Presentation of cash flows from Operating Activities - Ind AS - Indian Accounting Standards - Companies Law

Presentation of cash flows from Operating Activities The amount of cash flows arising from operating activities is a key indicator of the extent to which the operations of the entity have generated sufficient cash flows to repay loans, maintain the operating capability of the entity, pay dividends, and make new investments without recourse to external sources of financing. Information about the specific components of historical operating cash flows is useful, in conjunction with other information, in forecasting future operating cash flows. Cash flows from operating activities are primarily derived from the principal revenue producing activities of the entity. Therefore, they generally result from the transactions and other events that enter the determination of profit or loss. Examples of cash flows from operating activities are: cash receipts from the sale of goods and the rendering of services; cash receipts from royalties, fees, commissions and other revenue; cash payments to suppliers for goods and services; cash payments to and on behalf of employees; cash receipts and cash payments of an insurance entity for premiums and claims, annuities and other policy benefits; cash payments or refunds of income taxes unless they can be specifically identified with financing and investing activities; and cash receipts and payments from contracts held for dealing or trading purposes. Consideration of some specific activities- In case of sale of Asset - Some transactions, such as the sale of an item of plant, may give rise to a gain or loss that is included in recognised profit or loss. The cash flows relating to such transactions are cash flows from investing activities. However, cash payments to manufacture or acquire assets held for rental to others and subsequently held for sale as described in Ind AS 16, Property, Plant and Equipment, are cash flows from operating activities. The cash receipts from rents and subsequent sales of such assets are also cash flows from operating activities. In case of sale of securities held for trading - An entity may hold securities and loans for dealing or trading purposes, in which case they are similar to inventory acquired specifically for resale. Therefore, cash flows arising from the purchase and sale of dealing or trading securities are classified as operating activities. Similarly, cash advances and loans made by financial institutions are usually classified as operating activities since they relate to the main revenue-producing activity of that entity. Operating Activities can be presented in two ways. They are: Direct Method Indirect Method Cash flows from Operating Activities under Direct Method ₹ Cash Receipts from customers XXX Cash paid to supplier and employees (XXX) Cash generated from operations XXX Income Tax Paid (XX) Cash flows before extraordinary item XXX Proceeds from earthquake disaster settlement XX Net cash from operating activities XXX Cash Flows from Operating Activities under Indirect Method Under this method we adjust the non-Cash items, Non-Operating Items, changes in Inventories and operating receivables and payables. Cash flows from operating activities ₹ Net profit before taxation and extraordinary items XXX Add/Less: Non-Cash and non-operating items: Depreciation XXX Goodwill written off during the year XXX Interest Income (XXX) Dividend Income (XXX) Interest Expense XXX Operating profit before change in working capital XXX Changes in operating assets and liabilities Increase in Trade Debtors (XXX) Decrease in Stock XXX Decrease in Trade Creditors (XXX) Cash generated from operations XXX Income Tax Paid (XXX) Cash flow before special nature items XXX Proceeds from earthquake disaster settlement XXX Net Cash from operating activities XXX