## Non-Cash Transactions and Gross Basis Reporting

### Non-Cash Transactions

Transactions that do not involve any cash or cash equivalents are excluded entirely from the Cash Flow Statement.

Examples of excluded non-cash transactions:

Issue of bonus shares (shares given from reserves — no cash involved)
PPE acquired in exchange for shares (asset received, shares issued — no cash)
Conversion of debt to equity
Purchase of an asset by taking on a finance lease

> These transactions are disclosed separately in the notes to financial statements as they represent significant investing/financing information.

---

### Gross Basis Reporting

AS 3 prohibits netting of cash receipts and payments. Each cash flow must be shown at its gross (full) amount.

Correct approach:

```

Purchase of machinery −50,000 ← shown separately

Sale of furniture +10,000 ← shown separately

```

Incorrect approach:

```

Net investing outflow −40,000 ← NOT permitted

```

### Investment in Subsidiaries

Investment in shares (general) could be operating activity for a financial institution.
Investment in subsidiary's shares can never be operating — it is always an Investing activity for all entities (both financial and non-financial).

Worked example

### Example 1

During the year: Purchased machinery ₹50,000 cash; Sold old furniture ₹10,000 cash; Also issued bonus shares of ₹25,000.

Cash Flow from Investing Activities:

Purchase of machinery −50,000 ← shown gross

Sale of furniture +10,000 ← shown gross

────────────────────────────────

Net Investing CF −40,000

Note: Issue of bonus shares ₹25,000 is a NON-CASH transaction — excluded from CFS and disclosed in notes.

### Example 2

A bank (financial institution) purchased shares of a subsidiary company ₹5,00,000.

→ Even though a bank normally classifies share purchases as operating, investment in subsidiary is ALWAYS investing.

→ Classify as Investing outflow ₹5,00,000.

⚠️ Common exam mistakes

Including bonus share issue in financing activities — it involves no cash, so it must be excluded from the CFS entirely.
Netting purchase and sale of assets — AS 3 requires both to be shown separately at gross amounts.
Classifying subsidiary share investment as operating for a bank — investment in subsidiaries is always investing for every entity.

Bare-Act text Para 22–24 (Gross and Net Cash Flows) · AS 3 – Cash Flow Statements · click to expand

An enterprise should report separately major classes of gross cash receipts and gross cash payments arising from investing and financing activities. Cash flows from operating, investing and financing activities of an enterprise are reported on a gross basis.

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