 Dear friends, in our last session, we had started our discussion on cash flow statements. We had also done one small problem. Today, we will look at some more cases and we will also deal with some more issues related to cash flow statement. Before that, let us have a brief recap. So, can you tell me what is meant by cash flow statement? If you remember, in our initial two sessions, we had discussed about financial statements. So, financial statements are essentially statements which give you financial information. Cash flow statement is a very important financial statements, which talks about flows of cash in very simple word. It is one of the mandatory statements for listed companies and it gives you lot of information about how the cash or bank balances are coming into business, how and where they are invested, are there any new acquisitions of machinery or acquisitions of other companies, are there any new loans taken, all this information at one place you can get from cash flow statement. So, study of cash flow statement becomes very useful for any outsider who wants to study the company and even for management because they have to manage and ensure that there is enough liquidity to keep the business going. Now, what is disclosed in cash flow statement? First of all, if you remember, we had discussed about what is meant by cash. So, cash obviously means currency notes, it also includes the balances in bank, it also includes some very liquid balances like short-term fixed deposits with the banks which are known as cash equivalence. So, cash flow statement is a flow of cash and cash equivalence. Now, here we are not going to just list inflows and outflows, all the inflows and outflows are categorized systematically under the three heads and those three heads are operating, investing and financing. Now, let us have a recap on what is meant by operating. So, as the name suggests, all those items or all those flows which are related to regular or day to day business operations are known as operating cash flows. For example, company may pay salary to its employees, company may be paying rent, company might have paid let us say traveling expenses, company will receive money from debtors, company might receive let us say some service charges if it is a service company or it might sell goods, all these are within the ambit of operating cash flows. The second category is investing cash flows. As the name suggests, it talks about making investment. So, purchase of machinery, purchase of fixed asset, purchase of land, purchase of shares in other company, all these things are investing cash flows. When I say purchase, it also includes sale. So, sale of machinery, sale of land, sale of shares which lead to inflows both are included in investing cash flows. The third one is financing flows. As the name suggests, it talks about making available finances for the business. So, suppose I am a businessman, I might take loan, I might put in my own money as capital, both these are financing flows. So, taking loan, giving loan, then once I take loan, I have to pay interest, once I raise money by way of shares, I have to give dividend, all these things are covered in financing flows. So, basic what we should know is categorization into these three. Now, let us do a very small exercise that will talk about cash flow activities. We need to classify these activities, let us have a brief recap. So, I have tried to enlist a few activities. What you have to do is, you have to classify them into operating, investing and financing. Now, please look at the first activity, receipt from customers. So, it will fall in which category? I think you will rightly guessed, it is going to be O or operating cash flow. Issues of shares or issue of shares, now issue of share is basically done to raise finances. So, it will be categorized as F or financing flows. Sale of assets, now fixed assets are long term in nature and they are held for a long period. So, buying or selling fixed assets is going to be an investing flows. So, this is the way we have to identify here O, I or F. Let us also identify whether it is an inflow or outflow. So, let us start from the beginning. So, receipt from customer, is it an inflow or it is an outflow? Pretty obvious, we have received money, so it is going to be categorized as inflow. Now, issue of shares, will it bring in money or take out money? So, for company when they issue shares, they receive money, so again it is an inflow. Sale of fixed assets, once again it is an inflow, because if fixed assets are sold, company will receive money, payment to suppliers under which category it will fall. So, is it O, I or F? It is going to be O, because this is a day to day business activity, we are going to categorize as an operating activity, is it an inflow or outflow? You are right, it is very obviously an outflow, because I am paying the money. Payment for building maintenance, under which category will it fall? Is it O or I? Though it is for building, it should not be mistaken to be I, because maintenance is a regular activity, purchase of building could be I, but payment for building maintenance is going to be O and inflow or outflow? You are right, obviously it is an outflow, so it is O outflow. Now wages and salary paid, you are right, it is O, it is an outflow, because it is a business activity of regular nature, taxation, taxation is also O outflow. Now, in the normal courses, taxes various types of taxes for doing regular business, so it is going to be categorized as operating flows. There are some exceptions, for example dividend tax, but usually taxation is O outflow. What about dividend? Where will you categorize? Now if the dividend, when the dividend is paid, when company issue shares which is F that is financing flow, dividend is paid on issue of shares, so dividend is also going to be F and it is an outflow. Now here dividend is a financing outflow, there is some tax, which is known as dividend tax, which is required to be paid on dividend. So if dividend tax, it is also F out, but usually taxation is O out, as I have marked it. Now the last one, repayment of bank loan with interest, where will you categorize? You are right, loan is basically F. So it is a financing flow, it is going to be, it is raised basically to raise the finances of the business, so it is a financing item, so it is F out. Now what about interest? Is interest to be an investing flow or no, or is it operating flow? Actually answer for both is F, both the principal paid as well as interest paid is going to be F out. So we have already marked it correctly, that repayment of bank loan, the answer is F out. So this is right. Now let us go to the last item, sale of investments, under what category will it fall? It is I, as the name suggests it is about investment and since we are selling, it is going to lead to inflow. I hope there is enough clarity now, this was broadly what we had covered. Now let us understand a few more aspects and then we will solve some problems or some cases on cash flow statement. Let us have a brief look again at what we did last time. Now we had learnt about the classification, which we have practiced today. Then we had also talked about interest and dividend and these are the items, which we did not talk and we are going to discuss today. They include foreign currency transactions, extraordinary items, treatment for taxes, investments in subsidiaries, acquisitions or disposal of subsidiaries, non-cash transactions and how to disclose cash and cash equivalent. These are the aspects, which we are going to cover in today's session. So let us go ahead. We have already seen what is cash flow statement. That is basically dealt with by AS 3 or that is accounting standard 3 or in a newer version it is known as IND AS 7 or international accounting standard 7 that talks about cash flow statement. Then we have seen what is cash and cash equivalent. We have also seen what is O, I and F. So here I will stop a bit because operating cash flows are disclosed by two methods. One method is known as a direct method. Now under direct method what happens is every cash flow coming in for day to day activities is directly disclosed. For example, if I receive money by sale of goods it will be disclosed. If I receive money from customers it will be disclosed. If cash is paid for salaries it will be disclosed. So every receipt and payment is directly shown in a method known as direct method. However, there is one problem because this is going to be very similar to P and L account. So accounting standards do not allow the use of direct method. Instead of that they recommend an indirect method. Let us see the format of indirect method. So in indirect method what happens is we start with retained earnings that is profits and then we make necessary adjustments. Now why do we make adjustments? Because profit becomes a good proxy for various business activities of day to day in nature. So I might have earned money by sale of goods and I might have paid salary, rent, taxes, electricity bill, telephone bill, traveling, bonus and so on. All these items are already there in my profit and loss account and the net result of these items is my profit or loss. So there is no need for me to repeat all those items. Instead of repeating those items what is done is net profit is directly taken as my inflow and whatever items which are non cash in nature or which are not of day to day nature but which appear in P and L account they alone are adjusted. That is why in indirect method we start with net profit and we will do some adjustments. So now what are these adjustments? One as we just now discussed is non cash items. Now can you name any non cash item in P and L account? If you remember one prominent item which we dealt with our earlier sessions is depreciation. So depreciation is an expense but it is not a cash expense. So we will have to adjust for depreciation. We will have to also adjust for items which are there in P and L but which are non operating in nature. For example, interest and dividend or profit or losses on sale of fixed assets. So these items are I interest paid is F. So these items though they appear in P and L they will have to be removed from P and L that is why these types of adjustments are done. Adjustment is also done for current assets and current liabilities because they ensure that business gets less or more cash. Today we will see one case so that it is more clear to you. So in short I can say there are two methods to record cash flow statement sorry operating flows. First is a direct method. In the direct method like this all items are shown directly. In the direct method we start with profit and loss account balance that is profit or retain earnings and then we make adjustments. So this is how the structure will look like. We will start with retain earnings, we will add or less necessary items and the money final balance which we get is known as funds from operations. Then we adjust for current assets and current liabilities which gives me cash flow from operating activities. So this was in short about operating activities. We have already discussed I think investing and financing so I will skip it. We have also seen interest and dividend but to have a brief recap. Interest received is an item where it is received because of investments made that is why it is treated as an investing flow. There is an exception that if interest comes from trade daters that is from my customers or if it is received from a very short term investment of cash equivalent nature in which case it is treated as operating flow. In case of a finance company or a bank since their regular business is to give money on loan they will naturally receive interest in their normal business course. So it will be treated as an operating flow. But for most other concerns interest received is treated as investing flows. Now interest paid. Interest paid is categorized as financing flow because when I take loan I have to pay interest. So interest paid is a financing flow there are two exceptions one if that interest is paid on a working capital loan or a very short term loan then it becomes a operating flow. In case of a bank or a financial enterprise it is their regular business to receive and pay interest. So for them interest paid is shown as an operating outflow. Now let us look at a dividend. Dividend what happens is dividend received just like interest received it should be treated as an investing flow. But for a finance industry or a finance enterprise it will be treated as a operating flow for all other companies it is to be treated as an investing flow. Dividend paid since it is paid to the owners of the company equity shareholders it is always treated as a financing flow. For all concerns dividend paid is treated as a financing flow. Let us go ahead. Now today we are going to discuss on foreign currency transactions. Last session we had not discussed on these issues so we will start discussion on this. Now what happens is the foreign currency which a company holds is included in cash and cash equivalent. However if there are any changes in the foreign exchange rates they will change the values of the foreign currency held. So such changes are required to be reported while making a reconciliation for cash and cash equivalents. If there are any unrealized gains and losses for example if as is the current scenario dollar has appreciated. So the value of dollars have increased but we have not sold the dollars. So if the value of dollars increases but it is unsold so it is an unrealized gain or there is some unrealized loss then they are not shown as cash flows. Then second issue is on extraordinary items. There are some extraordinary items like say loss by fire. Now this is not a day to day happening it happens as a very peculiar case. So such items are required to be disclosed separately but still they are categorized under OIF as the case may be. So for example there is a fire in the factory and the stock of goods is lost. Now where will you show this item if the stock of goods are lost just think of it is it OIF or OIF we regularly buy and sell goods. Stock of goods is a operating item so loss of goods by fire will also be disclosed under operating. Now at the same time machinery is also destroyed in fire. Now destruction of machinery under which category we will show OIF it will be categorized as an investing flow because buying and selling of fixed assets is treated as an investing flow. Same way destruction of machinery by fire will also be categorized as investing flow. Now if we receive some money as an insurance claim because of loss of machinery it will be treated as an investing inflow. When we receive some money by loss of stock so we get an insurance claim in that case since stock is operating item receipt will be treated as an operating flow. So it is getting clear to you so this is the example which we were discussing. Now about taxes now in usual course taxes are charged on normal business activities. So tax deducted at source against the income is considered as operating flow normal taxes paid are also considered as operating flow. There are some exceptions however. Now if a particular tax is related to particular activity like say dividend tax then it is recognized as an financing flow. Now let us look at the next issue that is investment in subsidiaries or associate concerns. Now many times companies start new entity with their full energy then it is called as subsidiary. Another company started as a subsidiary company or they invest in some other company where they have substantial stake then the another company is known as associate company. Now in both the cases the cash flows of subsidiary or investing associate company is not shown as a cash flow of the parent company or the main company only those transactions which we have happened between the main company and a subsidiary are shown. For example, if the holding company has invested some money in subsidiary then it is shown as a outflow. If the subsidiary gives some dividend to the holding company it may be shown as an inflow like this transactions are shown. Now acquisition and disposal of such businesses this is also same. So if the company invests in shares of some other company which is its subsidiary then it is shown as an investing outflow but it is given a separate disclosure because it is a transaction with the subsidiary company. So any position on purchase or disposal consideration because if the sale of shares in subsidiary is made in bulk it is required to be disclosed separately but it will be categorized as an investing flow. Now the last item that is non-cash transactions. Now in business there are some items or some transactions which do not involve any cash inflow or outflow. These are known as non-cash transactions. Now can you think of some example of non-cash transaction? Suppose company issue shares normally it should receive cash but here instead of receiving cash it takes land and gives shares. This is an example of a non-cash transaction. Any other example? Let us say company has taken loan from bank. It is unable to repay the loan. So it might offer to the bank that instead of loans we will give you shares. So loan is cancelled shares are issued. Again it is an example of a non-cash transaction. Sometimes company receives some services or gives some services but suppose company gives services as a consultant and the client company or the customer does not have any money or instead of money they give some asset to the service provider. Again it is a non-cash transaction. Now such transactions are not shown in the cash flow statement because it is a cash flow statement. So it is going to disclose only cash transaction. So these are the examples acquisition of assets by assuming liability or acquisition of some other company by issuing shares, conversion of debt to equity. In all such cases no disclosure or no item is shown in cash flow. It is required to be disclosed in P&L account or balance sheet as the case may be. Now about cash and cash equivalence. We have already seen that cash and cash equivalence are those items which are highly liquid and in which the company is transacting. So we will list all the inflows and outflows under OIF and in the end the details about cash and cash equivalence are given. So how much is a balance and what is the composition of cash-cash equivalent that is given. Sometimes company may own some cash but it cannot use it which rarely happens but sometimes it happens. Can you give any example of such a case? Let us say company holds some bank balances in Afghanistan. Afghanistan as a country is in political turmoil. Their banks are not transacting. So bank balances held by our company are held up and cannot be used. In such cases a separate disclosure is required to be made for those balances which are not available for use. Similarly, if there are any undrawn borrowing facilities. So company has approached a bank, some loans are sanctioned but those loans have not been dispersed by the bank because the borrowing company has not completed some conditions. So this is a undrawn borrowing facilities and there is some restriction on use of those facilities. Then again it is required to be disclosed. So this was about basics of cash flow statement. Now let us look at the formats and then we will go into cases or problems of cash flow statement. We already know that we categorize this under OIF. Now let us look at the format for each of them. Now we know that the first category we have is cash generated from operations. So this is the broad format for the same we start with retained earnings we add dividend which gives us net profit after tax then we have to add any provision for tax which gives us net profit before tax. Then three types of adjustments are made to calculate the operating flows we have discussed it just now but again I am repeating first are non-cash transactions. So you can see here add non-cash expenses like depreciation or amortization say good will return off. What is the second one do you remember? The second one are non-operating transactions like interest like dividend. So you can see here adjustment for non-operating. So there could be loss on sale of assets which is required to be added. Interest expense that is interest paid is added. Interest or dividend received that is deducted profit on sale of assets is deducted which gives us fund from operations. These items which are non-operating are coming under separate head as I or F that is why we are adjusting under operating flows. Third type of adjustments are related to working capital item. So first one as you can see here is decrease in current assets. Now what do you mean by current asset? What can you give any example of a current asset? Let us say stock I have some stock of goods. If stock of goods has decreased it means those goods must have been sold. So indirectly a decrease in current asset gives me a hint that it has led to some flow of cash that is why I treat it as a addition. Are you getting me? This is not a direct cash inflow. We are not using direct method in the operating activities. But indirectly any decrease in the current asset indicates a cash inflow. So decrease in the current asset we are going to add. Next is increase in current liabilities. Now can you think of any current liability? Let us say outstanding salary. So I have not paid salaries of the employees and since I have not paid salaries of the employee I have more cash in hand. That is why increase in the current liability is a cash inflow. There will be more cash. Third increase in current asset. So is it plus or minus? So if current assets increase my cash falls. Can you think of an example? He can take again the example of stock. If the stock of goods has increased it means I must have paid cash. That is why the stock has increased. That is why increase in current assets is decrease in cash. Now decrease in current liabilities. What will happen if the current liabilities decrease? It is plus or minus you can see on the screen. Decrease in current liability also means decrease in cash. Let us say electricity bills were pending. I have paid them. So current liabilities decrease, cash also decrease. So are you getting me? So first I get in the earlier side we were here that I have made adjustment for non-cash. I have also made adjustment for non-operating. It gives me fund from operations. Now I adjust for working capital items which gives me cash generated from operation but before tax. From that I show income tax paid. So I get cash from operating activities. Are you getting? Have a full view. So from here we started cash from operating activities. We start with profit. Then adjust for non-cash items, adjust for non-operating items, adjust for working capital items. This gives me cash generated from operating activities. Now let us look at investing activities which are pretty clear. You already know the examples of this. Say like sale of assets, interest or dividend received, investment made in joint venture. So cash flow from investing activities are shown. You can note that inflows and outflows are shown at the same place. Only thing is inflows are shown as a positive figure, outflows indicate a negative flow. So they are shown in bracket. So purchase of asset or investment is shown in bracket because it is a negative figure. So the total of these items gives you cash flow from investing activities. Of course the items which are seen on screen are examples. You can have more examples also. Next are cash flow from financing activities. Again you know the examples. So issue of shares, redemption, interest paid, proceeds from borrowings, repayment of loans, all these are cash flows from financing activities. Can you think of any other example of financing activity? Just think over. Let us say company has taken a fresh loan. So it will be amount to an inflow from financing. It will be shown as a financing activity. So like this we have learnt how are operating, investing and financing activities shown. In the end all these things are clubbed. So in a cash flow statement you start with operating, add investing, add financing. The total is net increase or decrease in cash. Through this cash and cash equivalents at the beginning are added. So you get cash and cash equivalents at the end. This is how overall cash flow statement is seen. Are you able to see it? Is it fine? Now maybe we can, this is the details of cash and cash equivalents where cash, bank, short term investments are shown. Now let us go to some problems. So this is the example which you can see on the screen. Messers, Murli Manoharan, a profit and loss account is shown. Some more information is also shown and we have to compute cash from operating activities. Now tell me how will you start? How to show or how to calculate operating activities if you have a look at this profit and loss account? Can we take items like sales, wages, etc. as operating activities? The answer is no because we use indirect method. So we are not going to directly pick up a cash flow from P&L and show it as a in flow or out flow. Then it will be just repetition of items. Instead of that we will start with profit and we will make requisite adjustments. So let us mark from where we are going to start. So with which item we will start? Shall we start with gross profit or with the net profit? You are right. Actually we are going to start with gross profit. I will just make those items bold and italics. So we will start with gross profit. Next what we will take? We will add back income tax. I am going to show you in detail. But before going to the solution I think let us have clarity as to how we have to proceed. So we will start with profit, we will add back income tax. Now which other items we need? What further we have to do? So profit plus income tax will give me profit before tax. Then I will make three types of adjustments. Adjustment number one is I will adjust for non-cash expenses. Now can you mark any non-cash expense in this P&L? Have a look at every item and let me know if there is any non-cash item. Let us say opening stock, purchase, sales, closing stock, profit, wages, depreciation. Do you see any non-cash item? You are right. Depreciation is a non-cash item. So we will make adjustment for depreciation. Anything else? Any other non-cash? There is no non-cash item. So adjustment one will be on depreciation. Now what is the adjustment number two? Do you remember? You are right. Adjustment number two is on interest or dividend type of items because they are non-operating in nature. So please note non-operating items in this P&L account. So if you look at debit side, you can see here interest expense. So it is a non-operating item, we will mark it. On credit side also you can see profit on sale of machinery. You can also see interest and dividend. All these are non-operating in nature because these items, though they come in P&L, all these three are investing items, interest expense is a financing item. So we have marked. So we will start with NP, make the requisite adjustments here. You need not do anything for items like opening stock, purchases, wages and so on. Now let us go down to additional information. Increase in debtors, does it require adjustment? Here is yes because once first we adjust for depreciation, then we adjust for interest dividend, third we adjust for current assets and current liabilities. So we will make adjustment for this. Increase in craters, does it require adjustment? Yes, because it is a current asset or current liability. Decrease in inventories, that is also true, we have to adjust. Increase from customers, shall we adjust? Answer is no, we are not using direct method. So we will neither take this sales figure nor we will take receipts figure. So though the information is given, it should not be taken in the cash flow statement. Issue of shares, shall we take? It is a financing item. So even if we take, it will go in F, right now we are asked to calculate only operating. So we should not take it. Sale of fixed assets, again it is a investing item. So we need not take it now. Payment to suppliers, it is a day to day item. But we will not take because we are not using any direct method. Payment for fixed assets, again it is a investing flow, we will not take payment of bank loan, shall we take? No, it is a financing item. So again we are not taking. So these items we are not taking, we are only going to take those items which we have made bold and italics. Now let us have a look at how will the solution look like. To save time, I have already made it ready for you, but I will request you to solve it yourself. Then only you will realize how it is being solved. So first step was to calculate the profit before tax. So I have added the figure of net profit plus income tax. So it gives me profit before tax to this adjustment is made for depreciation. Then I have adjusted interest expense that is added. Then profit on sale of machinery, interest dividend are adjusted. That gives me profit before working capital changes. Then the adjustment is made for debtors, creditors and inventories. I get cash from operations. From that you can deduct the income tax paid 45,000 which gives me cash flow from operating activities. You can note income tax was added in the beginning to get profit before tax. It is again deducted in the end. So effectively it is nullified, but we have to disclose it. So this is how we can calculate cash flow from operating activities. This is clear. Please have a look at it once again. So independently given a PNL account you should be able to calculate once we know these basics. Let us go to question number 3 now. This is one more question. Now here some details are given about a company and we are asked to identify investing and financing activities. Remember here question is not on operating. We have to only calculate investing and financing. So in the same way have a look at each of the items and mark it as I or F if it is relevant or whether it is to be ignored. The first one is book value of assets sold shall we take it and if yes under what? Shall I take it as investing item? It is a confusing because what is given is book value and not the sale value. So though it is an investing item we would try to find sale value, but in the beginning let us mark it. Next is increase in the current increase in expenses shall we take will not take it because expenses are more a day to day item. Receipt for grant of capital project shall we take we have to take because it is very clearly given that grant is for capital project. So it is an investing activity. So I will mark it as I and I will also mark it as inflow. Next is depreciation shall I take it? It is an operating item. I will not take it right now we are taking I and F items only. Receipts from customers this is again operating in nature, but only when we use direct method. So we should not take it anywhere sale of fixed assets shall we take we should take it is an investing item because I invest in fixed assets I have to pay money when I sell fixed assets I receive money which is a investing activity so I should take it. Interest on debentures you are right it is a financing activity and I have to pay interest. So it is an outflow I will mark it as outflow. Sale of investment it was an inflow so I will mark it as inflow. Investment in joint venture now the money is put into joint venture it is an investing activity and it is an outflow. Increase in debtors it is O operating activity I should not take it bank loan taken during the year it is F because bank loan is a financing activity is it an inflow or outflow? We have received loan so we have received money it will be marked as an inflow. Interest of plant and machinery OIF it is an investing activity and it is an outflow. Payment sorry interest on investment you are right as the name suggests it is an investing activity and it is an inflow. Prepaid expenses are operating activity so they should not be taken right now so we have marked certain items as OIF so you can come here and see. So solution shows that sale of investment which is a positive figure investment in joint venture it is a negative figure purchase of plant and machinery interest on investments. So total was 6,45,000 minus. So there is an outflow from investing activities. Now let us come to financing we have received from grant of capital project interest on debenture it is paid so it is a negative figure loan taken total is 974,000 which is a cash flow from operating activities. Of course in the main cash flow statement we do take operating investing financing everything. Right now in this problem you were asked only to identify investing and financing activities. So we are not showing other activities. So I hope now given some data you are able to make investing and operating calculation let us do one more case now here we have been provided with a balance sheet information difference is also calculated what we have to do is it will be easier if we identify the activities as OIF and also as inflow and outflow. So that is the first thing we will do once that is done we will go into actual preparation of cash flow statement. So first one is equity share capital we will ignore it because there is no difference at all difference is 0 which means that there is no inflow or outflow involved. Next item reserves in the which category I should put it is it O, I or F just think a bit reserves represents profits. So where will you put it you are right it is a operating activity is it a inflow or outflow reserves is a profit means inflow. So I am going to mark it as O and inflow like this let us mark each item. Next secure loan you can see the balance has decreased from 14 to 8 I have to categories that F it is a financing item and is it inflow or outflow in this year you can see they have repaired the loans from 14 the loan balance has decreased to 8. So loans have been repaired money has gone out. So we will mark it as outflow. Now unsecured loans here we are going to mark it as F again it is a similar item because this is also a loan repaired so it is F outflow. Now let us go to application of funds first item is gross block which represents fixed assets. So we will mark it as I and the block has increased. So money has gone out so it is a I outflow investing outflow accumulated depreciation I need to adjust it under O adjustment I am putting net block I should not take because it just represents the gross block minus accumulated depreciation. Next item is investments where should I put it it is I naturally inflow or outflow. You can see the balance of investment has decreased means money is received by sale of investment. So it is an inflow for the company right inventories. Funds represents stock of goods. So under what category you would like it to put you are right it is a operating item and inventories have gone up. So money must have been paid I will mark it as a outflow sundry debtors same it is a operating item and again I will mark it as a outflow because the balance has increased cash and bank balance do not mark it either as OIF it is a special item actually it is a cash equivalent. So I will just mark it as cash total you can just ignore then current liabilities O because current liabilities are due to the item the liabilities have increased. So it is an inflow that means the money has come in now only last two items sales turnover you should not take it is a tricky item we are not using a direct method in the indirect method we do not take sales. Interest paid basically a financing item because interest is paid when you take loan but it will also need some adjustment in operating and it is an outflow. I hope the categorization is clear to you please have a look at all the items. Once the categorization is done now we have to just carry these items into a particular format now to save time I will directly show you the solution but I will request you to solve it yourself later. So this is how the solution will look like first we have to put cash flow operating activities we start with increase in reserves which represents profits then we add interest depreciation then we will make adjustment for increase or decrease of current assets and liabilities which gives me 3 5 2 as cash flow from operating activities you can see then investing activities are enlisted financing activities are enlisted at the end I get the total which is net increase in cash which is 11 then cash at the beginning was 1 1 2 you can see here one of the items we had marked as cash. So cash in the beginning was 1 1 2 and cash in the end was 124. So in the end this 1 1 2 is added to 11 so I get 1 2 4 there is a difference of 1 2 3 because of rounding error. So we will stop here next time we will do some more sums on cash flow I hope you have understood now that the cash flow is an important statement it gives you a detailed description about how the cash has come in and has been invested thank you so much.