ASLB 2 Cash Flow Statements
Accounting Standard for Local Bodies (ASLB 2)
Cash Flow Statements
Contents
Paragraphs
OBJECTIVE
SCOPE 1–4
BENEFITS OF CASH FLOW INFORMATION 5–7
DEFINITIONS 8–17
Cash and Cash Equivalents 9–11
Economic Entity 12–14
Future Economic Benefits or Service Potential 15-16
Net Assets/Equity 17
PRESENTATION OF A CASH FLOW STATEMENT 18–26
Operating Activities 21–24
Investing Activities 25
Financing Activities 26
REPORTING CASH FLOWS FROM OPERATING ACTIVITIES 27–30
REPORTING CASH FLOWS FROM INVESTING AND FINANCING
ACTIVITIES 31
REPORTING CASH FLOWS ON A NET BASIS 32–35
FOREIGN CURRENCY CASH FLOWS 36–39
INTEREST AND DIVIDENDS OR SIMILAR DISTRIBUTIONS 40–43
TAXES ON INCOME ARISING FROM GOODS OR SERVICES
SUPPLIED BY A LOCAL BODY OUTSIDE ITS OWN
JURISDICTION AREA 44–46
INVESTMENTS IN CONTROLLED ENTITIES, ASSOCIATES
AND JOINT VENTURES 47–48
ACQUISITIONS AND DISPOSALS OF CONTROLLED ENTITIES
AND OTHER OPERATING UNITS 49–53
Compendium of Accounting Standards for Local Bodies (ASLBs)
NON-CASH TRANSACTIONS 54–55
COMPONENTS OF CASH AND CASH EQUIVALENTS 56–58
OTHER DISCLOSURES 59–62
ILLUSTRATIVE EXAMPLES
APPENDIX 1 COMPARISON WITH IPSAS 2, ‘CASH FLOW STATEMENTS’
APPENDIX 2 COMPARISON WITH EXISTING AS 3, ‘CASH FLOW
STATEMENTS’
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Cash Flow Statements
Accounting Standard for Local Bodies (ASLB) 2
Cash Flow Statements
(This Accounting Standard includes paragraphs set in bold italic type and
plain type, which have equal authority. Paragraphs in bold italic type indicate
the main principles. This Accounting Standard should be read in the context
of its objective and the Preface to the Accounting Standards for Local
Bodies1.)
The Accounting Standard for Local Bodies (ASLB) 2, ‘Cash Flow
Statements’, issued by the Council of the Institute of Chartered Accountants
of India, will be recommendatory in nature in the initial years for use by the
Local Bodies. This Standard will be mandatory for Local Bodies in a State
from the date specified in this regard by the State Government concerned 2.
Objective
The cash flow statement identifies (a) the sources of cash inflows, (b) the
items on which cash was expended during the reporting period, and (c) the
cash balance as at the reporting date. Information about the cash flows of
an entity is useful in providing users of financial statements with information
for both accountability and decision-making purposes. Cash flow information
allows users to ascertain how an entity raised the cash it required to fund its
activities, and the manner in which that cash was used. In making and
evaluating decisions about the allocation of resources, such as the
sustainability of the entity‟s activities, users require an understanding of the
timing and certainty of cash flows. The objective of this Standard is to
require the provision of information about the historical changes in cash and
cash equivalents of an entity by means of a cash flow statement that
classifies cash flows during the period from operating, investing and
financing activities.
1 Attention is specifically drawn to paragraph 4.2 of the ‘Preface to the Accounting
Standards for Local Bodies’, according to which Accounting Standards are intended
to apply only to items which are material.
2 In respect of compliance with the Accounting Standards for Local Bodies,
reference may be made to the paragraph 7.1 of the ‘Preface to the Accounting
Standards for Local Bodies’.
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Compendium of Accounting Standards for Local Bodies (ASLBs)
Scope
1. An entity that prepares and presents financial statements under
the accrual basis of accounting should prepare a cash flow
statement in accordance with the requirements of this Standard
and should present it as an integral part of its financial
statements for each period for which financial statements are
presented.
2. Information about cash flows may be useful to users of an entity‟s
financial statements in (a) assessing the entity‟s cash flows, (b)
assessing the entity‟s compliance with legislation and regulations
(including authorised budgets where appropriate), and (c) making
decisions about whether to provide resources to, or enter into
transactions with, an entity. They are generally interested in how the
entity generates and uses cash and cash equivalents. This is the case
regardless of the nature of the entity‟s activities. Entities need cash for
essentially the same reasons, however different their principal revenue
producing activities might be. They need cash to pay for the goods and
services they consume, to meet ongoing debt servicing costs, and, in
some cases, to reduce levels of debt. Accordingly, this Standard
requires all entities to present a cash flow statement.
3. This Standard applies to all entities that are described as the
Local Bodies in the Preface to Accounting Standards for Local
Bodies3.
4. [Refer to Appendix 1]
Benefits of Cash Flow Information
5. Information about the cash flows of an entity is useful in assisting
users to predict (a) the future cash requirements of the entity, (b) its
ability to generate cash flows in the future, and (c) its ability to fund
changes in the scope and nature of its activities. A cash flow
statement also provides a means by which an entity can discharge its
accountability for cash inflows and cash outflows during the reporting
period.
3 Refer paragraph 1.3 of the „Preface to the Accounting Standards for Local Bodies’.
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Cash Flow Statements
6. A cash flow statement, when used in conjunction with other financial
statements, provides information that enables users to evaluate the
changes in net assets/equity of an entity, its financial structure
(including its liquidity and solvency), and its ability to affect the
amount and timing of cash flows in order to adapt to changing
circumstances and opportunities. It also enhances the comparability
of the reporting of operating performance by different entities,
because it eliminates the effects of using different accounting
treatments for the same transactions and other events.
7. Historical cash flow information is often used as an indicator of the
amount, timing, and certainty of future cash flows. It is also useful in
checking the accuracy of past assessments of future cash flows.
Definitions
8. The following terms are used in this Standard with the meanings
specified:
Cash comprises cash on hand and demand deposits.
Cash equivalents are short-term, highly liquid investments that
are readily convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value.
Cash flows are inflows and outflows of cash and cash
equivalents.
Control: An entity controls another entity when the entity is
exposed, or has rights, to variable benefits from its involvement
with the other entity and has the ability to affect the nature and
amount of those benefits through its power over the other entity.
Financing activities are activities that result in changes in the size
and composition of the contributed capital and borrowings of the
entity.
Investing activities are the acquisition and disposal of long-term
assets and other investments not included in cash equivalents.
Operating activities are the activities of the entity that are not
investing or financing activities.
Reporting date means the date of the last day of the reporting
period to which the financial statements relate.
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Terms defined in other ASLBs are used in this Standard with the
same meaning as in those other Standards.
Cash and Cash Equivalents
9. Cash equivalents are held for the purpose of meeting short term cash
commitments rather than for investment or other purposes. For an
investment to qualify as a cash equivalent, it must be readily
convertible to a known amount of cash and be subject to an
insignificant risk of changes in value. Therefore, an investment
normally qualifies as a cash equivalent only when it has a short
maturity of, say, three months or less from the date of acquisition.
10. Bank borrowings are generally considered to be financing activities.
However, bank overdrafts that are repayable on demand form an
integral part of an entity‟s cash management. In these circumstances,
bank overdrafts are included as a component of cash and cash
equivalents. A characteristic of such banking arrangements is that the
bank balance often fluctuates from being positive to overdrawn.
11. Cash flows exclude movements between items that constitute cash or
cash equivalents, because these components are part of the cash
management of an entity rather than part of its operating, investing,
and financing activities. Cash management includes the investment of
excess cash in cash equivalents.
Economic Entity
12. The term economic entity is used in this Standard to define, for
financial reporting purposes, a group of entities comprising the
controlling entity and any controlled entities.
13. Other terms sometimes used to refer to an economic entity include
administrative entity, financial entity, consolidated entity, and group.
14. An economic entity may include entities with both social policy and
commercial objectives. For example, a Local Body XYZ (controlling
entity) may control an entity ABC (controlled entity) that provides
services of health care for a nominal charge, as well as another entity
PQR (controlled entity) that provides transport services on a
commercial basis. The group of entities comprising Local Body XYZ
and the controlled entities, viz., ABC and PQR, is the economic entity.
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Cash Flow Statements
Future Economic Benefits or Service Potential
15. Assets provide a means for entities to achieve their objectives. Assets
that are used to deliver goods and services in accordance with an
entity‟s objectives, but which do not directly generate net cash inflows,
are often described as embodying service potential. Assets that are
used to generate net cash inflows are often described as embodying
future economic benefits. To encompass all the purposes to which
assets may be put, this Standard uses the term “future economic
benefits or service potential” to describe the essential characteristic of
assets.
16. [Refer to Appendix 1]
Net Assets/Equity
17. Net assets/equity is the term used in this Standard to refer to the
residual measure in the balance sheet (assets less liabilities). Net
assets/equity may be positive or negative.
Presentation of a Cash Flow Statement
18. The cash flow statement should report cash flows during the
period classified by operating, investing, and financing activities.
19. An entity presents its cash flows from operating, investing, and
financing activities in a manner that is most appropriate to its activities.
Classification by activity provides information that allows users to
assess the impact of those activities on the financial position of the
entity, and the amount of its cash and cash equivalents. This
information may also be used to evaluate the relationships among
those activities.
20. A single transaction may include cash flows that are classified
differently. For example, when the cash repayment of a loan includes
both interest and capital, the interest element may be classified as an
operating activity and the capital element classified as a financing
activity.
Operating Activities
21. The amount of net cash flows arising from operating activities is a key
indicator of the extent to which the operations of the entity are funded:
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Compendium of Accounting Standards for Local Bodies (ASLBs)
(a) By way of taxes (directly and indirectly); or
(b) From the recipients of goods and services provided by the
entity.
The amount of the net cash flows also assists in showing the ability of
the entity to maintain its operating capability, repay obligations and
make new investments, without recourse to external sources of
financing. The consolidated operating cash flows of an economic entity
provide an indication of the extent to which a Local Body has financed
its current activities through taxation and charges. Information about
the specific components of historical operating cash flows is useful, in
conjunction with other information, in forecasting future operating cash
flows.
22. Cash flows from operating activities are primarily derived from the
principal cash-generating activities of the entity. Examples of cash
flows from operating activities are:
(a) Cash receipts from taxes, levies, and fines;
(b) Cash receipts from charges for goods and services provided by
the entity;
(c) Cash receipts from grants related to revenue/ general grants
(excluding grants which are covered under financing activities,
i.e., grants in the nature of contribution to the corpus/ municipal
fund of Local Body by the government and grants related to
assets) or transfers and other appropriations or other budget
authority made by Central/ State Government or other entities;
(d) Cash receipts from rentals, royalties, fees, commissions, and
other revenue;
(e) Cash payments to other entities to finance their operations (not
including loans);
(f) Cash payments to suppliers for goods and services;
(g) Cash payments to and on behalf of employees;
(h) [Refer to Appendix 1];
(i) Cash payments of local property taxes, income taxes (where
appropriate) in relation to operating activities;
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Cash Flow Statements
(j) Cash receipts or payments from discontinuing operations;
(k) Cash receipts or payments in relation to litigation settlements;
and
(l) Cash payment of sitting fee/ honorarium to elected members.
Some transactions, such as the sale of an item of plant, may give rise
to a gain or loss that is included in surplus or deficit. The cash flows
relating to such transactions are cash flows from investing activities.
23. [Refer to Appendix 1]
24. In some cases, Local Bodies will appropriate or authorise funds to
entities to finance the operations of an entity, and no clear distinction
is made for the disposition of those funds between current activities,
capital works, and contributed capital. Where an entity is unable to
separately identify appropriations or budgetary authorisations into
current activities, capital works, and contributed capital, the
appropriation or budget authorisation should be classified as cash
flows from operations, and this fact should be disclosed in the notes to
the financial statements.
Investing Activities
25. The separate disclosure of cash flows arising from investing activities
is important because the cash flows represent the extent to which cash
outflows have been made for resources that are intended to contribute
to the entity‟s future service delivery. Only cash outflows that result in
a recognised asset in the balance sheet are eligible for classification
as investing activities. Examples of cash flows arising from investing
activities are:
(a) Cash payments to acquire property, plant, and equipment,
intangibles, and other long-term assets. These payments
include those relating to capitalised development costs and self-
constructed property, plant, and equipment;
(b) Cash receipts from sales of property, plant, and equipment,
intangibles, and other long-term assets;
(c) Cash payments to acquire equity or debt instruments of other
entities and interests in joint ventures (other than payments for
those instruments considered to be cash equivalents or those
held for dealing or trading purposes);
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Compendium of Accounting Standards for Local Bodies (ASLBs)
(d) Cash receipts from sales of equity or debt instruments of other
entities and interests in joint ventures (other than receipts for
those instruments considered to be cash equivalents);
(e) Cash advances and loans made to other parties/ employees;
(f) Cash receipts from the repayment of advances and loans made
to other parties/ employees;
(g) Cash payments for futures contracts, forward contracts, option
contracts, and swap contracts;
(h) Cash receipts from futures contracts, forward contracts, option
contracts, and swap contracts; and
(i) Receipt of any interest and dividend on investments.
Financing Activities
26. The separate disclosure of cash flows arising from financing activiti es
is important, because it is useful in predicting claims on future cash
flows by providers of capital to the entity. Examples of cash flows
arising from financing activities are:
(a) Cash proceeds from issuing debentures, loans, bonds,
mortgages, and other short or long-term borrowings;
(b) Cash receipts from contributions made by the Central/ State
Government towards the corpus of Local Bodies;
(c) Cash receipts from grants related to fixed assets;
(d) Cash repayments of amounts borrowed; and
(e) Cash payments by a lessee for the reduction of the outstanding
liability relating to a finance lease.
Reporting Cash Flows from Operating Activities
27. An entity should report cash flows from operating activities using
either:
(a) The direct method, whereby major classes of gross cash
receipts and gross cash payments are disclosed; or
(b) The indirect method, whereby surplus or deficit is adjusted
for the effects of transactions of a non-cash nature, any
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deferrals or accruals of past or future operating cash
receipts or payments, and items of revenue or expense
associated with investing or financing cash flows.
28. Entities are encouraged to report cash flows from operating activities
using the direct method. The direct method provides information that
(a) may be useful in estimating future cash flows, and (b) not available
under the indirect method. Under the direct method, information about
major classes of gross cash receipts and gross cash payments may be
obtained either:
(a) From the accounting records of the entity; or
(b) By adjusting operating revenues, operating expenses, and other
items in the income and expenditure statement for:
(i) Changes during the period in inventories and operating
receivables and payables;
(ii) Other non-cash items; and
(iii) Other items for which the cash effects are investing or
financing cash flows.
29. Entities reporting cash flows from operating activities using the direct
method are also encouraged to provide a reconciliation of the
surplus/deficit from ordinary activities with the net cash flow from
operating activities. This reconciliation may be provided as part of the
cash flow statement or in the notes to the financial statements.
30. Under the indirect method, the net cash flow from operating activities
is determined by adjusting surplus or deficit from ordinary activities for
the effects of:
(a) Changes during the period in inventories and operating
receivables and payables;
(b) Non-cash items such as depreciation, provisions and unrealised
foreign currency gains and losses; and
(c) All other items for which the cash effects are investing or
financing cash flows.
(d) [Deleted]
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Compendium of Accounting Standards for Local Bodies (ASLBs)
Reporting Cash Flows from Investing and
Financing Activities
31. An entity should report separately major classes of gross cash
receipts and gross cash payments arising from investing and
financing activities, except to the extent that cash flows
described in paragraphs 32 and 35 are reported on a net basis.
Reporting Cash Flows on a Net Basis
32. Cash flows arising from the following operating, investing, or
financing activities may be reported on a net basis:
(a) Cash receipts collected and payments made on behalf of
customers, taxpayers, or beneficiaries when the cash flows
reflect the activities of the other party rather than those of
the entity; and
(b) Cash receipts and payments for items in which the cash
receipts and related payments are in quick succession, the
amounts are large, and the maturities are short.
33. Paragraph 32(a) refers only to transactions where the resulting cash
balances are controlled by the reporting entity. Examples of such cash
receipts and payments include:
(a) The collection of taxes by Local Body for State Government or
another entity not including taxes collected by a Local Body for
its own use as part of a tax-sharing arrangement;
(b) [Refer to Appendix 1];
(c) [Refer to Appendix 1];
(d) Rents collected on behalf of, and paid over to, the owners of
properties; and
(e) Transfers to third parties consistent with legislation or other
government authority.
34. Examples of cash receipts and payments referred to in paragraph
32(b) are advances made for, and the repayment of:
(a) The purchase and sale of investments; and
(b) Other short-term borrowings, for example, those that have a
maturity period of three months or less.
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Cash Flow Statements
35. [Refer to Appendix 1]
Foreign Currency Cash Flows
36. Cash flows arising from transactions in a foreign currency should
be recorded in an entity’s functional currency by applying to the
foreign currency amount the exchange rate between the
functional currency and the foreign currency at the date of the
cash flow.
37. [Refer to Appendix 1]
38. Cash flows denominated in a foreign currency are reported in a
manner consistent with ASLB 4, „The Effects of Changes in Foreign
Exchange Rates’. This permits the use of an exchange rate that
approximates the actual rate. For example, a weighted average
exchange rate for a period may be used for recording foreign currency
transactions.
39. Unrealised gains and losses arising from changes in foreign currency
exchange rates are not cash flows. However, the effect of exchange
rate changes on cash and cash equivalents held or due in a foreign
currency is reported in the cash flow statement in order to reconcile
cash and cash equivalents at the beginning and the end of the period.
This amount is presented separately from cash flows from operating,
investing, and financing activities, and includes the differences, if any,
if those cash flows had been reported at end of period exchange rates.
Interest and Dividends or Similar Distributions
40. Cash flows from receipt of interest and dividends or similar
distributions and payment of interest should be disclosed
separately. Cash flow arising from interest paid on bonds,
debentures, etc., should be classified as cash flow from financing
activities while interest and dividend received should be
classified as cash flow from investing activities.
41. The total amount of interest paid during a period is disclosed in the
cash flow statement, whether it has been recognised as an expense in
the income and expenditure statement or capitalised in accordance
with the ASLB 5, „Borrowing Costs’.
42. [Refer to Appendix 1]
43. [Refer to Appendix 1]
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Compendium of Accounting Standards for Local Bodies (ASLBs)
Taxes on income arising from goods or services
supplied by a Local Body outside its own
jurisdictional area4
44. Cash flows arising from taxes on income of a Local Body arising
from goods or services supplied by it outside its own
jurisdictional area should be separately disclosed and should be
classified as cash flows from operating activities, unless they can
be specifically identified with financing and investing activities.
45. Local Bodies are generally exempt from taxes on income. However,
taxes are levied on income of Local Bodies arising from goods or
services supplied by them outside their jurisdictional area.
46. [Refer to Appendix 1]
Investments in Controlled Entities, Associates
and Joint Ventures
47. When accounting for an investment in an associate, a joint venture or
a controlled entity 5, for reporting cash flows in this regard, the
guidance can be found in the ASLBs on the relevant subjects.
48. [Refer to Appendix 1]
Acquisitions and Disposals of Controlled Entities
and Other Operating Units
49. The aggregate cash flows arising from acquisitions and from
disposals of controlled entities or other operating units should be
presented separately and classified as investing activities.
50. An entity should disclose, in aggregate, in respect of both
acquisitions and disposals of controlled entities or other
operating units during the period, each of the following:
4 These services do not cover supply of water or electricity. For details refer Section
10 (20) of the Income Tax Act, 1961.
5
The Guidance with regard to consolidation may be obtained from other
corresponding pronouncements as per the hierarchy prescribed in paragraph 15 of the
ASLB 3, ‘Accounting Policies, Changes in Accounting Estimates, and Errors’.
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(a) The total purchase or disposal consideration 6;
(b) The portion of the purchase or disposal consideration
discharged by means of cash and cash equivalents;
(c) The amount of cash and cash equivalents in the controlled
entity or operating unit acquired or disposed of; and
(d) The amount of the assets and liabilities, other than cash or
cash equivalents, recognised by the controlled entity or
operating unit acquired or disposed of, summarised by
each major category.
50A. [Refer to Appendix 1]
51. The separate presentation of the cash flow effects of acquisitions and
disposals of controlled entities and other operating units as single line
items, together with the separate disclosure of the amounts of assets
and liabilities acquired or disposed of, helps to distinguish those cash
flows from the cash flows arising from the other operating, investing
and financing activities. The cash flow effects of disposals are not
deducted from those acquisitions.
52. The aggregate amount of the cash paid or received as purchase or
sale consideration is reported in the cash flow statement net of cash
and cash equivalents acquired or disposed of.
52A. [Refer to Appendix 1]
52B. [Refer to Appendix 1]
53. [Refer to Appendix 1]
Non-cash Transactions
54. Investing and financing transactions that do not require the use
of cash or cash equivalents should be excluded from a cash flow
statement. Such transactions should be disclosed elsewhere in
the financial statements in a way that provides all the relevant
information about these investing and financing activities.
55. Many investing and financing activities do not have a direct impact on
current cash flows, although they do affect the capital and asset
6 Purchase consideration may arise, if the entity acquired by the Local Body is a
private entity.
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Compendium of Accounting Standards for Local Bodies (ASLBs)
structure of an entity. The exclusion of non-cash transactions from the
cash flow statement is consistent with the objective of a cash flow
statement, as these items do not involve cash flows in the current
period. Examples of non-cash transactions are:
(a) The acquisition of assets through the exchange of assets, the
assumption of directly related liabilities, or by means of a
finance lease; and
(b) The conversion of debt/loans to grants in the nature of
contribution to corpus/municipal fund of Local Body by the
Government.
Components of Cash and Cash Equivalents
56. An entity should disclose the components of cash and cash
equivalents, and should present a reconciliation of the amounts
in its cash flow statement with the equivalent items reported in
the balance sheet.
57. In view of the variety of cash management practices and banking
arrangements and in order to comply with ASLB 1, an entity discloses
the policy that it adopts in determining the composition of cash and
cash equivalents.
58. The effect of any change in the policy for determining components of
cash and cash equivalents is reported in accordance with ASLB 3,
„Accounting Policies, Changes in Accounting Estimates and Errors’.
Other Disclosures
59. An entity should disclose, together with a commentary by
management in the notes to the financial statements, the amount
of significant cash and cash equivalent balances held by the
entity that are not available for use by the economic entity.
60. There are various circumstances in which cash and cash equivalent
balances held by an entity are not available for use by the economic
entity. Examples include cash and cash equivalent balances held by a
controlled entity that operates under legal restriction, when the
balances are not available for general use by the controlling entity or
other controlled entities.
61. Additional information may be relevant to users in understanding the
financial position and liquidity of an entity. Disclosure of this
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Cash Flow Statements
information, together with a description in the notes to the financial
statements, is encouraged, and may include:
(a) The amount of undrawn borrowing facilities that may be
available for future operating activities and to settle capital
commitments, indicating any restrictions on the use of these
facilities;
(b) [Deleted]; and
(c) The amount and nature of restricted cash balances.
62. Where appropriations or budget authorisations are prepared on a cash
basis, the cash flow statement may assist users in understanding the
relationship between the entity‟s activities or programs and the Local
Body‟s budgetary information. (As indicated in ASLB 1 for comparison
of actual and budgeted figures)
63-64 [Refer to Appendix 1]
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Compendium of Accounting Standards for Local Bodies (ASLBs)
Illustrative Examples
These examples accompany, but are not part of, ASLB 2.
Cash Flow Statement
Direct Method Cash Flow Statement (paragraph 27(a))
Entity—Consolidated Cash Flow Statement for Year Ended
December 31, 20X2 (In ₹ lakhs)
(in ₹ lakhs) 20X2 20X1
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts
Taxation X X
Sales of goods and services X X
Grants related to revenue/general grants X X
Interest received X X
Other receipts X X
Payments
Employee costs (X) (X)
Superannuation (X) (X)
Suppliers (X) (X)
Interest paid (X) (X)
Other payments (X) (X)
Net cash flows from operating activities X X
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of plant and equipment (X) (X)
Proceeds from sale of plant and equipment X X
Proceeds from sale of investments X X
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Cash Flow Statements
Net cash flows from investing activities (X) (X)
CASH FLOWS FROM FINANCING ACTIVITIES
Grants received from the Central Government/ State
Governments for creation of specific fixed assets X X
Proceeds from borrowings X x X
Repayment of borrowings (X) (X)
Net cash flows from financing activities X X
Net increase/(decrease) in cash and cash equivalents X X
Cash and cash equivalents at beginning of period X X
Cash and cash equivalents at end of period X X
Notes to the Cash Flow Statement
(a) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, balances with banks,
and investments in money market instruments. Cash and cash equivalents
included in the cash flow statement comprise the following balance sheet
amounts:
(in ₹ lakhs) 20X2 20X1
Cash on hand and balances with banks X X
Short-term investments X X
X X
The entity has undrawn borrowing facilities of X, of which X must be used on
infrastructure projects.
(b) Property, Plant and Equipment
During the period, the economic entity acquired property, plant, and
equipment with an aggregate cost of X, of which X was acquired by means
of grants for creation of specific fixed assets received from the Central
Government/ State Governments. Cash payments of X were made to
purchase property, plant and equipment.
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Compendium of Accounting Standards for Local Bodies (ASLBs)
(c) Reconciliation of Net Cash Flows from Operating Activities to
Surplus/(Deficit)
(in ₹ lakhs) 20X2 20X1
Surplus/(deficit) X X
Non-cash movements
Depreciation X X
Amortisation X X
Increase in provision for doubtful debts X X
Increase in payables X X
Increase in borrowings X X
Increase in provisions relating to employee costs X X
(Gains)/losses on sale of property, plant and
equipment (X) (X)
(Gains)/losses on sale of investments (X) (X)
Increase in other current assets (X) (X)
Increase in investments due to revaluation (X) (X)
Increase in receivables (X) (X)
Net cash flows from operating activities X X
Indirect Method Cash Flow Statement (paragraph 27(b))
Entity—Consolidated Cash Flow Statement for Year Ended December
31, 20X2 (In ₹ lakhs)
(in ₹ lakhs) 20X2 20X1
CASH FLOWS FROM OPERATING ACTIVITIES
Surplus/(deficit) X X
Non-cash movements
Depreciation X X
Amortisation X X
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Cash Flow Statements
Increase in provision for doubtful debts X X
Increase in payables X X
Increase in borrowings X X
Increase in provisions relating to employee costs X X
(Gains)/losses on sale of property, plant and
equipment (X) (X)
(Gains)/losses on sale of investments (X) (X)
Increase in other current assets (X) (X)
Increase in investments due to revaluation (X) (X)
Increase in receivables (X) (X)
Net cash flows from operating activities X X
Notes to the Cash Flow Statement
(a) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, balances with
banks, and investments in money market instruments. Cash and cash
equivalents included in the cash flow statement comprise the
following balance sheet amounts:
(in ₹ lakhs) 20X2 20X1
Cash on hand and balances with banks X X
Short-term investments X X
X X
The entity has undrawn borrowing facilities of X, of which X must be
used on infrastructure projects.
(b) Property, Plant and Equipment
During the period, the economic entity acquired property, plant, and
equipment with an aggregate cost of X, of which X was acquired by
means of capital grants by the Central Government/ State
Governments. Cash payments of X were made to purchase property,
plant and equipment.
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Compendium of Accounting Standards for Local Bodies (ASLBs)
Appendix 1
Note: This Appendix is not a part of the Accounting Standard for Local
Bodies. The purpose of this Appendix is only to bring out the major
differences, if any, between Accounting Standard for Local Bodies (ASLB) 2
and the corresponding International Public Sector Accounting Standard
(IPSAS) 2, „Cash Flow Statements’.
Comparison with IPSAS 2, ‘Cash Flow Statements’
1. Different terminologies have been used in the ASLB 2 as compared to
corresponding IPSAS 2, e.g., terms „balance sheet‟ and „income and
expenditure statement‟ have been used in place of „statement of
financial position‟ and „statement of financial performance‟.
2. The following paragraphs of IPSAS 2 have been deleted. In order to
maintain consistency with the corresponding IPSAS 2, the paragraph
numbers have been retained:
(i) Paragraph 4 and 16 of IPSAS 2 provides that Government
Business Enterprises (GBE) should use IFRSs, has been
deleted, as it is not relevant for Local Bodies in India.
(ii) Local Bodies in India do not deal in sale and purchase of
securities in normal course of their operations. Therefore,
provisions pertaining to it have been deleted. (deleted
paragraph 23)
(iii) Local Bodies in India are not engaged in the Insurance Business
and Public Financial Institutions. Therefore, provisions
pertaining to these have been deleted. (deleted paragraphs
22(h), 28, 33(b), 35)
(iv) Provisions relating to payment of dividends or similar
distribution to owners, do not seem to be relevant in the context
of Local Bodies in India. Therefore, the same have been
deleted. (paragraphs 42-43 deleted)
(v) Local bodies in India may not have a foreign controlled entity,
therefore, the paragraphs pertaining to such entities have been
deleted. (paragraph 37 deleted)
(vi) Paragraph 46 as the taxes related guidance has already been
covered in paragraphs 44-45.
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Cash Flow Statements
(vii) Paragraph 48 of IPSAS 2 prescribing equity method to report
cash flows in respect of investments in an associate or joint
venture, has been deleted as ASLB on this subject is under
formulation.
(viii) Paragraphs 50A, 52A and 52B as these paragraphs prescribe
the accounting method to be followed in case of consolidation
on which ASLBs are yet to be formulated.
(ix) Paragraph 53 as it may not be relevant for Local Bodies in India.
(x) Paragraphs 63 - 64 pertaining to effective date have been
deleted as the ASLB 2 would become mandatory for the Local
Bodies in a State from the date specified by the State
Government concerned.
3. The following paragraphs of IPSAS 2 have been amended significantly
to make the same more relevant in the context of Local Bodies in
India:
(i) Deleted the last line of paragraph 9 of IPSAS 2 that the equity
investments are excluded from cash equivalents unless they
are, in substance, cash equivalents.
(ii) List line of paragraph 17 of IPSAS 2, other terms may be used
in place of net assets/ equity, provided that their meaning is
clear, has been removed.
(iii) Reference to paragraph 83A of IPSAS 17, „Property, Plant and
Equipment‟ has been deleted from paragraph 22 of the ASLB 2
because similar paragraph is not given in ASLB 17 which was
prepared earlier in line with the then corresponding IPSAS.
(iv) Requirements pertaining to the Income tax expenses have been
modified in ASLB 2 as per the provisions of Income Tax Act,
1961 applicable to Local Bodies in India. (refer paragraphs
30(b), 44 – 45 of ASLB 2)
(v) IPSAS 2 provides guidance for reporting cash flows, when
accounting for investment in controlled entities, associates and
joint ventures. However, ASLB 2 refers to the ASLBs on the
relevant subjects for the guidance in this regard which are under
preparation and until the same are issued, guidance to be drawn
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Compendium of Accounting Standards for Local Bodies (ASLBs)
from the existing Accounting Standards issued by the ICAI.
(refer paragraph 47 of ASLB 2)
4. Some examples of IPSAS 2 have been deleted/ included in the ASLB
2, and some examples have been modified in light of Indian
conditions. (refer paragraphs 14, 22, 25, 26, 33, 38, 55(b) and 58)
5. The following paragraphs appear as „Deleted‟ in IPSAS 2. In order to
maintain consistency with paragraph numbers of IPSAS 2, the
paragraph numbers are retained in ASLB 2:
(i) Paragraph 30 (d); and
(ii) Paragraph 61 (b).
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Cash Flow Statements
Appendix 2
Note: This Appendix is not a part of the Accounting Standard for Local
Bodies. The purpose of this Appendix is only to bring out the major
differences, if any, between Accounting Standard for Local Bodies (ASLB) 2
and the existing Accounting Standard (AS) 3, „Cash Flow Statements’ issued
by the Institute of Chartered Accountants of India.
Comparison with Existing AS 3, ‘Cash Flow Statements’
1. ASLB 2 specifically included bank overdrafts which are repayable on
demand as a part of cash and cash equivalents, whereas the existing
AS 3 is silent on this aspect. (refer paragraph 10 of ASLB 2)
2. ASLB 2 does not contain provisions for the Insurance Business and
Public Financial Institution as Local Bodies in India are not engaged in
Insurance Business and Public Financial Institutions. However,
existing AS 3 contains such provisions.
3. Existing AS 3 contains provisions relating to payment of dividends or
similar distribution to owners. However, ASLB 2 does not provide for
the same as these are not relevant in the context of Local Bodies.
4. Existing AS 3 requires separate disclosure for the cash flows
associated with extraordinary items classified as arising from
operating, investing or financing activities. However, ASLB 2 does not
provide for the same.
5. In ASLB 2, the provisions in respect of income taxes have been
modified as per Income Tax Act, 1961, applicable to Local Bodies in
India. (refer paragraph 44 - 45 of ASLB 2)
6. As compared to existing AS 3, ASLB 2 does not contain provisions for
cash flows from a foreign controlled entity, as the same is not relevant
for Local Bodies in India.
7. As compared to the existing AS 3, ASLB 2 requires the entity to
disclose the amount of cash and cash equivalents in the controlled
entity or operating unit acquired or disposed of (refer paragraph 50 (c)
& (d) of ASLB 2). ASLB 2 also requires to report the aggregate amount
of the cash paid or received as purchase or sale consideration is
reported in the cash flow statement net of cash and cash equivalents
acquired or disposed of (refer paragraph 52 of ASLB 2). The existing
AS 3 does not contain such requirements.
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Compendium of Accounting Standards for Local Bodies (ASLBs)
8. Different terminology is used in certain instances, e.g., the term
„Income and Expenditure Statement‟ is used instead of „Profit and
Loss Account‟.
9. ASLB 2 includes additional examples as compared to existing AS 3
such as in case of examples of cash flows from operating activities
given in ASLB 2.
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