Cash Flow Statement Page 17
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30MODULE - 6A
Cash Flow Statement
Analysis of Financial Statements
(ii) Proposed dividend
The dividend is always declared in the general meeting after the preparation
of Balance Sheet. It is therefore, a non-operating item which should not be
permitted to affect the calculation of cash generated by operating activities.
Thus, the amount of proposed dividends would be added back to current
Notes
years profit and payments made during the year in respect of dividends
would be shown as an outflow of cash.
(iii) Share Capital
The increase in share capital is regarded as inflow of cash only when there
is a increase in share capital. For example, if a company issues 10000 equity
shares of Rs.10 each for cash only, Rs. 100,000 would be shown as inflow
of cash from financing activities. Similarly, the redemption of preference
share is an outflow of cash. But where the share capital is issued to finance
the purchase of fixed assets or the debentures are converted into equity
shares there is no cash flow. Further, the issue of bonus shares does not
cause any cash flows.
(iv) Purchase or sale of fixed Assets
The figures appearing in the comparative balance sheets at two dates in
respect of fixed assets might indicate whether a particular fixed asset has
been purchased or sold during the year. This would enable to determine the
inflows or outflows of cash. For example, If the plant and machinery appears
at Rs 60,000 in the current year and Rs.50,000 in the previous year, the only
conclusion, in the absence of any other information is that there is a
purchase of fixed assets for Rs.10000 during the year. Hence, Rs.10000
would be shown as outflow of cash.
(v) Provision for Taxation
It is a non-operating expenses or an item of appropriation in the Income
statement/Profit and Loss Account and therefore should not be allowed to
reduce the cash provided from operating activities. Hence, if the profit is
given after tax and the amount of the provision for tax made during the year
is given, the same would be added back to the current year profit figure.
In the cash flow statement, the tax paid would be recorded separately as
an outflow of cash. The item of provision for taxation, would not be treated
as current assets.
Sometimes, the only information available about provision for taxation is
two figures appearing in the opening balance sheet and closing balance
78
ACCOUNTANCY
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