AS 3 – Cash Flow Statements | Advanced Accounting for CA Intermediate PDF Download

Applicability of AS 3 Cash Flow Statements

• The Companies Act, 2013 defines the applicability of the Cash Flow Statement, which is a part of the financial statement along with the Balance Sheet, Profit and Loss Account, Statement of Changes in Equity, and Explanatory Notes.
• All companies are required to prepare Cash Flow Statements, except for specific categories like One Person Company (OPC), Small Company, and Dormant Company.
• OPC refers to a company with a single person as its member.
• Small Company is a private company with limited capital and turnover.
• Dormant Company is an inactive company formed for future projects or asset holding with minimal transactions.

Cash and Cash Equivalents

• Cash equivalents are short-term assets held by a company for meeting immediate cash needs rather than for investment purposes.
• To qualify as cash equivalents, an investment must be easily convertible into cash with low risk and a maturity of three months or less.

Presentation of Cash Flow

• A cash flow statement should categorize cash flows into Operating, Investing, and Financing activities to reflect a company's financial position.

Operating Activities:

• Cash flows from operating activities mainly come from a company's core revenue-generating operations.
• Examples include cash received from sales, fees, and cash paid to suppliers.

Investing Activities:

• Investing activities involve cash flows related to acquiring assets for generating income in the future.
• Examples include cash paid for acquiring fixed assets or shares of other companies.

Financing Activities:

• Financing activities include transactions that affect a company's capital and borrowings.
• Examples include cash received from issuing shares or loans and cash repayment on borrowings.

Cash Flow from Operating Activities

• Companies report cash flows from operating activities using either the Direct or Indirect method, adjusting for non-cash transactions.

Cash Flow from Investing and Financing Activities

• Companies must separately record major cash receipts and payments from these activities, except for those reported on a net basis.

Foreign Currency Cash Flows

• Cash flows in foreign currencies should be converted to the reporting currency using appropriate exchange rates.
• The impact of exchange rate changes on cash and cash equivalents must be disclosed separately.

Extraordinary Items, Dividends & Interests

• Cash flows related to extraordinary items, dividends, and interests must be categorized and disclosed appropriately.

Taxes on Income

• Cash flows from income taxes should be reported separately as operating, investing, or financing activities.

Acquisitions and Disposal of Business Units including Subsidiaries

• Cash flows from acquiring or disposing of business units should be classified as investing activities.
• Details regarding these transactions should be clearly presented in the financial statements.

Non-Cash Transactions and Disclosure

• Transactions not involving cash must be excluded from the cash flow statement and disclosed separately.
• Enterprises must disclose substantial cash and cash equivalents not available for use and other relevant commitments.

Major differences between AS 3 and Ind AS 7