of long-term assets or fixed assets such
2024-25
245 Cash Flow Statement
as machinery, furniture, land and building, etc. Transactions related to long-
term investment are also investing activities.
Separate disclosure of cash flows from investing activities is important
because they represent the extent to which expenditures have been made for
resources intended to generate future income and cash flows.  Examples of cash
flows arising from investing activities are:
Cash Outflows from investing activities
? Cash payments to acquire fixed assets including intangibles and
capitalised research and development.
? Cash payments to acquire shares, warrants or debt instruments of other
enterprises other than the instruments those held for trading purposes.
? Cash advances and loans made to third party (other than advances
and loans made by a financial enterprise wherein it is operating
activities).
Cash Inflows from Investing Activities
? Cash receipt from disposal of  fixed assets including intangibles.
? Cash receipt from the repayment of advances or loans made to third
parties (except in case of financial enterprise).
? Cash receipt from disposal of shares, warrants or debt instruments of
other enterprises except those held for trading purposes.
? Interest received in cash from loans and advances.
? Dividend received from investments in other enterprises.
6.5.3 Cash from Financing Activities
As the name suggests, financing activities relate to long-term funds or capital of
an enterprise, e.g., cash proceeds from issue of equity shares, debentures, raising
long-term bank loans, repayment of bank loan, etc. As per AS-3, financing
activities are activities that result in changes in the size and composition of the
owners’ capital   (including preference share capital in case of a company) and
borrowings of the enterprise. Separate disclosure of cash flows arising from
financing activities is important because it is useful in predicting claims on future
cash flows by providers of funds ( both capital and borrowings ) to the enterprise.
Examples of financing activities are:
Cash Inflows from financing activities
? Cash proceeds from issuing shares (equity or/and preference).
? Cash proceeds from issuing debentures, loans, bonds and other
short/ long-term borrowings.
2024-25