2.1 An Organization who is
having its securities listed in any recognized stock exchange of India.
2.2 An Organization who is
in a process of listing their debt and equity as produced by the Board of
2.3 Banks including
2.4 An Organization who is
having an insurance business.
2.5 Financial Institutions.
2.6 All organizations which
have a turnover of more than Rs.50 crore in immediately preceding financial
year and Turnover does not include ‘other income’.
2.7 Holding and subsidiary companies, during
the accounting period.
whose equity or debt securities are listed in the stock exchange whether in
India or outside India.
commercial, Industrial and business reporting organizations having borrowings,
including public deposits, in excess to 10 crore at any given time during the
accounting period. (MCA)
3.1 Cash- Cash complies not only the cash in hand but also the demand
deposits with banks.
3.2 Cash Equivalents- It include investments which can be converted
into cash within a very short span of time as they are highly liquid in nature
but are subject to an insignificant risk
of changes in the market values. Common examples of cash
equivalents include treasury bills, commercial paper, marketable securities, and
short term government bonds.
3.3 Cash Flows- the inflows which the business gets like income and
outflows of cash and cash equivalents which business pays to clear its
obligations is termed as cash flows.
3.4 Operating activities- These are the principal revenue generating
activities of a company and it covers other activities as well which do not form
the part of investing and financing activities.
3.5 Investing activities- Activities which are related to the acquisition,
purchase, sale and disposal of long-term assets and investments which are not
included in cash and cash equivalents does not form the part of operating and
3.6 Financing activities- Activities which are responsible for changes
in the size and composition of owner’s capital and borrowings of an
organization ( including preference share capital in case of company.) and does
not form the part of operating and investing activities.
3.7 Direct Method- This method mainly emphasis on the transactions of
operating activities which forms the major part as activities like Cash
collected from customers and cash received from interest and dividends and mainly cash payments
like cash paid to suppliers for goods, to employees for services, to creditors
for interest, and to government authorities for taxes.
3.8 Indirect Method- It is a most widely used method for the
calculation of all the three activities mainly operating activity. Under this method,
transactions which formed the part of operating activities is determined by
adding back or deducting from the net
profit before tax as those items does not affect cash, like depreciation.
Cash and Cash Equivalents
4.1Cash and cash equivalents are the short term, highly liquid
investments which can be readily be converted in the amount which is known and
has some insignificant risk of changes as per the market rates. Cash and cash
equivalents are held to meet the short term obligation and for the need of the
business not for the purpose of investment or other activities which are going
to benefit the company in the long run.
4.2 To be a cash equivalent, an investment must be something which can readily
be converted into the cash amount and subject to some insignificant risk of
changes as per the market rates. An investment qualifies a cash equivalent
normally when it is having a shorter maturity period, i.e. three months or less
from the date of purchase, practically it is 90 days.
4.3 It is a part of the cash management of an organization rather than
part of its 3 activities i.e. operating, investing and financing activities and
it excludes movements between items that seem like cash and cash equivalents.
4.4 Investing excess cash into cash and cash equivalents is all about
4.5 Investments in shares does
not form the part of cash equivalents unless they are, in a legal state, cash
equivalents; for example, preference shares of a company being bought shortly
before their mentioned redemption date (provided there is only an
inconsiderable risk that company might fail to pay the money on maturity.
DOWN of ‘Cash Equivalents’
Cash equivalents are also one of the major indicators
of a company’s financial position. It helps investors and analyst to have an
idea about whether they should invest or not by checking the capability of the
company to generate cash and cash equivalents, as it tells about the company
that they can pay their short term debts in less time. Companies having huge
cash and cash equivalents are the targets of big companies as they always plan
to acquire the smaller one. (Investopedia,
Presentation of a Cash Flow Statement
of cash flow should reveal the cash flows from all the3 major activities
classified as operating, investing and financing activities.
5.2 An organization should states its
operating, investing and financing activities such like it should give a clear
and broad picture about the business.
5.3 Activities must be classified in such way
that it provides information which allow the stakeholders to see the impact of
the 3 activities on the financial position of an organization and on its cash
and cash equivalents. This information may be further used to see the impact
and relationship among the 3 activities.
5.4 Cash Flows of the subsidiaries which are
working in foreign countries should converted into the exchange rates when the
cash flow will be made..
5.5 There are events when a single transaction can
have an impact on the activities which are differently classified. Example,
when a company acquire a fixed asset on installments or on a deferred payment
basis, it includes both the loan amount and the interest amount, the element of
the loan amount will be classified under the investing activities but the loan
amount will be classified under