With the introduction of new companies act 2013, many students and professionals are asking one common question, is cash flow statement required to be prepared for a private limited company while preparing financial statements at the end of the financial year.
Today we will be discussing requirement of cash flow statements and companies to which it’s not applicable.
For this we need to understand the definition of financial statements as defined in Companies Act 2013.
As per Section 2(40) of Companies Act 2013, financial statements in relation to a company include;
- A balance sheet as at the end of the financial year;
- A profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year;
- Cash flow statement for the financial year;
- A statement of change in equity, if applicable; and
- Any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause(iv);
provided that the financial statement, with respect to one person company, small company and dormant company, may not include the cash flow statement.
This means, a small company is not required to prepare cash flow statement at the end of the financial year.
As per section 2(85) of Companies Act, 2013, Small Company means a company, other than a public company,-
- Paid up share capital of which does not exceed 50 lakhs rupees or such higher amount as may be prescribed which shall not be more than 5 crore rupees; or
- Turnover of which as per its last profit and loss accounts does not exceed 2 crore rupees or such higher amount as may be prescribed which shall not be more than 20 crore rupees:
provided nothing in this clause shall apply to –
- A holding company or a subsidiary company;
- A company registered under section 8; or
- A company or body corporate governed by any special Act;
This means a private limited company with paid up share capital of less than 50 lakh rupees or such higher amount as may be prescribed (not exceeding 5 crore ruppes) or with a turnover of less than 2 crore rupees or such higher amount as may be prescribed (not exceeding 20 crore rupees) is not required to prepare cash flow statements while preparing financial statements at the end of the financial year.
Please remember, it’s not a mandatory provision. If small companies want then they can prepare their cash flow statements and file it with registrar of companies or ROC.