The correct option is (d) None of these. AS-3(Revised) deals with the preparation and presentation of cash flow statements. A cash flow statement is a statement that summarises the movement of cash and cash equivalents of an enterprise in an accounting year. It helps the stakeholder to know: the amoRead more
The correct option is (d) None of these.
AS-3(Revised) deals with the preparation and presentation of cash flow statements. A cash flow statement is a statement that summarises the movement of cash and cash equivalents of an enterprise in an accounting year. It helps the stakeholder to know:
- the amount of cash generated by operating activities,
- amount of cash invested in various assets or sale of assets,
- the types of finance source utilised by an enterprise and
- the net cash flow of the business.
Provision for depreciation is actually a charge on profit, i.e. it will be deducted even if there is loss. Also, there is nothing mentioned in the AS-3(revised) from which we can consider the provision for tax as an appropriation of profit.
Generally, the cash flow statement is prepared as per the ‘indirect method’ by most enterprises.
As per the indirect method, the computation starts from Net Profit before tax and extraordinary items. To calculate this, we have to take the current year’s profit and add the current year’s provision for tax to it.
The reason behind it is that we need to obtain the cash flow from operations and the provision for tax is a non-cash item that has reduced the net profit. So, we have to add it back to the current year’s profit.
Option (A) Current Liabilities is wrong.
Though the provision for tax is classified as a current liabilities in the balance sheet, it is not considered as a current liability when making adjustments for changes in working capital while preparing cash flow statement.
Option (B) as appropriation of profit is wrong.
An appropriation of profit is an item for which an amount is put aside when there is profit. For example, transfer to reserves. But the provision for tax is a charge on profit.
Option (C) either (A) or (B) is also wrong because both the options are incorrect as discussed above.
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AS-11: The effects of changes in foreign exchange rates deal with the issues in the translation of foreign currency transactions and foreign operations. Foreign operations of a reporting enterprise mean its subsidiary, associate, joint venture or branch which is based or conducted in a country otherRead more
AS-11: The effects of changes in foreign exchange rates deal with the issues in the translation of foreign currency transactions and foreign operations.
Foreign operations of a reporting enterprise mean its subsidiary, associate, joint venture or branch which is based or conducted in a country other than the country of the reporting entity
For simple understanding let’s consider foreign operation as a branch of a business that is based in a foreign country.
Foreign Integral operations
So, integral foreign operations will be a dependent branch that works on the directions of the head office and it is like an extension of the business. The head office consigns goods to it and it sells them and remits cash and reports to the head office.
It is dependent on head office for receiving goods to sell and to cover its expenses.
Further, the difference in foreign exchange rate affects the present and future cash flows to the head office.
Foreign Non-Integral operations
A non-integral foreign operation will be like an independent branch that can operate without the aid of the head office. Apart from selling goods of the head office, it also buys goods from the local market and sells them.
Also, it covers its expenses on its own. It doesn’t remit the cash from sales regularly like a dependent branch. It is like acts an investment of the main business.
The difference in the foreign exchange rate has little or no effect on the present or future cash flows of the head office
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