## Special Topics under AS 3
### 1. Income Tax in Cash Flow Statement
Tax is classified based on the income it relates to:
| Tax relates to | Classification |
|---|---|
| Operating income | Operating |
| Investing income | Investing |
| Financing income | Financing |
| Not specified in question | Operating (default) |
> Default Rule: If the question mentions income tax but does not specify which activity it relates to, treat the entire tax payment as Operating cash flow.
---
### 2. Insurance Claims Received
| Insurance claim for loss of | Classification |
|---|---|
| Stock / Inventory | Operating (current asset — part of operations) |
| Fixed Assets (PPE) | Investing (long-term asset) |
> AS 3 Note: Insurance claims received are treated as extraordinary cash flows. Separate disclosure of such items is required in the cash flow statement.
---
### 3. Non-Cash Transactions — Exclude from CFS
Transactions that do not involve cash or cash equivalents must be excluded from the Cash Flow Statement. They are disclosed separately as supplementary information.
Examples:
- Issue of Bonus Shares (no cash involved)
- Acquisition of PPE in exchange for shares (asset-for-equity swap)
- Conversion of debt into equity
---
### 4. Gross vs Net Reporting
AS 3 prohibits netting of cash receipts and payments. All cash flows must be shown on a gross basis.
Example:
- Machine purchased for ₹50,000 → show as outflow ₹50,000
- Furniture sold for ₹10,000 → show as inflow ₹10,000
- These must not be netted to show a single ₹40,000 outflow.
> Exception: Certain financial institution transactions with rapid turnover and large volumes may be reported net (e.g., short-term bank customer deposits).