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Day 10
AS- 3: Cash Flow Statement
Closing CIH = Opening + Receipts Payments
Closing CIH = Opening +/-(CFO, CFF, CFI)
Issues for Discussion
Why is CIH not same as PAT?
CFO =
PAT +/Non cash items,
Non operating items,
Changes in CA and CL
CFO
Direct method
o CFO = Operating Receipts Operating PAyments
Indirect method
o CFo = Adjusted Profit
o
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CFI
Negative
Positive
CFF
Negative
Positive
CFO
Negative
Positive
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Depreciation
What?
o Loss in PPE due to the wear and tear of PPE
o Allocation of cost over the life
o Charge for using the asset
o Provision for replacement of PPE
Why ?
o Matching Principle
o Going Concern Principle
How ?
o Depreciation amount depends on the methods of charging
Straight Line Method
Depreciation = Cost/Life
Dep = COA * Rate of Depreciation
Dep amount remains constant the life
Reducing Balance Method (RBM)
Dep = Rate *Cost (first year)
Subsequent years
o Dep = rate * WDV
o WDV = COA Accumulated Dep
o
o
Weighted Average
LIFO (not allowed byAS-2)
Cost of unsold stock (Closing stock)
o Closing = Opening Stock +Purchase COGS
o Closing stock to be Valued at COST or MV which ever is
lower (Conservative Convention)
IF MV > CP: Ignore
IF MV< CP: recognize the loss
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Accounting Equation
Accounting Relationship
S=A
o Capital + RP + Liabilities =Assets
o Equity + Liabilities = Assets
Equity = A-L
Equity = C +RP
Profit
o Distribute: Distribution of profit is called
DIVIDEND
o or
o Not to distribute: Retained Profit
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