IN CASH FLOW INDIRECT METHOD IF IN QUESTION GIVEN INTEREST EXPENSES AND INTEREST PAID DURING THE YEAR THEN WHERE IT IS TO BE POSTED?
PLZ REPLY EARLY
Abhishek ratan maharao (B.Com & CA FINAL) (116 Points)
19 September 2010IN CASH FLOW INDIRECT METHOD IF IN QUESTION GIVEN INTEREST EXPENSES AND INTEREST PAID DURING THE YEAR THEN WHERE IT IS TO BE POSTED?
PLZ REPLY EARLY
Faiz Ahmed
( Article Trainee)
(1731 Points)
Replied 19 September 2010
First of all , I would say kindly be clear in concepts rather solving many problems. Don't mistake me. Its for your benefit only.
Interest exp means it is the head which concludes Accrual nature of its transactions. I mean all Outstanding and Prepaid items would have form part of it and this particular head would have appeared in P&L for calculation of profit before taxation. It means you would have provided for all unpaid interest also which would have brought down profit merely by book entry. So you add interest exp to N/P before taxation and extraordinary items in calculation of cash flow from operating activities.
Then in Cash flow from financing Activities, show Interest paid as cash outflow because it is pure cash outflow without any contents of Outstanding item.
Hope you understood. Feel free to ask any doubt.
NUKUL GARG
(Senior Associate Consultant)
(1231 Points)
Replied 19 September 2010
Interest expense is added in Operating activities,
While Interest paid is deducted in Financing Activities.
Abhishek ratan maharao
(B.Com & CA FINAL)
(116 Points)
Replied 19 September 2010
thankz faiz ahmed
very much!!!!!!
Manmohan ACA, CS
(Chartered Accountant )
(14243 Points)
Replied 20 September 2010
| Originally posted by : Nukul Garg | ||
 |
Interest expense is added in Operating activities, While Interest paid is deducted in Financing Activities. |
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SIMPLE AND CORRECT
rajeev kumar, bcom ca-final
(study)
(196 Points)
Replied 20 September 2010
simple interest expense because it is less from net profit
Mohana Harish
(AUDIT TEAM LEAD - CA FINAL)
(468 Points)
Replied 20 September 2010
Thanks , Good explanation .
Deepesh Khatri
(CA)
(167 Points)
Replied 20 September 2010
Depends on the type of interest expense.
Suppose its charged by the creditors for late payment, the obvious thing would be to include it in operating activities.
If paid on any loans/debentures, then financing activities.
And obviously you will include only the interest paid in cash for the year, even if they relate to another financial year going by the matching or accrual concept.
Santhosh Poojary
(SIEMPRE AHÍ PARA TI)
(15607 Points)
Replied 20 September 2010
| Originally posted by : Faiz Ahmed | ||
|
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First of all , I would say kindly be clear in concepts rather solving many problems. Don't mistake me. Its for your benefit only. Interest exp means it is the head which concludes Accrual nature of its transactions. I mean all Outstanding and Prepaid items would have form part of it and this particular head would have appeared in P&L for calculation of profit before taxation. It means you would have provided for all unpaid interest also which would have brought down profit merely by book entry. So you add interest exp to N/P before taxation and extraordinary items in calculation of cash flow from operating activities. Then in Cash flow from financing Activities, show Interest paid as cash outflow because it is pure cash outflow without any contents of Outstanding item. Hope you understood. Feel free to ask any doubt. |
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Very Nice Explanation
vinod jain
(Learner)
(40 Points)
Replied 29 September 2010
As per AS 3 for Cash Flow statements, basically there are 2 views,
1) If interest paid & received by finance related companies, then treat such transactions as operating activity.
2) If interest paid & received by any other company, then treat those as financing & investing respectively.
in exams you are expected to qoute your assumption as to which type of company are u assuming
AJITH.A.M
(CA-Final)
(45 Points)
Replied 07 December 2010
1) Interest Expense (Interest Paid+Payable at the end+prepaid at the begining - prepaid at the end - payable at beging ) - It is already Debited to P&L A/c (it include non cash item = payable at the end,prepaid at begining) there for it is to be added to operating Activities.
2) Interest paid (Paid for the Current year+Payable at the begining+ prepaid at the end) is Actual out flow for financing activities there for it is to be deducted from financing activities
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