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CA Intermediate · Advanced Accounting · Applicability of Accounting Standards

Meghna Traders Pvt Ltd is an unlisted company that is not a bank or insurer. Its turnover is Rs 40 crore (excluding other income), borrowings are Rs 8 crore, and it has no holding or subsidiary. A senior accountant claims it must prepare a Cash Flow Statement under AS 3 because it is a company. Which statement is correct under the ICAI applicability framework?

Meghna is a Level III entity because turnover of Rs 40 crore is within Rs 50 crore and borrowings of Rs 8 crore are within Rs 10 crore. Level III entities are exempt from AS 3, so preparing a cash flow statement is not mandatory despite being a company.

  1. AAS 3 is mandatory since every company must prepare a cash flow statement
  2. BAS 3 is not mandatory because Meghna is a Level III entity and is exempt from AS 3Correct
  3. CAS 3 is mandatory because turnover exceeds Rs 10 crore
  4. DAS 3 is mandatory only if the company opts for Level I disclosure for borrowings above Rs 5 crore

Explanation

Meghna's turnover Rs 40 crore is not above Rs 50 crore and borrowings Rs 8 crore are not above Rs 10 crore. It is therefore a Level III company, assuming it is not Level I or II. Level III entities are exempt from preparing a cash flow statement under AS 3. The Rs 10 crore figure in the third option is not the relevant turnover threshold.

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