Items A-1 and A-2 under next Section (a) and B-1 and B-3 under next Section (b) have been discussed . The other items are discussed herein. Sale of Non-current Assets and Long-term Investments.This refers to A-3 under next Section (a) (and also to A-2). Realised sale proceeds (i.e. to the actual extent of funds received) of fixed assets and long-term investments would be inflow of funds. This means any profit on sales is already included under this item of inflow (or source); hence, these cannot be double-counted in the profit figure; if, by any chance, already included in the profit figure, that included amount must be excluded. These same details apply also to any loss on sale of asset or investment. Conversely, if not already included in the working result, the exclusion as mentioned does not stand. For example, if a plant of net book value of Rs. 50,000 is sold
(a) for Rs. 45,000, this Rs, 45,000 is a source of fund and the loss of Rs. 5,000 would be transferred to P & L Alc;
(b) for Rs. 65,000, this Rs. 65,000 would be a source of fund and the profit of Rs, 15,000 would be transferred to P & L A/c.
Speaking comparatively, sale of investments (made in current assets is to be considered just like sale of goods; y-id any profit or oss is to be necessarily included in the computations based on WC.Acquisitions of Fixed Assets and InvestmentsThis refers to B-2 under next Section (b). Acquisition of fixed asset, provided it is not financed by issue of shares, debentures or bonds, is necessarily an outflow or use of funds. Likewise, any disposal of fixed assets would have yielded an inflow of funds. Depreciation is also to be charged for capitalisation of the fixed asset as due.Major repairs may have been undertaken occasionally, considered either as expensing, or, as rebuilding (the latter calling for capitalisation). Therefore, the balance in the fixed assets is the net result of acquisition, disposal, depreciation,etc.
Any purchase of long-term investments is out of an outflow of funds. If there is sale as well as purchase, the inflow from sale (A-3 hereinabove) has to be separately given, and so too the outflow for purchase.As regards other non-current assets like patents, goodwill and other intangible assets, any changes in their value is due to amortisation (a decrease in value) (source of funds) or acquisition (an increase in value) (use of funds).
Long-term Loans
This refers A-4 under next Section (a). Whatever be the description of long-term borrowings, be they secured loans, unsecured loans, debentures, etc., will count as inflow of funds to the full extent of consideration, since, no matter what discount or commission or premium was given, or involved, the full nominal amount of the consideration has to be eventually returned to the loaner (of course, with due interest as well). However, loans (received) in the form of services or supplies will not be construed as inflow of funds; in fact, they have to be, on the contrary, paid for.
Additional Capital Raised
This refers to A-5 under next Section (a). Capital raised, be it as equity or preference share, constitutes inflow of funds. As for long-term loans, here too, the full amount of money collected, be it with premium added or discount given out, shall be the inflow, i.e. inclusive of premium and net of discount. Going by the test of whether funds have actually been received, it must be clear that the following cannot be taken as inflow :
(a) Issue of bonus shares out of reserves;
(b) ESOP (as the latest "mantra" goes) or (what has always been known as)Issue of shares in consideration of knowhow, technical or others;
(c) [Like in (b)] Issue of shares for supply of machinery underwriting, preliminary expenses, etc., (as happens with the latest trends under BOT projects for infrastructure developments - Roads, Power, etc.) [cf. also B-21. It may be noted that items (a), (b) and (c) do not go into WC; and
(d) Issues of shares in exchange of (loans) debentures. (However, share premium will have to be considered as being at par with share capital.)
Repayment of Capital; and Payment of Dividend
This refers to B-4 and B-5 under next Section (b). A company can redeem redeemable preference shares under the Companies Act. Preference shares may redeemed at a premium also. These will be outflows. If, however, the premium is adiusted in the P & L Alc. it should be readiusted in the o~erational flow: or. if thepremium has been adjusted against existing share premium account, changes in share premium account should be taken cognizance of. Preference capital can be returned along with arrears of dividend also.
Repayment of loans will also be outflow. Interest payment on this has already been discussed under next Section .
Dividend to ordinary shareholders will also be outflow.
In a limited liability company, as a general rule, capital cannot be returned; yet, equity shares can be paid back as per procedure prescribed under Companies Act.
(a) for Rs. 45,000, this Rs, 45,000 is a source of fund and the loss of Rs. 5,000 would be transferred to P & L Alc;
(b) for Rs. 65,000, this Rs. 65,000 would be a source of fund and the profit of Rs, 15,000 would be transferred to P & L A/c.
Speaking comparatively, sale of investments (made in current assets is to be considered just like sale of goods; y-id any profit or oss is to be necessarily included in the computations based on WC.Acquisitions of Fixed Assets and InvestmentsThis refers to B-2 under next Section (b). Acquisition of fixed asset, provided it is not financed by issue of shares, debentures or bonds, is necessarily an outflow or use of funds. Likewise, any disposal of fixed assets would have yielded an inflow of funds. Depreciation is also to be charged for capitalisation of the fixed asset as due.Major repairs may have been undertaken occasionally, considered either as expensing, or, as rebuilding (the latter calling for capitalisation). Therefore, the balance in the fixed assets is the net result of acquisition, disposal, depreciation,etc.
Any purchase of long-term investments is out of an outflow of funds. If there is sale as well as purchase, the inflow from sale (A-3 hereinabove) has to be separately given, and so too the outflow for purchase.As regards other non-current assets like patents, goodwill and other intangible assets, any changes in their value is due to amortisation (a decrease in value) (source of funds) or acquisition (an increase in value) (use of funds).
Long-term Loans
This refers A-4 under next Section (a). Whatever be the description of long-term borrowings, be they secured loans, unsecured loans, debentures, etc., will count as inflow of funds to the full extent of consideration, since, no matter what discount or commission or premium was given, or involved, the full nominal amount of the consideration has to be eventually returned to the loaner (of course, with due interest as well). However, loans (received) in the form of services or supplies will not be construed as inflow of funds; in fact, they have to be, on the contrary, paid for.
Additional Capital Raised
This refers to A-5 under next Section (a). Capital raised, be it as equity or preference share, constitutes inflow of funds. As for long-term loans, here too, the full amount of money collected, be it with premium added or discount given out, shall be the inflow, i.e. inclusive of premium and net of discount. Going by the test of whether funds have actually been received, it must be clear that the following cannot be taken as inflow :
(a) Issue of bonus shares out of reserves;
(b) ESOP (as the latest "mantra" goes) or (what has always been known as)Issue of shares in consideration of knowhow, technical or others;
(c) [Like in (b)] Issue of shares for supply of machinery underwriting, preliminary expenses, etc., (as happens with the latest trends under BOT projects for infrastructure developments - Roads, Power, etc.) [cf. also B-21. It may be noted that items (a), (b) and (c) do not go into WC; and
(d) Issues of shares in exchange of (loans) debentures. (However, share premium will have to be considered as being at par with share capital.)
Repayment of Capital; and Payment of Dividend
This refers to B-4 and B-5 under next Section (b). A company can redeem redeemable preference shares under the Companies Act. Preference shares may redeemed at a premium also. These will be outflows. If, however, the premium is adiusted in the P & L Alc. it should be readiusted in the o~erational flow: or. if thepremium has been adjusted against existing share premium account, changes in share premium account should be taken cognizance of. Preference capital can be returned along with arrears of dividend also.
Repayment of loans will also be outflow. Interest payment on this has already been discussed under next Section .
Dividend to ordinary shareholders will also be outflow.
In a limited liability company, as a general rule, capital cannot be returned; yet, equity shares can be paid back as per procedure prescribed under Companies Act.
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