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ACCOUNTING STANDARD 3: CASH FLOW STATEMENTS

FREQUENTLY ASKED QUESTIONS

What is the objective of a cash flow statement?

Answer:

The objective of a cash flow statement should be to assist users:

  to assess the company's ability to generate positive cash flows in the future

  to assess its ability to meet its obligations to service loans, pay dividends etc.

  to assess the reasons for differences between reported and related cash flows

  to assess the effect on its finances of major transactions in the year



Can Fixed Deposits be shown as investing activity in cash flow statement?

Answer:

AS-3 Cash Flow Statement defines cash as "Cash comprises of cash on hand and demand deposits with banks." Accordingly fixed deposits are cash for the purpose of AS-3. Also, they are not even cash equivalents because they are specially covered in the definition of "cash". Accordingly, fixed deposits cannot be shown as investing activity.

 

Whether DDT is a cash flow from financing activity or operating activity?

Answer:

It may be noted that the "Guidance Note on Accounting for Corporate Dividend Tax" requires corporate dividend tax to be disclosed along with the dividend paid in the profit and loss account, below the line. Dividend paid is disclosed as cash flow from financing activity, hence tax on the same, is similarly disclosed.