Indian AS 3

Indian Accounting Standard 3 - Full fledged PPT for presentation.

1. Indian accounting standards Accounting Standard - 3 Tushar Swami (609) Purnima Varun(535) Aakshit Nangalia(591) Shubham Verma (628) Shweta Baisla (556) Manisha Baisla (630)

2. What Are Accounting Standards? Accounting standards are authoritative standards for financial reporting. The primary source of generally accepted accounting principles (GAAP). They specify how transactions and other events are to be recognized, measured, presented and disclosed in financial statements. The objective of such standards is to provide financial information to investors, lenders, creditors, contributors and others that is useful in making decisions about providing resources to the entity.

3. Indian Accounting Standards (Ind-AS) the Accounting Standard adopted by companies in India issued under the supervision of Accounting Standards Board (ASB). ASB - committee under ICAI (constituted in 1977) which consists of representatives from government department, academicians, other professional bodies. named and numbered in the same way as the International Financial Reporting Standards (IFRS).  National Advisory Committee on Accounting Standards (NACAS) recommend these standards to the Ministry of Corporate Affairs (MCA).  As on date MCA has notified 41 Ind-AS. These shall be applied to the companies of financial year 2015-16 voluntarily, and from 2016-17 on a mandatory basis.

4. Indian Accounting Standard -3 Statements of Cash Flow Financial statements that show how changes in balance sheet account and income affect the cash and cash equivalents, and breaks down that analysis.

5. Definition Cash comprises cash on hand and demand deposits with banks. 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. Cash flows - inflows and outflows of cash and cash equivalents. Operating activities are the principal revenue-producing activities of the enterprise and other activities that are not investing or financing activities. Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. 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.

6.  Cash and Cash Equivalents Cash equivalents are held by an enterprise for meeting its short-term cash commitments instead of the purpose of investment or such other purposes. For investments to qualify as cash equivalents: 1. An investment must be easily convertible into cash and 2. Must be subject to a very low level of risk with respect to changes in its value Eg : Treasury Bills , Marketable securities, Commercial Paper AS 3 Cash Flow Statements states that “ cash flows should exclude the movements between items which forms part of cash or cash equivalents as these are part of an enterprise’s cash management rather than its operating, financing and investing activities. Cash management consists of the investment of excess cash in the cash equivalents.”

7. Applicability of AS 3 Cash Flow Statements The applicability of Cash flow statement has been defined under the Companies Act, 2013. As per the definition in the act, a financial statement includes Cash flow Statements Thus, cash flow statements are to be prepared by all companies but the act also specifies a certain category of companies which are exempted from preparing the same. Such companies are One Person Company (OPC), Small Company and Dormant Company. OPC  means a company which has only one single person as its member. A  Small Company  is a private company with a maximum paid up capital of Rs. 50 lakhs and a maximum turnover of Rs. 2 crores. A  Dormant Company  is an inactive company which is formed for some future projects or only to hold an asset and has no significant transactions.

8. Disclosure Enterprises must disclose, along with management commentary, the amount of substantial cash and cash equivalents held by an enterprise which isn’t available for use. Commitments that may arise from discounted bills of exchange and other similar obligations that are undertaken by an enterprise are typically disclosed in financial statements by means of notes, even in case the probability of loss is remote.

9. Operating Activities These are principal revenue producing activities of the enterprise. Examples: Cash receipts from sale of goods / rendering services; Cash receipts from royalties, fees, commissions and other revenue; Cash payments to suppliers of goods and service; Cash payments to and on behalf of employees

10. Investing Activities The activities of acquisition and disposal of long term assets and other investments not included in cash equivalent are investing activities. It includes making and collecting loans, acquiring and disposal of debt and equity instruments, property and fixed assets etc. Examples of cash flows arising from investing activities are as follows: Cash payments to acquire fixed assets Cash receipts from disposal of fixed assets Cash payments to acquire shares, warrants or debt instruments of other enterprises and interest in joint ventures Cash receipt from disposal of above investments

11. Financing Activities Those activities that result in changes in size and composition of owners capital and borrowing of the organization. It includes receipts from issuing shares, debentures, bonds, borrowing and payment of borrowed amount, loan etc. Sale of share Buy back of shares , Redemption of preference shares , Issue / redemption of debentures , Long term loan / payment thereof , Dividend / interest paid

12. Acquisitions and Disposal of Business Units including Subsidiaries The aggregate cash flows which arise from acquisition and from the disposal of business units including subsidiaries must be shown as investing activities and reported separately. Enterprises must present, in total, with respect to both the acquisitions and disposals of other business units including subsidiaries within the period the followings: (a) Aggregate purchase or disposal value (b) The amount of purchase or disposal value which is discharged by way of cash and cash equivalents

13. Non Cash These should be excluded from the cash flow statement These transactions should be disclosed in the financial statements. Examples Acquisition of an enterprise by means of issue of equity share Conversion of debt to equity

14. Treatment of Tax Cash flow for tax payments / refund should be classified as cash flow from operating activities. If cash flow can be specifically identified as cash flow from investment / financing activities, appropriate classification should be made.

15. Forex Transaction The effect of changes in foreign exchange rates should be reported as separate part of the reconciliation of cash and cash equivalents. Unrealized gain and losses arising from changes in foreign exchanges rates are not cash flows.

16. Dividend Dividend Received For financial enterprises – in operating activities For other than financial enterprises – in investing activities Dividend Paid Always classified as financing activities Cash flow from dividend should be separately disclosed

17. Interest Interest Received Received from investment – it is in investment activities Received from short term investment classified, as cash equivalents should be considered as cash inflows from operating activities. Received on trade advances and operating receivables should be in operating activities Interest Paid On loans/debts are in financing activities On working capital loan and any other loan taken to finance operating activities are in operating activities Cash flow from interest should be separately disclosed.