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CASH FLOW SATEMENT

sivaram (Asst Mgr-Taxation) (6918 Points)

07 March 2011

Attached is the cash flow satement of asian paints.can anyone explain the * marked items of Interest Income,Dividend Income &Interest Expense why appears as contra i.e why shown as adjustment to netprofit and also shown in respective activities .please explain in detail

Thanks in advance

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3 Replies

Vinit (CA Final ) (188 Points)
Replied 07 March 2011

1) Interest expenses and Interest incomes are the items that arises from Investing activities and Dividend income arises from financial activities.So we shows these item in their respective head in Cash Flow............2) we arrives at net profit after adjustment of Interest expenses , Interest incomes, Dividend income. which are non operational items So we have to first adjust them to find the cash flow from operational activities.

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Suresh Prasad (www.aubsp.com) (15630 Points)
Replied 07 March 2011

As per para 19 of AS 3:

Under the direct method, information about major classes of gross cash receipts and gross cash payments may be obtained either :

- from the accounting records of the enterprise; or

- by adjusting sales, cost of sales (interest and similar income and interest expense and similar charges for a financial enterprise) and other items in the statement of profit and loss for:

(i) changes during the period in inventories and operating receivables and payables;

(ii) other non-cash items; and

(iii) other items for which the cash effects are investing or financing cash flows.

Respected Sivaram sir,

As the marked items of Interest Income And Dividend Income are Investing Cash Flow items and Interest Expense is Finacing Cash Flow items these are added back to Profit for computing the Operating Cash Flow. and shown in appropriate head.