Cash Flow Statement

Step 1: Calculation of Purchases of Plant & Machinery Step 2: Cash Flow from Investing Activities

It does not show the net profit or loss of the business.
It ignores non-cash transactions such as depreciation and provision.
It does not reflect the true profitability of the business.
It does not provide complete information about the financial position of the firm.

For a financing company, loans and advances constitute its principal revenue-generating activity. Therefore, interest received or paid on loans and advances is classified under Financing Activities while preparing the Cash Flow Statement.

Cash Flow Statement is prepared according to Accounting Standard–3 (Revised) issued by the Institute of Chartered Accountants of India (ICAI).

Step 1: Understanding Limitations of Cash Flow Statement.
Although the cash flow statement is useful in evaluating the liquidity position of a company, it has certain limitations:
Step 2: Four Limitations of Cash Flow Statement.
1. Excludes Non-Cash Transactions: The cash flow statement does not include non-cash transactions such as revaluation of assets, stock appreciation, or depreciation.
2. Ignores Profitability: While cash flow statements reflect cash inflows and outflows, they do not provide a clear picture of the company's profitability. A company could have positive cash flow but may not be profitable.
3. No Information on Future Cash Flow: The statement does not give any information about future cash flows, making it difficult to predict the future financial position of the company.
4. Not Useful for Long-Term Planning: The cash flow statement mainly focuses on short-term liquidity and does not provide sufficient information for long-term financial planning or investment decisions.
Step 3: Conclusion.
Although the cash flow statement is helpful in assessing the liquidity of a company, it is not a comprehensive tool for evaluating the overall financial health or performance of a business.

Step 1: Calculate the Net Increase in Plant & Machinery.
The written down value of Plant & Machinery at the beginning of the year (1st April, 2023) is ₹14,40,000 and at the end of the year (31st March, 2024) is ₹17,20,000. The net increase in the value of Plant & Machinery is: Step 2: Adjust for Depreciation.
Depreciation of ₹1,70,000 is charged during the year. Depreciation reduces the book value of assets, so it is added back to calculate the actual cash flow from investing activities.
Step 3: Adjust for the Sale of Plant & Machinery.
The company sold Plant & Machinery with a written down value of ₹2,20,000 for ₹2,50,000. The sale resulted in a cash inflow of ₹2,50,000. The difference between the sale value and the written down value is the profit on sale, which is: Step 4: Calculate Cash Flow from Investing Activities.
To calculate the cash flow from investing activities, we use the following formula: Substitute the values into the formula: Step 5: Conclusion.
The cash flow from investing activities is ₹4,20,000. This includes the net increase in the value of plant and machinery, depreciation, and the profit from the sale of machinery.

Step 1: Understanding the Cash Flow Activities.
A cash flow statement is divided into three main sections:
1. Operating Activities: These include activities related to the core business operations of the company.
2. Investing Activities: These include cash transactions for the purchase or sale of physical and financial assets (e.g., machinery, investments, etc.).
3. Financing Activities: These include cash flows related to the company’s financing activities, such as obtaining loans, issuing shares, or repaying debt.
Step 2: Identifying the Relevant Activity.
In this case, Harsh Ltd. has obtained loans and advances, which involve cash inflows from external sources. These activities fall under Financing Activities in the cash flow statement.
Financing activities are concerned with the company’s capital structure and its management, including the raising of debt or equity. Thus, loans obtained are classified under this section.
Step 3: Conclusion.
The loans and advances obtained by Harsh Ltd. will be included in the Financing Activities section of the cash flow statement.

Step 1: Understanding the Cash Flow Statement.
A cash flow statement is a financial statement that shows the movement of cash and cash equivalents within a company over a specific period. It helps stakeholders understand how a company generates and uses cash from operating, investing, and financing activities. The statement is crucial for assessing the company's liquidity and financial flexibility.
Step 2: AS-3 and AS-3 Revised.
The cash flow statement is prepared in accordance with AS-3 (Accounting Standard 3), which was issued by the Institute of Chartered Accountants of India. AS-3 defines the structure and components of a cash flow statement, including cash flows from operating activities, investing activities, and financing activities. - The original AS-3 standard was revised to clarify the treatment of certain transactions and provide better guidance on the presentation of cash flow statements. - The revised version of AS-3 is referred to as AS-3 Revised, which includes updates on how to classify and report cash flows under the revised guidelines.
Step 3: Conclusion.
The correct answer is AS-3 Revised, as it is the version of the standard currently used for preparing cash flow statements in India.