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(b) The bearer domain

(i) Trading Companies – Activities of purchase-sales of goods.

(ii) For Insurance companies – Premium income and payment of claim.

(iii) For Banks – Lending of loan and acceptance of deposits.

(A) Non-Finance Companies :

1. Cash Inflow:

• Receipt/Income from sale of goods or service,
• Collection from debtors and bills receivable,
• Income of royalty, commission and brokerage,
• Income tax refund (except financing activity),
• Any other income which is not arising from investing activities.

2. Cash Outflow :

• Payment on purchase of goods or service,
• Payment to creditors and bills payable,
• Factory expenses,
• Administrative and selling-distribution expenses,
• wages, salary, rent, bonus,
• Employees welfare expenses,
• Income tax paid (except financing activity).

(B) Finance Companies :

1. Cash Inflow :

• Sale of securities,
• Interest received on securities,
• Interest received on lended loan,
• Income tax refund (except financing activity).

2. Cash Outflow :

• Purchase of securities,
• Interest paid on deposit/loan,
• salary or amount paid to employees e.g. bonus,
• Income tax paid (except financing activity).

Addition in general reserve is added in profit under the head of provision in operating statement.

The various objectives of preparing cash flow statement are as follows 

(i) The first and most important objective of cash flow statement is that helps to ascertain the gross inflows and out flows of cash and cash equivalents from operating, investing and financial activities. 

(ii) A cash flow statement helps in determining the various causes for change in the cash balances during an accounting period. 

(iii) A cash flow statement is also prepared to determine the liquidity position of the organisation.

(iv) Moreover a cash flow statement is prepared to know about the requirenTent of cash in future.

Taxation provision will be shown in operating activities statement under current liabilities head and will be added to profit.

Tax payment will be shown as changes in the working capital and will be deducted from profit-loss statement.

Illustration of operating incomes :

• Sales income of goods of service
• Collection from debtors and bills receivable
• Commission-brokrage received
• Income tax refund.

A cash flow statement shows inflows and outflows of cash and cash equivalents from various activities of an enterprise during a particular period. As per AS-3, ‘Cash equivalents’ means short term highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. Thus, cash equivalents refer to such investments that are held for the purpose of meeting short term cash commitments rather than for investments or other purposes. An investment normally qualifies as cash equivalent only when it has a short maturity, of say, three months or less from the date of acquisition. 

Investments in shares are excluded from cash equivalents unless they are in substantial cash equivalents, e.g., preference shares of a company acquired shortly before their specific redemption date provided there is only insignificant risk of. failure of the company to repay the amount at maturity. Similarly, short term marketable securities which can be readily converted into cash are treated as cash equivalents.

Cash deposited with bank and cash withdrawn from bank is an example of cash transaction but it is not cash flow.

Payment of underwriting .commission is considered as financing activities of cash outflow. Because company paid underwriting commission to underwrites while issuing share or debentures.

Income tax payment and income tax refund are considered as operating activities because it is arising from profit and loss statement, so both are included in operating activity.

Operating Activities: As we know that these are the principal revenue producing activities of the enterprise and other activities. Operating activities generally reflect cash generated and/or paid as a result of the firm’s core business functions. Hence, the following will be the operating activities in the above mentioned enterprises respectively 

(i) In Case of a Hotel :Receipts from sale of goods and services to the customer will be operating activity related to revenue generation. And payment of wages and salaries, electricity, food items and other items used in accommodation and stay of customer will be an operating activity related to expenditure. 

(ii) Film Production House: In case of film production house revenue generating operating activity would be its receipts from selling film rights of a film to the distributors and its operating activity related to expenditure would be payment made to the staff member, unit, actors, dctresses, directors, location rent and air fare etc. 

(iii) Financial Enterprise: In case of a financial enterprise like bank the receipts from repayment of loans, interest incomes from investments, etc will be considered as revenue generating operating activity and repayment of loans, recovery expenditure for recover of loans, etc. Salaries of employees will be considered as operating activity related to the expenditure. 

(iv) Media Enterprise: A media enterprise is involved in service industry and its revenue generating operating activity would be receipts from advertisements. And expenditure related operating activity would be payments to staff, reporters, photographers, etc. 

(v) Steel Manufacturing Unit :The main source for revenue for a steel manufacturing unit would be its receipts from sale of steel sheets, steel castings, steel rods, etc. And the expenditure related operating activity would be payment for raw material (iron, coal), salaries to staff, etc. 

(vi) Software Business Unit: A software business unit is basically a service providing unit which get its revenue through receipts from sale of software and renewal of licenses as an operating activity and various payment made by it in the form of salaries to its employees, etc. It is the part of operating activity as expenditure.

(b) Current assets and current liabilities.

Self-constructed assets are recorded in activities of cash outflow of investing activities.

In operating activity underwriting commission paid is considered as csah outflow.

(a) Collections from customers

For trading company, the activities of purchase-sales of goods are main activities of income generation.

(d) All of the above

Purchase of building by means of issue of shares should be Excluded from Cash Flow Statement.

In financing activities, increase/decrease of bank overdraft is recorded.

Organising is the process of identifying, bringing the required resources together such as men, money, material, machines and method and arranging them in proper manner to achieve the goals of an organisation. It is prepared by the top level management. Organising function decides the ways and means to achieve what has been planned. Organising is more important in executing the plan.

(d) All of the above

(d) Controlling

Coordination is important for management and is said to be the essence of it. Through coordination, group functions can be linked together. Coordination binds the people of an organisation and their activities to ensure its smooth functioning. It is the force that unites the work and efforts of the people of any organisation towards the fulfilment of common objectives. 

The importance of coordination can be explained through the following points: 

i. Harmonised goals - With growth, the size of an organisation increases and the number of people in it also increases. However, greater number of people means more differences in thoughts and working habits. This may sometimes results into disharmony among them. Thus, coordination becomes important to synchronise personal and collective goals in one direction. 

ii. Allotted work - Each task requires specialisation to get the desired result. For this, every organisation hires experts for different tasks. Every specialist approaches the task in his/her own unique manner and is usually reluctant in taking any advice or suggestion from others. This may lead to diversion or conflict among various specialists in the same organisation. Thus, coordination is required to integrate their opinions and thoughts. 

iii. Achievement of goals - An organisation has various departments and sub-departments such as production, sales, human resource and finance. Every department works independently, with its own policies and objectives. Thus, coordination becomes necessary to synchronise the activities of each department for the achievement of common goals of the organisation. 

iv. Improves goodwill - Coordinating activities and functions of management helps in achieving the goals effectively and efficiently. This in turn helps in improving the goodwill of the organisation in the market. 

v. Links functions of management - Coordination links the interrelated functions of management; hence, it is found at every level of management. It begins right from the stage of planning, where goals and objectives are set for the organisation. Coordination is also required between the stages of planning and staffing to ensure that right people are hired for the execution of the laid plans. Also, functions of directing and controlling should be coordinated for the realisation of the desired goals.

The identification of operating activities of each business is based on the nature of business.

The importance of controlling can be explained through the following points: 

i. Accomplishment of organisational goals - Controlling indicates deviations in the performance and helps in taking the required corrective measures. In this way, it helps in the accomplishment of organisational goals in an efficient manner. 

ii. Evaluation of standards - It helps in assessing and reviewing the accuracy and feasibility of the set standards according to the changing business environment. 

iii. Optimum utilisation of resources - Controlling ensures that each task is performed as per the set standards; this helps in ensuring minimum wastage of resources. 

iv. Promotion of coordination - Proper controlling ensures that every department is aware of its activities and tasks and coordinates well with other departments in the organisation. 

v. Order and discipline - The employees are aware of the fact that they are being continuously observed. Thus, dishonesty and inefficiency are minimised.

(b) Investing activities

Correct option is (A) is current liability but considered as financing activity

Organising is considered a significant function of management because of the following reasons: 

i. Clear definition of working relationships - Under organising, the hierarchical structure of the organisation is clearly established; this helps in avoiding any ambiguity in the transfer of instructions. 

ii. Less duplication of work - As various activities are properly assigned to different personnel, duplication of work is minimised. 

iii. Better coordination - Under organising, activities of similar nature are grouped together under different departments. This ensures better coordination and harmony among all departments in the organisation. 

iv. Optimum utilisation of resources - By ensuring that activities in the organisation are properly aligned, overlapping of work can be avoided. This, in turn, ensures that the resources are efficiently utilised and minimum wastage of efforts is done. 

v. Improved specialisation - Under organising, activities of similar nature are grouped together and tasks are assigned to people as per their skills and capabilities. This allows the organisation to focus on specialisation of work.

Cash flow arising from cash flow activities can be positive or negative.

i. planning

ii. controlling

iii. Planning

iv. top level

v. Directing

vi. Directing

vii. Co-ordination.

Correct option is (D) is deducted from operating activity and added to investing activity.

Planning can be defined as “thinking in advance what is to be done, when it is to be done, how it is to be done and by whom it should be done”. In simple words we can say, planning bridges the gap between where we are standing today and where we want to reach. 

Nature of Planning: 

1. Planning contributes to Objectives: 

Planning starts with the determination of objectives. We cannot think of planning in absence of objective. After setting up of the objectives, planning decides the methods, procedures and steps to be taken for achievement of set objectives. Planners also help and bring changes in the plan if things are not moving in the direction of objectives. 

For example, if an organisation has the objective of manufacturing 1500 washing machines and in one month only 80 washing machines are manufactured, then changes are made in the plan to achieve the final objective. 

2. Planning is Primary function of management: 

Planning is the primary or first function to be performed by every manager. No other function can be executed by the manager without performing planning function because objectives are set up in planning and other functions depend on the objectives only. 

For example, in organizing function, managers assign authority and responsibility to the employees and level of authority and responsibility depends upon objectives of the company. Similarly, in staffing the employees are appointed. The number and type of employees again depends on the objectives of the company. So planning always proceeds and remains at no. 1 as compared to other functions. 

3. Pervasive: 

Planning is required at all levels of the management. It is not a function restricted to top level managers only but planning is done by managers at every level. Formation of major plan and framing of overall policies is the task of top level managers whereas departmental managers form plan for their respective departments. And lower level managers make plans to support the overall objectives and to carry on day to day activities. 

4. Planning is futuristic/Forward looking: 

Planning always means looking ahead or planning is a futuristic function. Planning is never done for the past. All the managers try to make predictions and assumptions for future and these predictions are made on the basis of past experiences of the manager and with the regular and intelligent scanning of the general environment. 

5. Planning is continuous: 

Planning is a never ending or continuous process because after making plans also one has to be in touch with the changes in changing environment and in the selection of one best way. 

So, after making plans also planners keep making changes in the plans according to the requirement of the company. For example, if the plan is made during the boom period and during its execution there is depression period then planners have to make changes according to the conditions prevailing. 

6. Planning involves decision making: 

The planning function is needed only when different alternatives are available and we have to select most suitable alternative. We cannot imagine planning in absence of choice because in planning function managers evaluate various alternatives and select the most appropriate. But if there is one alternative available then there is no requirement of planning. 

For example, to import the technology if the licence is only with STC (State Trading Co-operation) then companies have no choice but to import the technology through STC only. But if there is 4-5 import agencies included in this task then the planners have to evaluate terms and conditions of all the agencies and select the most suitable from the company’s point of view. 

7. Planning is a mental exercise: 

It is mental exercise. Planning is a mental process which requires higher thinking that is why it is kept separate from operational activities by Taylor. In planning assumptions and predictions regarding future are made by scanning the environment properly. This activity requires higher level of intelligence. Secondly, in planning various alternatives are evaluated and the most suitable is selected which again requires higher level of intelligence. So, it is right to call planning an intellectual process.  

Characteristics of planning: 

i. Objective oriented - Plans must be formulated keeping in view specific goals and objectives of the organisation. The management should ensure that the plans are purposeful. 

ii. Stepping stone - Planning forms the base for all other functions of management such as organising, directing and staffing. The functions of management are performed as per the set goals and objectives stated under planning. i

ii. Pervasive - Planning must be done at all levels of the organisation. However, its scope differs along the various dimensions of the business concerned. 

iv. Continuous - Planning is a continuous process, as after the implementation of a plan, the need for the formulation of the next plan arises, keeping in view new objectives and goals. 

v. Futuristic - Planning is futuristic, as it foresees the future and prepares the management to deal with uncertain future events.

Cash flow means receipt-payment of cash and cash equivalent.

Correct option is (A) Cash equivalent

A transaction due to which cash or cash equivalent decreases is known as cash outflow.

Correct option is (C) written off goodwill

Correct option is (D) Interest expenses

Planning states in advance where to move and in which direction to move. It is a continuous process that helps in reducing the risk of uncertainty. Planning is an essential activity that provides the rationale for undertaking policies to achieve the set goals. 

The following points highlight the nature of planning: 

i. Objective oriented - Planning serves as a basis for all other functions. It helps in determining what goals are to be achieved and how those goals are to be achieved. Every management should formulate plans keeping specific goals in mind. These plans should ensure that the desired objectives are attained. Managers should make sure that the plans made are purposeful. 

ii. Stepping stone - Planning acts as the stepping stone in the success of any organisation. This means that planning precedes all other functions like organising, directing, staffing and controlling. This is because plans state the objectives and all other functions are in accordance with those objectives. Once the plans are determined, the role of other interrelated functions comes into play. Thus, planning sets the basis for other functions of management. 

iii. Pervasive - Planning must be done at all levels of an organisation. It is not just a function of the top-level managers; it should be performed at every level of management. However, its scope differs along the various dimensions of a business. For example, the top-level managers chalk out policies regarding the overall management, the middle-level managers decide upon the authority to be given to their subordinates and the lower-level managers prepare small targets for day-to-day operations. 

iv. Continuous - Planning should be done continuously. This is because after the completion of one planned project, a need arises for the formulation of another plan, keeping in view new objectives and circumstances. Moreover, within a planned period, a need may arise for modifying the plans as per the changing needs and requirements. Thus, planning has no end. It is a continuous process; it continues throughout the life of an organisation. 

v. Choice making - Planning is a process of making choices among different alternatives available for the attainment of the desired objectives. These alternatives are based on the path to be taken and strategies or policies to be used for the achievement of goals. Managers need to evaluate these choices thoroughly and then select the most rational scheme for achieving the set objectives. 

vi. Futuristic - Planning should be futuristic in nature. This means that it should be able to foresee and analyse the future. Planning should be done to prepare the organisation to deal with any future event. Managers should be able to anticipate probable situations and take steps accordingly to cope up with those situations in an efficient manner.

(1) Planning is the basic function of management. Every function of management is based on planning. Planning is an intellectual process of logical thinking and rational decision i making.

(2) Designing i.e. doing a proper planning and implementing it accordingly is the key of achieving the objectives of organisation.

(3) Planning means deciding in advance what to do, when to do, how to do, where to do and who is to do it. Thus, it is a detailed programme of future courses of action.

(4) Planning involves setting objectives, identifying alternative courses of action and selecting the best plan. It focuses on organisation’s objective and develop various course of action to achieve those goals.

(A) Meaning : Planning is the fundamental and basic function of management. It is a process of setting goals and choosing the means to achieve these goals. Planning means deciding the future course of action which determines what is to be done, how to do it, when to do it, who is to do it and how results are to be evaluated. It is a detailed programme in which all activities to be performed in future are mentioned keeping in mind the objectives. Thus, it is an intellectual process of logical thinking and rational decision-making.

(B) Importance : 

The importance of planning is explained as follows: 

(1) Helps to set clear objectives : Planning is the process of setting objectives, targets and formulating plans to achieve these objectives. With the help of proper planning, management can analyse the present condition of the organisation and can identify the ways of attaining the desired position in future.

(2) Provides path of action : Planning ensures that the goals or objectives are clearly set. It acts as a guide and provides direction for doing the right things at the right time and in a right way. It helps the employees to understand the organisational goals and what they must do to achieve the same.

(3) Planning improves performance : It helps manager to improve future performances of employees by setting clear objectives and selecting a right course of action. It leads to efficiency in working of the employees. Due to proper planning the employees can work according to guidelines which helps them to improve performance. This results into higher profitability of the organisation.

(4) Minimizes the risk : Planning is the process of looking into the future and anticipating the future changes. By deciding in advance the task to be performed, planning helps to deal with future changes and unforeseen events.

Planning helps in anticipation of risk and decide preventive measures accordingly. Though changes or risks cannot be eliminated but proper planning minimizes them.

(5) Planning leads to optimum utilization of resources: Plans are made on the basis of availability of resources with proper allocation for various activities. Proper allocation of resources brings higher efficiency and desired results with minimum wastages.

(6) Helps in decision-making : Planning helps the management to achieve to take a rational decision and to select best alternatives by considering all positive and negative outcomes of all the alternatives the decisions are taken after selecting the best suitable alternatives a predefined goals.

(7) Useful is setting the standards for controlling: Planning sets the standards of performance to be achieved and which can be measured with the actual performance for find out about any deviation. Such deviation can be taken care by controlling steps. Thus, planning provides basis for maintaining discipline in an organisation.

(8) Facilitates co-ordination of all activities : Proper planning reduces the overlapping among all activities of business which are closely linked with each other. Planning interrelates such activities of all department work as per overall plan and thus management co-ordination is achieved.

(9) Facilitates other functions : Planning is the primary function of all the functions of management. Every organisational function is set to achieve the organisational goals at the planning stage. Other management functions such as organising, staffing, etc. cannot be undertaken till the plan is ready.

(10) Promotes innovative ideas : Planning is the basic function. The process of decisionmaking involves promotion of innovative ideas after critical thinking. It is the most challenging activity for the management as it guides all future activities and actions of an organisation. In the end, these innovative plans result in attainment of the organisation goals.