Treatment of Special Items
The following items need special attention:
Foreign Currency Cash Flows - Foreign currency cash flows should be recorded while reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of cash flow. Any effect of changes in exchange rates on cash and cash equivalents should be reported as a separate item in the cash flow statement to reconcile cash and cash equivalents at the beginning and at the end of the period. Any gain or losses which arise due to changes in foreign exchange rates are unrealized gains or losses and are not cash flows. This amount is separately shown so that its effect on cash and cash equivalents held or due in reported to reconcile cash equivalents at the beginning with cash, and with cash equivalent at the end of the period.
Extraordinary Items - Any cash flows arising from extraordinary items are disclosed separately as arising from operating, financing or investing activity as the case may be under the appropriate head.
Interests and Dividends - In case of a financial enterprise, interest paid and interest and dividends received are classified as operating cash flows in case of other enterprises, interest paid is classified as financing activity while interest and dividends received are classified as cash flows from investing activities. Dividends paid are cash flows from financing activities.
Taxes on Income - Taxes on income are classified into any one of the three categories based on the transactions that give rise to such cash flows. Usually, taxes paid are classified as cash outflow from operating activities. But, it is practicable to identify the tax amount with an identifiable individual transaction that gives rise to such cash flows.
Investments in Subsidiaries, Associates and Joint Ventures - The cash flows generated from transactions between the parent company and the investee/joint venture or from the disposal or acquisition of subsidiaries are to be reported in the cash flow statement as cash flows from investing activities. The business should also disclose the total purchase or disposal consideration and the portion of such disposal or purchase that is to be discharged by means of cash and cash equivalents.
Non-cash Transactions - There may be some significant investing and financial activities during the period that do not involve cash flows. Investing and financing activities that do not involve the use of cash or cash equivalents should be excluded from the cash flow statement. Such transactions are to be disclosed elsewhere in the financial statements to provide all the relevant information. Examples of such non-cash transactions include the acquisition of assets by assuming directly related liabilities; the acquisition of an enterprise by means of issue of shares; and the conversion of debt-to-equity. Email based Accounting assignment help - homework help at Expertsmind
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