Preparation of Cash Flow.

Definitions as per AS3

Q1.What is cash?

CASH: cash comprises cash in hand and demand deposits with bank.

CASH = Cash in hand + Demand Deposits with bank

Q2.What are cash equivalents?

CASH EQUIVALENTS: 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 change in value.

Cash Equivalents = short term Investments + readily convertible + Insignificant Risk.

Q3.What is cash Flow?

CASH FLOW: cash flow are inflow and outflow of Cash and Cash Equivalents.

Q4.What is operating Activity?

OPERATING ACTIVITY: operating activities are the principal revenue producing activities of the enterprise and other activities that are not Investing and financing activities.

Operating Activities = Principal Revenue producing Activities + not Investing or  Financing Activity's

Q5.What is Investing Activities?

INVESTING ACTIVITIES: investing activities are the acquisitions and disposal of long term assets not included in cash equivalents.

INVESTING ACTIVITIES = purchase and sale of long term assets + not Cash Equivalents

Q6.What is financing Activities?

Financing activities are activities that results in change in the size and composition of the owners capital (including preference share capital in case of a company) and borrowings of the enterprise.

Financing activities =  change in owners capital and borrowings

NOTE: in case of company, owners capital includes preference share capital.

Q7.Cash flow statement does not show movement between items cash and Cash equivalents?

YES. An investment is a cash equivalents only if it is readily convertible to known amount of cash, is subject to an insignificant risk of change in value, and a short maturity of three months or less.

So cash and cash equivalents are clubbed together since the essential character of both are almost the same.

Q8.Investments in shares is excluded from cash equivalents?

YES, preference share of a company acquired shortly before their specified redemption date (provided there is only insignificant risk  of failure of the company to repay the amount at maturity) can be included in cash and cash equivalent but investment in equity shares can’t be included in cash equivalents because of high risk of change in value.

As 3 requires that three separate categories of cash flow should normally be shown.

1.   Operating Activity

2.   Investing Activity

3.   Financing Activity

More detail's visit:  www.icaas.blogspot.com

Q9.Increase in shares due to bonus issue will not be shown on the cash flow?

TRUE, Since bonus issue does not involve any Receipt of cash, it is a capitalization of reserve.

Q10.Issue of shares at Premium will be shown as share + premium?

TRUE, Full amount of consideration including Premium shall be shown under financing activity.

Q11.Any loss or gain on account of Foreign Currency Transaction should not be shown in profit and loss Account?

YES, such loss or gain transactions should be reconciled with cash balances and not shown in Profit and Loss Account. Foreign currency cash flow should be converted at the exchange rate of the date of cash flow.

Q12.Interest and dividends  are classified as operating activity for Financial Enterprises?

YES, it is operating activity for financial Enterprise but investing activity for other Enterprise.

Q13.Any interest received on advance to employee or supplier should be treated as cash inflow from operating activity?

YES

Q14.Cash arising from acquisition and from disposal of subsidiaries or other business units shall be classified as Investing Activity's?

YES

Q15.Cash flows from future contracts, forward contracts, option contracts, and swap contracts shall be treated as cash flow from investing activity's.

YES

Q16.Purchase of assets by issue of shares and  conversion of debenture in to shares excluded from cash flow statements.

YES, because it is non cash transactions.

Q17.From 1^st April 2001  cash flow statement (AS-3) is mandatory in respect of all commercial, industrial and business reporting enterprises, where turnover for the accounting period exceeds RS. 50 crores?

YES, and from 1.4.2004 preparation of cash flow is mandatory for all Level I enterprises.

Please Refer AS3. www.icaias.blogspot.com.

Q18.Interest paid by other then financial enterprise is shown under Financing Activity?

YES, for both financial and non financial Enterprises interest paid shall be shown under Financial Activity.

Extraordinary Items

Example: Bad debts recovered, insurance claim and Income Tax shall be Discloses Separately.

The cash flows associated with extraordinary items should be classified as arising from operating, investing or financing activities as appropriate and separately disclosed.

Advantage of cash flow

•     Discloses movement of Cash.

•     Discloses successes or failure of cash planning.

•     Efficiency in cash management.

•     Predict enterprises liquidity, flexibility, and ability to generate future cash flows.

•     Determines entity's ability to meets its obligation as they become due.

•     Enhance comparability of reporting.

•     Assess the reliability of the amount of net profit.

•     Breakup operating and other profit cash flow

•     Assess increase or decrease to assets and liability.

Limitation of cash flow

•     Does not show changes in working capital at a glance.

•     Does not reflect accrued income and expenses.

•     Create confusion in the mind of the readers.(Note: Income statements takes into account both cash as well as  non cash items.)

•     May not represent the real liquidity position.

Difference between a cash flow and a fund flow statement.

Cash Flow statement.	Fund Flow Statement.
1.   It is based on cash basis. 2.   It is concerned with cash. 3.   It shows the effect of cash on Operating, Investing and Financing activities of a business for an accounting period. 4.   It is used mainly for short-term planning. 5.   It shows cash generated from operation.	1.   It is based on accrual basis. 2.   It is concerned with working capital. 3.   It shows source and application of funds during a period. 4.   It is used for long intermediate and long-term planning. 5.   It shows funds generated from operations.

  

indian Contract Act 1872. http://icaii.blogspot.com

Partnership Accounting

Indian Partnership Act 1932
part1

part2

part3 

IFRS

The Institute of Chartered Accountants of India (ICAI) has announced that IFRS will be mandatory in India for financial statements for the periods beginning on or after 1 April 2011. This will be done by revising existing accounting standards to make them compatible with IFRS.

Reserve Bank of India has stated that financial statements of banks need to be IFRS-compliant for periods beginning on or after 1 April 2011...

The ICAI has also stated that IFRS will be applied to companies above Rs.1000 crore from April 2011. Phase wise applicability details for different companies in India:

Phase 1: Opening balance sheet as at 1 April 2011*
i. Companies which are part of NSE Index – Nifty 50
ii. Companies which are part of BSE Sensex – BSE 30

a. Companies whose shares or other securities are listed on a stock exchange outside India

b. Companies, whether listed or not, having net worth of more than INR1,000 crore

Phase 2: Opening balance sheet as at 1 April 2012*
Companies not covered in phase 1 and having net worth exceeding INR 500 crore

Phase 3: Opening balance sheet as at 1 April 2014*
Listed companies not covered in the earlier phases

• If the financial year of a company commences at a date other than 1 April, then it shall prepare its opening balance sheet at the commencement of immediately following financial year.

On January 22, 2010 the Ministry of Corporate Affairs issued the road map for transition to IFRS. It is clear that India has deferred transition to IFRS by a year. In the first phase, companies included in Nifty 50 or BSE Sensex, and companies whose securities are listed on stock exchanges outside India and all other companies having net worth of Rs 1,000 crore will prepare and present financial statements using Indian Accounting Standards converged with IFRS. According to the press note issued by the government, those companies will convert their first balance sheet as at April 1, 2011, applying accounting standards convergent with IFRS if the accounting year ends on March 31. This implies that the transition date will be April 1, 2011. According to the earlier plan, the transition date was fixed at April 1, 2010.

The press note does not clarify whether the full set of financial statements for the year 2011-12 will be prepared by applying accounting standards convergent with IFRS. The deferment of the transition may make companies happy, but it will undermine India’s position. Presumably, lack of preparedness of Indian companies has led to the decision to defer the adoption of IFRS for a year. This is unfortunate that India, which boasts for its IT and accounting skills, could not prepare itself for the transition to IFRS over last four years. But that might be the ground reality. Transition in phases Companies, whether listed or not, having net worth of more than Rs 500 crore will convert their opening balance sheet as at April 1, 2013. Listed companies having net worth of Rs 500 crore or less will convert their opening balance sheet as at April 1, 2014. Un-listed companies having net worth of Rs 500 crore or less will continue to apply existing accounting standards, which might be modified from time to time. Transition to IFRS in phases is a smart move. The transition cost for smaller companies will be much lower because large companies will bear the initial cost of learning and smaller companies will not be required to reinvent the wheel. However, this will happen only if a significant number of large companies engage Indian accounting firms to provide them support in their transition to IFRS. If, most large companies, which will comply with Indian accounting standards convergent with IFRS in the first phase, choose one of the international firms, Indian accounting firms and smaller companies will not benefit from the learning in the first phase of the transition to IFRS. It is likely that international firms will protect their learning to retain their competitive advantage. Therefore, it is for the benefit of the country that each company makes judicious choice of the accounting firm as its partner without limiting its choice to international accounting firms. Public sector companies should take the lead and the Institute of Chartered Accountants of India (ICAI) should develop a clear strategy to diffuse the learning. Size of companies The government has decided to measure the size of companies in terms of net worth. This is not the ideal unit to measure the size of a company. Net worth in the balance sheet is determined by accounting principles and methods. Therefore, it does not include the value of intangible assets. Moreover, as most assets and liabilities are measured at historical cost, the net worth does not reflect the current value of those assets and liabilities. Market capitalisation is a better measure of the size of a company. But it is difficult to estimate market capitalisation or fundamental value of unlisted companies. This might be the reason that the government has decided to use ‘net worth’ to measure size of companies. Some companies, which are large in terms of fundamental value or which intend to attract foreign capital, might prefer to use Indian accounting standards convergent with IFRS earlier than required under the road map presented by the government. The government should provide that choice. Conclusion The government will come up with a separate road map for banking and insurance companies by February 28, 2010. Let us hope that transition in case of those companies will not be deferred further.

CA Final Online Learning

Syllabus __Advanced knowledge:

Group I

Paper 1: Financial Reporting (100 Marks)

Paper 2: Strategic Financial Management (100 Marks)

Paper 3: Advanced Auditing and Professional Ethics (100 Marks)

Paper 4: Corporate and Allied Laws (100 Marks)

Section A: Company Law (70 Marks)

Section B: Allied Laws (30 Marks)

Group II

Paper 5: Advanced Management Accounting (100 Marks)

Paper 6: Information Systems Control and Audit (100 Marks)

Paper 7: Direct Tax Laws (100 Marks)

Paper 8: Indirect Tax Laws (100 Marks)

Section A: Central Excise (40 Marks)

Section B: Service Tax & VAT (40 Marks)

Section C: Customs (20 Marks)

CA IPCC Online Learning Free

Syllabus __ Working Knowledge

Six subjects and Seven Papers of study in IPCC are –

Group I

Paper 1:Accounting (100 marks)

Paper 2:Law, Ethics and Communication

Part I: Law (60 marks)

Business Laws (30 marks)

Company Law (30 marks)

Part II: Business Ethics (20 marks)

Part III: Business Communication (20 marks)

Paper 3:Cost Accounting and Financial Management

Part I: Cost Accounting (50 marks)

Part II: Financial Management (50 marks)

Paper 4:Taxation

Part I: Income-tax (50 marks)

Part II: Service Tax (25 marks) and

           VAT (25 marks)

Group II

Paper 5: Advanced Accounting (100 marks)

Paper 6:Auditing and Assurance (100 marks)

Paper 7: Information Technology and Strategic Management

Section A: Information Technology (50 marks)

Section B: Strategic Management (50 marks)

CA CPT online Learning

SYLLABUS__Basic knowledge

One Paper, Two Sessions 200 Marks

Session I:

Section A: Fundamentals of Accounting 60 Marks

Section B: Mercantile Laws 40 Marks

Session II:

Section C: General Economics 50 Marks

Section D: Quantitative Aptitude 50 Marks