➢ Payment of dividend is a part of Financing Activity (Outflow) for both, Financial &

Non-Financial Companies.

Format of Cash Flow Statement (Indirect Method) for the year ended …
[As per Accounting Standard-3 (Revised)]

Particulars ₹ ₹
I. Cash Flow from Operating Activities

(A) Net Profit before Tax and Extraordinary items (Working Note) xxx

(B) Add: Non-cash and Non-operating Items:

- Depreciation xxx
- Goodwill, Patents and Trademarks Amortised xxx
- Interest on Bank Overdraft / Cash Credit xxx
- Interest on Borrowings (Short-term & Long- term) & Debentures xxx
- Loss on Sale of Fixed Assets / Investments xxx xxx
xxx
(C) Less: Non-cash and Non-operating Items:
- Interest Income xxx
- Dividend Income xxx
- Rental Income xxx
- Gain (Profit) on Sale of Fixed Assets / Investments xxx xxx

(D) Operating Profit before Working Capital Changes (A+B-C) xxx

(E) Add: Decrease in Current Assets and Increase in Current Liabilities xxx

(F) Less: Increase in Current Assets and Decrease in Current Liabilities xxx

(G) Cash Generated from Operations (D+E-F) xxx

(H) Less: Income Tax Paid (Net of Tax Refund) xxx

(I) Cash Flow before Extraordinary Items xxx

(J) Extraordinary Items xxx

(H) Cash Flow from (or used in) Operating Activities (I +/- J) xxx
II. Cash Flow from Investing Activities

- Proceeds from Sale of Fixed Assets xxx

- Proceeds from Sale of Investments (Other than Current Investments & xxx
marketable securities)
- Proceeds from sale of Intangible Assets xxx
- Interest & Dividend received (in case of Non-Financial Companies) xxx
- Rent received xxx
- Payment for purchase of Fixed Assets (xxx)
- Payment for purchase of Investments (Other than Current Investments & (xxx)
marketable securities)
 - Payment for purchase of Intangible Assets (xxx)
- Extraordinary Items (eg: Insurance claim on machinery destroyed by fire) xxx
Cash Flow from (or used in) Investing Activities xxx
III. Cash Flow from Financing Activities
- Proceeds from Issue of Shares and Debentures xxx
- Proceeds from Other Long-Term Borrowings xxx
- Increase / Decrease in Bank Overdraft / Cash Credit xxx
- Payment of Dividend (Final / Interim) (xxx)
- Payment of Interest on Debentures & Loans (xxx)
- Repayment of Loans (xxx)
- Redemption of Debentures / Preference Shares (xxx)
- Payment of Share Issue Expenses / Underwriting Commission (xxx)
- Payment for Buy-back of Shares (Extraordinary Item) (xxx)
Cash Flow from (or used in) Financing Activities xxx
IV. Net Increase / (Decrease) in Cash and Cash Equivalents (I+II+III) xxx
V. Add: Cash and Cash Equivalents in the beginning of the year xxx
VI. Cash and Cash Equivalents at the end of the year (IV+V) xxx

Working Note - Net Profit before Tax and Extraordinary items:

Case 1: If starting point is Profit as per Statement of Profit & Loss:

Particulars ₹
Profit after Tax as per Statement of Profit & Loss xxx
Add: Provision for Income Tax made during the year xxx
Extraordinary Items (Expenses) debited in Statement of Profit & Loss xxx
Less: Refund of Income Tax credited to Statement of Profit & Loss (xxx)
Extraordinary Items (Incomes) credited to Statement of Profit & Loss (xxx)
Net Profit before Tax and Extraordinary Item xxx

Case 2: If starting point is Difference between Closing & Opening Balance of Surplus i.e. Balance in
Statement of Profit & Loss (under Reserves & Surplus):

Particulars ₹
Difference between Closing & Opening Balance of Surplus i.e. Balance in Statement of xxx
Profit & Loss
Add: Provision for Income Tax made during the year xxx
Extraordinary Items (Expenses) debited in Statement of Profit & Loss xxx
Dividend Payable (Proposed dividend of previous year) paid during the year xxx
Interim Dividend paid during the year xxx
Transfer to Reserves xxx
Less: Refund of Income Tax credited to Statement of Profit & Loss (xxx)
Extraordinary Items (Incomes) credited to Statement of Profit & Loss (xxx)
Net Profit before Tax and Extraordinary Item xxx
Treatment of Dividend Paid

Types of Dividends:

(i) Interim Dividend

It is declared by BOD & paid within 30 days of being declared.

Treatment in CFS:

✓ Added to Current Year Profits to calculate “Net Profit Before Tax &
Extraordinary Items” under Cash Flow from Operating Activities.
✓ Shown as Outflow under Cash Flow from Financing Activities

(ii) Proposed Dividend (Final Dividend)

It is proposed by BOD & declared (approved) by the shareholders in the Annual

General Meeting (AGM) in the next FY. It is to be paid within 30 days of declaration.

Treatment in CFS:
✓ Proposed Dividend of Previous Year is added to calculate “Net Profit Before
Tax & Extraordinary Items” under Cash Flow from Operating Activities.
✓ Proposed Dividend of Previous Year is shown as outflow under Cash Flow
from Financing Activities, assuming it was approved by the shareholders &
paid in the Current Year.

Note: No treatment for Proposed Dividend of Current Year is required in the Current
Year’s CFS, as it is merely a Contingent Liability.

Treatment of Provision for Tax

Provision for Tax Account

Particulars ₹ Particulars ₹
To Bank A/c (B) xxx By bal b/d xxx
(Tax Paid during CY net of refund) By Statement of Profit & Loss (A) xxx
To bal c/d xxx (Provision created during CY)
xxx xxx

Treatment in CFS:
✓ A => Added to Current Year Profits to determine “Net Profit Before Tax &
Extraordinary Items” under Operating Activities.
✓ B => Shown as Outflow and deducted from Cash Generated from Operations under
Operating Activities
Note: If Question is silent, then it is assumed that provision of Previous Year (i.e., opening
balance) is paid during Current Year & Closing Balance is the provision created during the
current year. Hence, in such a case Provision for Tax A/c need not be prepared.

Extraordinary Items

➢ These are incomes / expenses arising from events / transactions that are distinct
(separate) from the ordinary business activities of the entity.

➢ These do not occur frequently or regularly.

➢ Treatment in CFS:
✓ Added / Subtracted (as the case may be) to Current Year Profits to determine
“Net Profit Tax & Extraordinary Items”
✓ Shown as Inflow / Outflow (as the case may be) under relevant Activities
(Operating, Investing or Financing)

➢ Examples:
✓ Operating Activity -> Preliminary Expenses written off, Compensation paid to
employees under Voluntary Retirement Scheme
✓ Investing Activity -> Claim received against Fixed Assets damaged by
earthquake, fire etc.
✓ Financing Activity -> Payment for Buy-back of Shares

Preparation of Fixed Asset Account

Method 1 – When Fixed Asset A/c is Shown at WDV

Fixed Asset Account (at WDV)

Particulars ₹ Particulars ₹
To bal b/d xxx By Bank A/c (Sale) (E) xxx
To Gain on Sale of Fixed Asset A/c (A) xxx By Loss on Sale of Fixed Asset A/c (B) xxx
(Statement of Profit & Loss) (Statement of Profit & Loss)
To Bank A/c (Purchase) (D) xxx By Depreciation A/c (C) xxx
(Statement of Profit & Loss)
xxx xxx

Method 2 – When Fixed Asset A/c is shown at Original Cost & Accumulated Depreciation A/c
(or Provision for Depreciation A/c) is Maintained

Fixed Asset Account (at Original Cost)

Particulars ₹ Particulars ₹
To bal b/d xxx By Bank A/c (Sale) (E) xxx
To Gain on Sale of Fixed Asset A/c (A) xxx By Loss on Sale of Fixed Asset A/c (B) xxx
(Statement of Profit & Loss) (Statement of Profit & Loss)
 To Bank A/c (Purchase) (D) xxx By Accumulated Depreciation A/c xxx
(Accumulated dep on Asset sold)
xxx xxx

Accumulated Depreciation Account

Particulars ₹ Particulars ₹
To Fixed Asset A/c xxx By bal b/d xxx
(Accumulated dep on Asset sold) By Depreciation A/c (C) xxx
To bal c/d xxx (Statement of Profit & Loss)
xxx xxx

Treatment in CFS:

A => Deducted from “Net Profit Before Tax & Extraordinary Items” to determine “Operating
Profit Before Working Capital Changes” as it is a Non-Operating Income

B => Added to “Net Profit Before Tax & Extraordinary Items” to determine “Operating Profit
Before Working Capital Changes” as it is a Non-Operating Expense (Loss)

C => Added to “Net Profit Before Tax & Extraordinary Items” to determine “Operating Profit
Before Working Capital Changes” as it is a Non-Cash Expense

D => Shown as Outflow under Cash Flow from Investing Activities

E => Shown as Inflow under Cash Flow from Investing Activities

Note: Ledger Accounts for Intangible Asset & Non-Current Investments is similar to Fixed
Asset A/c.

Preparation of Loan A/c

Loan Account
Particulars ₹ Particulars ₹
To Bank A/c (Loan repaid) (B) xxx By bal b/d xxx
To bal c/d xxx By Bank A/c (Loan taken) (A) xxx
xxx xxx

Treatment in CFS:

A=> Shown as Inflow under Cash Flow from Financing Activities

B => Shown as Outflow under Cash Flow from Financing Activities