* Sale of fixed asset and Purchase of goodwill- Cash from Investing Activities-
As per AS-3, investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. Investing activities relate to purchase and sale of long-term assets or fixed assets such as machinery, furniture, land and building, etc. Transactions related to longterm investment are also investing activities. Separate disclosure of cash flows from investing activities is important because they represent the extent to which expenditures have been made for resources intended to generate future income and cash flows.
Sale is inflow of cash and purchase is outflow of cash.
* Tax paid- Cash from Operating Activities-
Operating activities are the activities that constitute the primary or main activities of an enterprise. For example, for a company manufacturing garments, operating activities are procurement of raw material, incurrence of manufacturing expenses, sale of garments, etc. These are the principal revenue generating activities (or the main activities) of the enterprise and these activities are not investing or financing activities. The amount of cash from operations’ indicates the internal solvency level of the company, and is regarded as the key indicator of the extent to which the operations of the enterprise have generated sufficient cash flows to maintain the operating capability of the enterprise, paying dividends, making of new investments and repaying of loans without recourse to external source of financing. Cash flows from operating activities are primarily derived from the main activities of the enterprise. They generally result from the transactions and other events that enter into the determination of net profit or loss. Examples of cash flows from operating activities are:
Cash Inflows from operating activities- cash receipts from sale of goods and the rendering of services. cash receipts from royalties, fees, commissions and other revenues.
Cash Outflows from operating activities Cash payments to suppliers for goods and services. Cash payments to and on behalf of the employees. Cash payments to an insurance enterprise for premiums and claims, annuities, and other policy benefits. Cash payments of income taxes unless they can be specifically identified with financing and investing activities.
*Dividend paid- Cash from Financing Activities-
Financing activities relate to long-term funds or capital of an enterprise, e.g., cash proceeds from issue of equity shares, debentures, raising long-term bank loans, repayment of bank loan, etc. As per AS-3, financing activities are activities that result in changes in the size and composition of the owners’ capital (including preference share capital in case of a company) and borrowings of the enterprise. Separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of funds ( both capital and borrowings ) to the enterprise. Examples of financing activities are:
Cash Inflows from financing activities- Cash proceeds from issuing shares (equity or/and preference). Cash proceeds from issuing debentures, loans, bonds and other short/ long-term borrowings.
Cash Outflows from financing activities- Cash repayments of amounts borrowed. Interest paid on debentures and long-term loans and advances. Dividends paid on equity and preference capital.
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