Cash flow statement n problems

2 INDIRECT METHOD
FORMAT FOR CASH FLOW STATEMENT
for the year ended ….
[ As per Accounting Standard-3 (Revised)]
Particulars Rs.
1. Cash Flow from Operating Activities
Net Profit and Loss A/c or Difference between Closing Balance and
Opening Balance of Profit and Loss A/c …
Add : (A) Appropriation of funds.
Transfer to reserve …
Proposed dividend for current year …
Interim dividend paid during the year …
Provision for tax made during the current year …
Extraordinary item, if any, debited to the Profit and Loss A/c …
Less : Extraordinary item, if any, credited to the Profit and Loss A/c (…)
Refund of tax credited to Profit and Loss A/c (…)
Net Profit before Taxation and Extraordinary Items ….
(B) Add : Non operating Expenses :
– Depreciation …
– Preliminary Expenses / Discount on Issue of Shares
and Debentures written off …
– Goodwill, Patents and Trade Marks Amortized ….
– Interest on Borrowings and Debentures ….
– Loss on Sale of Fixed Assets ….
….
(C) Less : Non Operating Incomes:
– Interest Income …
– Dividend Income …
– Rental Income …
– Profit on Sale of Fixed Assets … …

(D) Operating Profit before Working Capital Changes (A+B–C) …
(E) Add : Decrease in Current Assets and Increase in Current Liabilities
– Decrease in Stock/ Inventories …
– Decrease in Debtors/ Bills Receivables …
– Decrease in Accrued Incomes …
– Decrease in Prepaid Expenses …
– Increase in Creditors /Bills Payables …
– Increase in Outstanding Expenses …
– Increase in Advance Incomes …
– Increase in Provision for Doubtful Debts. …
…
(F) Less : Increase in Current Assets and Decrease in Current Liabilities
– Decrease in Stock/ Inventories …
– Decrease in Debtors/ Bills Receivables …
– Decrease in Accrued Incomes …
– Decrease in Prepaid Expenses …
– Increase in Creditors /Bills Payables …
– Increase in Outstanding Expenses …
– Increase in Advance Incomes …
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Pesented by: Raman Sachdeva
B.Com(H), M.Com, M.B.A, A.M.T, M.Phil
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– Increase in Provision for Doubtful Debts. …
(G) Cash Generated from Operations (D+E–F) …

(H) Less : Income Tax Paid (Net of Tax Refund received) …

(I) Less : Income Tax Paid (Net of Tax Refund received) …
(J) (+/-) Extraordinary Items
(K) Net Cash from (or used in) Operating Activities …

II. Cash Flow from Investing Activities
– Proceeds from Sale of Fixed Assets …
– Proceeds from Sale of Investments …
– Proceeds from Sale of Intangible Assets …
– Interest and Dividend received
(For Non-financial companies only) …
– Rent Income …
– Purchase of Fixed Assets (…)
– Purchase of Investments (…)
– Purchase Intangible Assets like Goodwill (…)
Net Cash from (or used in) Financing Activities …
III. Cash from Financing Activities
– Proceeds from Issue of Shares and Debentures …
– Proceeds from Other Long-term Borrowings …
– Final Dividend Paid (…)
– Interest and Debentures and Loans Paid (…)
– Repayment of Loans (…)
– Redemption of Debentures / Preference Shares (…)
Net Cash from (or used in) Financing Activities …

IV. Net Increase / Decrease in Cash and Cash Equivalents (I+II+III) …

V. Add : Cash and Cash Equivalents in the beginning of the year
– Cash in Hand
– Cash at Bank (Less : Bank Overdraft) …
– Short-term Deposits …
– Marketable Securities … …
VI. Cash and Cash Equivalents in the end of the year
– Cash in Hand …
– Cash at Bank (Less : Bank Overdraft) …
– Short-term Deposits …
– Marketable Securities … …

Note : Amounts in brackets indicate negative amounts, i.e., amounts that are to be
deducted.
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Illustration 11. From the following information, prepare the Cash Flow Statement for the year
ended March 31, 2007 :
Particulars Rs.
Opening Cash Balance 10,000
Closing Cash Balance 12,000
Decrease in Debtors 5,000
Increase in Creditors 7,000
Sale of Fixed Assets 20,000
Redemption of Debentures 50,000
Net Profit for the year 20,000

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Solution :
Cash Flow Statement
for the year ended 31st March, 2007
Particulars Rs.
A. Cash Flow from Operating Activities 20,000
Net Profit for the year before tax
Add : Increase in Creditors 7,000
Decrease in Debtors 5,000 12,000
Net Cash provided by Operating Activities 32,000
B. Cash Flow from Investing Activities 20,000
Proceeds from Sale of Fixed Assets 20,000
Net Cash from Investing Activities
C. Cash Flow from Financing Activities
Redemption of Debentures (50,000)
Net Cash used in Financing Activities (50,000)
D. Net Increase in Cash (A +B+C) 2,000
Add : Cash at the beginning of the period 10,000
Cash at the end of the period 12,000

Illustration 12. From the following particulars , prepare the Cash Flow Statement for the year
ended 31st March, 2007 by the Direct Method :

(i) Cash sales Rs. 65,86,000.
(ii) Cash collected from debtors during the year amounted to Rs. 33,23,400.
(iii) Cash paid to suppliers was Rs. 79,36,810.
(iv) Rs.9, 87, 500 was paid to and for employees.
(v) Furniture of the book value of Rs. 18,500 was sold for Rs. 11,000 and a new furniture
costing
Rs. 83,160 was purchased.
(vi) Debentures of the face value of Rs. 3,00,000 were redeemed at a premium of 2 per cent
interest on debentures. Interest on debentures, Rs. 84,000 was also paid.
(i) Dividend, Rs. 4,50,000 for the year ended 31st March, 2007 was distributed in May, 2007.
(ii) Cash in hand and at bank as on March 31, 2006 and March 31,2007 was Rs. 51,070 and
Rs. 5,74,000 respectively.

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Solution :
CASH FLOW STATEMENT (DIRECT METHOD)
Particulars Rs.
Cash Flow from Operating Activities
Receipts – Cash Sales 65,86,000
Cash receipts from customers 33,23,400
99,09,400
Payments –Payments for purchases and to suppliers 79,36,810
Payments to and for employees 9,87,500
89,24,310
Net Cash from Operating Activities (Receipts – Payments) 9,85,090
Cash Flow from Investing Activities
Purchase of Fixed Assets (83,160)
Proceeds from Sale of Fixed Assets 11,000
Cash Flow from Financing Activities (72,160)
Redemption of debentures at a premium [Rs. 3,00,000 + Rs. 6,000] (3,06,000)
Interest paid on debentures (84,000) (3,90,000)
Net Cash used in Financing Activities (3,90,000)
Net increase in cash and cash equivalents 5,22,930
Cash and cash equivalents as on 31st March, 2007 (Closing Balance) 51,070
Cash and cash equivalents as on 31st March, 2007 (Closing Balance) 5,74,000

Notes : Dividend for the year ended 31st March, 2007 was paid in May 2007. Hence, it is not an
outflow of cash for the year ended 31st March, 2007.
Illustration 13. From the summary cash account of X Ltd. prepare the Cash Flow Statement for
the year ended 31st March, 2007 by Direct Method.
CASH BOOK
Dr. for the year ended March 31,2007 Cr.

Particulars Rs. Particular Rs.

To Balance on April 1,2006 50,000 By Payment to Suppliers 20,00,000
To Issue of Equity Shares 3,00,000 By Purchased of Fixed Assets 2,00,000
To Receipts from Customers 28,00,000 By Overhead Expenses 2,00,000
To Sale of Fixed Assets 1,00,000 By Wages and Salaries 1,00,000
By Income Tax Paid 2,50,000
By ‘Dividend Paid 3,00,000
By Re payment of Bank Loan 3,00,000

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By Balance on March 31, 2007 1,50,000

32,50,000 32,50,000

Solution :
CASH FLOW STATEMENT OF X LTD. (DIRECT METHOD)
Particulars Rs.
A. Cash Flow from Operating Activities
(i) Operating Cash Receipts :
Cash Received from Customers 28,00,000
(ii) Operating Cash Payments :
Cash Paid to Suppliers 20,00,000
Wages and Salaries 1,00,000
Overhead Expenses 2,00,000 (23,00,000)

Cash Generated from Operations 5,00,000
Less : Income Tax Paid 2,50,000

Net Cash from Operating Activities 2,50,000
A. Cash Flow from Investing Activities
Purchase of Fixed Assets (2,00,000)
Proceeds from Sale of Fixed Assets 1,00,000
Net Cash Used in Investing Activities (1,00,000)
C. Cash Flow from Financing Activities
Proceeds from Issue of Equity Shares 3,00,000
Payment of Bank Loan (3,00,000)
Dividend Paid (50,000)
Net Cash Used in Financing Activities (50,000)
D. Net Increase in Cash and Cash Equivalents (A+B+C) 1,00,000
E. Cash and Cash Equivalent at the beginning of the year 50,000
F. Cash and Cash Equivalent at the End of the year 1,50,000

Illustration 14. The financial position of ABC Ltd. as on 31st March was as follows :

Dr. Cr.

Liabilities 2006 2007 Assets 2006 2007
Rs. Rs. Rs. Rs.

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Current Liabilities 72,000 82,000 Cash 8,000 7,2000
Loan from Z Ltd. …. 40,000 Debtors 70,000 76,800
Loan from Bank 60,000 50,000 Stock 50,000 44,000
Share Capital 2,00,000 2,00,000 Land 40,000 60,000
Profit and Loss A/c 96,000 98,000 Buildings 1,00,000 1,10,000
Machinery 2,14,000 2,44,000
Provision for Dep. (54,000) (72,000)
4,28,000 4,70,000 4,28,000 4,70,000

During the year. Rs. 52,000 were paid as dividend. Prepare Cash Flow Statement.
Solution :
CASH FLOW STATEMENT
Particulars Rs.
Cash Flow from Operating Activities
Net profit before tax and extraordinary items
(See Working Note) 54,000
Add : Depreciation 18,000
Operating Profit before Working Capital Changes 72,000
Add : Decrease in Stocks 6,000
Increase in Current Liabilities 10,000
Less : Increase in Debtors (6,800)
Net Cash from Operating Activities 81,200
Cash Flow from Investing Activities
Purchase of Building (10,000)
Purchase of Land (20,000)
Purchase of Machinery (30,000)
Net Cash used in Investing Activities (60,000)
Cash Flow from Financing Activities
Proceeds of Loan from Z Ltd. 40,000
Repayment of Bank Loan (10,000)
Payment of Dividend (52,000)
Net cash used in Financing Activities (22,000)
Net Decrease in Cash and Cash Equivalents (800)
Cash and cash equivalents at the beginning 8,000
Cash and cash equivalents at the end of the period 7,200

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Working Note :
Closing Balance as per Profit and Loss A/c (on 31st March, 2007) 98,000
Less : Opening Balance as per Profit and Loss A/c as on 1st April, 2006 96,000
Profit for the year 2,000
Add : Dividends Paid 52,000
Net Profit before Tax 54,000

Illustration 15. From the following particulars of XYZ Ltd. prepare the Cash Flow Statement.

Dr. Cr.

Liabilities March 31 March 31, Assets March 31, March 31
2006 2007 2006 2007
Rs. Rs. Rs. Rs.
Equity Share Capital 3,00,000 3,50,000 Fixed Assets (Net) 5,10,000 6,20,000
12% Pref. Share Capital 2,00,000 1,00,000 10% Investment 30,000 80,000
10% Debentures 1,00,000 2,00,000 Cash in Hand 20,000 35,000
Profit and Loss A/c 1,10,000 2,70,000 Cash at Bank 20,000 40,000
Creditors 70,000 1,45,000 Debtors (Good) 1,00,000 2,00,000
Provision for Doubtful Debts 10,000 15,000 Stock 1,00,000 90,000
Discount on Deb. 10,000 15,000
7,90,000 10,80,000 7,90,000 10,80,000

You are informed that during the year :
(i) A machine with a book value of Rs. 40,000 was sold for 25,000.
(ii) Depreciation charged during the year was Rs.70,000.
(iii) Preference shares were redeemed on 31st March, 2007 at a premium of 5%.
(iv) An Interim Dividend @ 15 per cent was paid on equity shares on 31st March, 2007.
Preference Dividend was also paid on 31st march, 2007.
(v) New shares and debentures were issued on 31st March, 2007.

Solution :
CASH FLOW STATEMENT
Particulars Rs.
(A) Cash Flow from Operating Activities
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Closing Balance as per Profit and Loss A/c 2,70,000
Less : Opening Balance as per Profit and Loss A/c 1,10,000
1,60,000
Add : Appropriation of Fund
Preference Dividend 24,000
Interim Dividend 45,000
Increase in Provision for Doubtful Debts (Since all debtors are good) (Note 1)5,000
74,000

Net Profit before tax 2,34,000
Add : Non operating Expenses :
Depreciation 70,000
Interest on Long Term Borrowings (Debentures) 10,000
Loss on Sale of Machinery 15,000

Premium Payable on Redemption of Preference Shares 5,000 1,00,000
3,34,000

Less : Non operating Incomes :
Interest on Investment 3,000
Operating Profit before Working Capital Changes 3,31,000
Add : Decrease in Current Assets and Increase in Current Liabilities
Decrease in Stock 10,000
Increase in Creditors 75,000 85,000
4,16,000
Less : Increase in Current Assets and Decrease in Current Liabilities
Increase in Debtors 1,00,000
Net Cash from Operating Activities 3,16,000

B. Cash Flow from Investing Activities
Purchase of Fixed Assets (2,20,000)
Proceeds from Sale of Machinery 25,000
Interest on Investment 3,000
Purchase of Investments (50,000)
Net Cash Used in Investing Activities (2,42,000)
(C ) Cash Flow from Financing Activities
Proceeds from Issue of Share Capital 50,000
Proceeds from long-term borrowings (Debentures) 95,000
[ Rs. 1,00,000 – Rs. 5,000 (Discount on Issue of Debentures) (Note 2)]

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Redemption of Preference Shares (Rs. 1,00,000 + Rs. 5,000) (1,05,000)
Interest Paid on Long-Term Borrowings (10,000)
Interim Dividend paid (45,000)
Preference Dividend Paid during the year (24,000)
Net Cash Used in Financing Activities (39,000)
Net Increase in Cash and Cash Equivalents (A+B+C) 35,000
Cash and Cash Equivalents in the beginning of period 40,000
(Cash in Hand and Cash at Bank)
Cash in Cash Equivalents at the end of period 75,000
(Cash in Hand and Cash at Bank)

Working Notes :
a. Increase in Provision for Doubtful Debts (if all debtors have been considered as good)
represents transfer of the Profit from Profit and Loss Account. It is added back to the
current year’s profits to find out cash from Operating Activities.
b. Increase in Discount on the Issue of Debentures (or shares) is deducted from increase in
Debentures (or shares) to ascertain the net amount of issue.

FIXED ASSETS ACCOUNT (AT W.D.V)
3. Dr.
Cr.

Particulars Rs. Particulars Rs.

To Balance b/d 5,10,000 By Bank A/c 25,000
To Bank A/c (Purchase) 2,20,000 By Profit and Loss A/c
(Balancing Figure) (Loss on Sale) 15,000
By Depreciation A/c 70,000
By Balance c/d 6,20,000
7,30,000 7,30,000

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Illustration 16. The summarized Balance Sheets of XYZ Ltd. as on 31st March, 2006 and 2007
are given below :-
Dr. Cr.

Liabilities March 31 March 31, Assets March 31, March 31
2006 2007 2006 2007
Rs. Rs. Rs. Rs.
Share Capital 4,50,000 4,50,000 Fixed Assets 4,00,000 3,20,000
General Reserve 3,00,000 3,10,000 Investment 50,000 60,000
Profit and Loss A/c 56,000 68,000 Stock 2,40,000 2,10,000
Creditors 1,68,000 1,34,000 Debtors 2,10,000 4,55,000
Provision for Taxation 75,000 10,000 Bank 1,49,000 1,97,000
Mortgage …. 2,70,000
10,49,000 12,42,000 10,49,000 12,42,000

Additional Information :
(i) Investments costing Rs. 8,000 were sold during the year 2006-07 for Rs. 8,500.
(ii) Provision for tax made during the year was Rs. 9,000.
(iii) During the year, part of the fixed assets costing Rs. 10,000 was sold for Rs. 12,000 and the
profit was included in the Profit and Loss Account.
(iv) Dividends paid during the year amounted to Rs. 40,000
You are required to prepare a Cash Flow Statement.

Solution :
CASH FLOW STATEMENT
Particulars Rs.
(A) Cash Flow from Operating Activities :
Closing Balance as per P & L A/c (31.3.2007) 68,000
Less : Opening Balance of Profit and Loss A/c (31.3.2006) 56,000
12,000
Add : Appropriation of Fund :
Interim Dividend 40,000
Provision for Tax 9,000
Transfer to Reserve 10,000 59,000
Net Profit before tax and extraordinary items 71,000
Add:Non Operating Expenses : 70,000
Depreciation (Note 1)
Less : Non Operating Incomes : (500)
Profit on Sale of Investments (2,000) 67,500
Operating Profit before Working Capital Changes 1,38,500
Add : Decrease in Current Assets and Increase in Current Liabilities :
Decrease in Stock (Rs. 2,40,000 – Rs. 2,10,000) 30,000
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Less : Increase in Current Assets and decrease in Current Liabilities :
Increase in Debtors (Rs. 4,55,000 – Rs. 2,10,000) (2,45,000)
Decrease in Creditors (Rs. 1,68,000 – Rs. 1,34,000) (34,000) (2,79,000)
Cash Generated from Operations (1,10,500)
Less : Income tax Paid (74,000)
Net Cash used in Operating Activities (A) (1,84,500)
(B) Cash Flow from Investing Activities
Purchase of Investment (18,000)
Sale of Fixed Assets 12,000
Sale of Investments 8,500
Net Cash from Investing Activities (B) 2,500
(C) Cash Flow from Financing Activities
Mortgage Loan 2,70,000
Dividend Paid (40,000)
Net Cash from Financing Activities (C) (2,30,000)
(D) Net Increase in Cash and Cash Equivalents (A+B+C) 48,000
(E) Cash and Cash Equivalents at the beginning of the year 1,49,000
(F) Cash and Cash Equivalents at the end of the year 1,97,000

Working Notes :
1 Dr. Fixed Assets Account Cr.


To Profit and Loss A/c 2,000 By Depreciation A/c (Bal. Fig.) 70,000
(Profit on Sale) By Balance c/d 3,20,000

4,02,000 4,02,000

2 Dr. Investment Account Cr.


To Profit and Loss A/c (Profit) 2,000By Depreciation A/c (Bal. Fig.) 60,000
To Bank A/c (Balance Fig.) 18,500

68,500 68,500

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3 Dr. Investment Account Cr.


To Bank A/c (Balancing Fig.) 4,00,000 By Balance b/d
75,000
To Balance c/d 2,000 By Profit and Loss A/c
To 18,500 (Provision Made) 9,000

84,000 84,500
Net Profit or Drawings : Sometimes in the case of a sole trader or a partnership firm, capital
of the proprietor or partners is given but the amount of drawings or net profits made may be
missing. The capital account may be prepared to find the net profits or drawings.

Profit = Capital at the end + Drawings – Capital at the beginning
Drawings = Capital at the beginning + Profit – Capital at the end

Illustration 17. The summarized Balance Sheets of XYZ Ltd. as on 31st March, 2006 and 2007
are given below :-
Dr. Cr.

Rs. Rs. Rs. Rs.
Creditors 40,000 44,000 Fixed Assets 10,000 7,000
Mrs. A’s Loan 25,000 … Debtors 30,000 50,000
Loan from Bank 40,000 50,000 Stock 35,000 25,000
Capital of A and B 1,25,000 1,53,000 Machinery 80,000 55,000
Land 40,000 50,000
Buildings 35,000 60,000
2.30,000 2,47,000 2,30,000 2,47,000

During the year, a machine costing Rs. 10,000 (accumulated depreciation Rs. 3,000) was sold for
Rs. 5,000. The provision for depreciation against machinery as on March 31,2006 and March 31,
2007 was of Rs. 25,000 and Rs. 40,000 respectively.
The Net Profits for the year amounted to Rs. 45,000. You are required to prepare the Cash Flow
Statement.
Solution :
CASH FLOW STATEMENT
Particulars Rs.

Add : Non Operating Expenses :
Depreciation (See Note 3) 18,000
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Loss on Sale of Machinery (See Note 4) 2,000 20,000
Operating Profit before Working Capital Changes 65,000
Add : Decrease in Current Asset or Increase in Current Liabilities:
Decrease in Stock 10,000
Increase in Creditors 4,000 14,000
79,000
Less : Increase in Current Asset or Decrease in Current Liabilities
Increase in Debtors 20,000

Purchase of Land (10,000)
Purchase of Buildings (25,000)
Proceeds from Sale of Machinery 25,000
Net cash used in Investing activities (30,000)
(C ) Cash Flow from Financing Activities
Proceeds of Loan from Bank 10,000
Payment of Mrs. A’s Loan (25,000)
Drawings (Note 1) (17,000) (32,000)
Net Cash used in Financing Activities
(D) Net Decrease in Cash and Cash Equivalents (A+B+C) (3,000)
(E) Cash and cash equivalents at the beginning of the period (10,000)
(F) Cash and cash equivalents at the end of the period 7,000
Notes :
Drawings = Opening Capital of A and B + Net Profits – Closing Capital of A and
B = Rs. 1,25,000 + Rs. 45,000 – Rs. 1,53,000 = Rs. 17,000

2 Dr. Machinery Account Cr.

To Balance b/d 1,05,000 By Cash A/c 5,000
(Rs. 80,000+Rs. 25,000) By Provision for Depreciation
3,000
By Profit and Loss A/c – 2,000
Loss on Sale (Note 4) 95,000
1,05,000 1,05,000

*Sometimes, fixed assets are shown at the written down value (after deducting depreciation)
in the balance sheet and the accumulated depreciation is given in the additional
information (as in the present illustration). In such a case, the opening and closing balances in
the respective Fixed Assets account will be the total amount of book value shown in the balance
sheet plus balance of the accumulated depreciation provided in additional information.

3 Dr. Provision for Depreciation Account Cr.

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To Depreciation on Machinery Sold 3,000 By Balance A/c
25,000
To Balance c/d 40,000 By Depreciation provided
(Balancing Figure) 18,000

43,000 43,000

4. Loss on Sale of Machinery = Cost – Accumulated Depreciation – Selling Price =
Rs. 10,000 – Rs. 3,000 – Rs. 3,000 – Rs. 5,000 = Rs.2,000

Illustration 18. From the following Balance Sheets of M/s Gupta & Co., prepare the Cash Flow
Statement for the year ended March 31 :

Rs. Rs. Rs. Rs.
Creditors 20,000 22,000 Cash 8,000 22,000
Outstanding Expenses 5,000 1,000 Debtors 15,000
11,000
Loan from X 10,000 5,000 Bills Receivable 5,000 …
Capital 1,08,000 1,68,000 Stock 20,000 28,000
Fixed Assets 95,000 1,35,000
2.30,000 2,47,000 2,30,000 2,47,000

During the year, the proprietor introduced Rs. 20,000 as additional capital. The net profits for the
year, after charging Rs. 5,000 as depreciation on fixed assets, were Rs. 50,000.

Solution :
CASH FLOW STATEMENT
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Particulars Rs.
Non-Op. Expenses :
Depreciation 5,000
Operating profit before Working Capital Changes 55,000
Add : Decrease in Current Assets & increase in Current Liabilities :
Debtors 4,000
Bills Receivables 5,000
Creditors 2,000 11,000
66,000

Less : Increase in Current Assets & decrease in current liabilities:
Stock 8,000
Outstanding Expenses 4,000 12,000
Fixed Assets Purchased (See Working Note 2)
Net Cash used in Investing Activities (45,000)
(C) Cash Flow from Financing Activities
Repayment of Loan from X (5,000)
Additional Capital Introduced 20,000
Drawing (See Working Note-1) (10,000)
Net Cash used in Financing Activities 5,000
(D) Net Increase in Cash and Cash Equivalents (A+B+C) (14,000)
(E) Cash Balance on April 1, 2006 (8,000)
(F) Cash Balance on March, 31, 2007 22,000
Working Notes :

1 Dr. CAPITAL ACCOUNT Cr.

To Cash A/c 10,000 By Balance b/d 1,08,000
(Rs. 80,000+Rs. 25,000) By Cash A/c
(Additional Capital)
By Profit and Loss A/c 50,000
Loss on Sale (Note 4) 95,000
1,78,000 (Net Profit) 1,78,000

2 Dr. FIXED ACCOUNT Cr.

To Balance b/d 95,000 By Depreciation 5,000
To Bank A/c By Balance c/d 1,35,000
(Purchase – Balancing Figure) 45,000
1.40,000 1,40,000

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OBJECTIVE TYPE QUESTIONS
I. Indicate whether increase in debtors / current assets results in :
(i) Increase in cash
(ii) Decrease in cash
(iii) Non of the above.

II. Indicate whether increase in current liabilities results in :
(i) Increase in cash
(ii) Decrease in cash
(iii) None of the above.

III. State whether the following would result in inflow or outflow of cash :
(i) Issue of shares
(ii) Payment of dividend
(iii) Purchase of fixed assets
(iv) Cash from operations (profits)
(v) Sale of fixed assets
(vi) Redemption of debentures

IV. Fill in the blanks :
(a) Net profit are Rs. 20,000. There is an increase in the amount of debtors of
Rs. 5,00. What would be the amount of cash flow from operating activities
(Rs. 20,000, Rs.15,000 Rs. 25,000)
I II III
(b) Net profit are Rs. 12,500, after debiting depreciation Rs. ,3500 andn there is a
decrease in stock worth Rs. 2,700. The cash flow from operating activities would be
(Rs. 16,000, Rs.15,200 Rs. 18,700)
I II III
Ans. I. decrease in cash (II) Increase in Cash (III) i) in Flow (ii) out flow (iii) out
flow (iv) in flow (v) in flow (vi) outflow. (IV) (a) 1500 (b) 18700

B. SHORT ANSWER QUESTIONS
1. What is ‘Cash Flow Statement’? Explain.
2. Write what is inflow of each and outflow of cash?
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3. What are non-operating Expenses and Incomes.
4. Write about treatment of depreciation in a Cash Flow Statement.
5. What do you know about Treatment of Dividend declared and paid in a Cash Flow
Statement
6. Write about treatment of provision for tax and tax paid in Cash Flow Statement.

EXERCISE :
1. Calculate cash flow from operating activities from the following information :
Rs.
Sales 1,20,000
Purchases 70,000
Wages 25,000
Assume that all the transactions were in cash. Ans (Rs 25,000)
2. Calculate cash flow from operating activities from the following figures :
(Rs.)
Sales 2,75,000
Cost of Sales 2,25,000
Opening Balance of Debtors 20,000
Closing Balance of Debtors 20,000
Opening Balance of Creditors 5,000
Closing Balance of Creditors 10,000
Opening Balance of Outstanding Expenses 1,250
Closing Balance of Outstanding Expenses 2,750
Ans. (51500)

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3. Calculate cash flow from operating activities after calculating adjusted profit from the
following : Rs.
(i) Depreciation allowed 15,000
(ii) Loss on Sale of Machine 2,500
(iii) Discount on Issue of Shares written off 1,000
(iv) Goodwill written off 1,500
(v) Transfer to General Reserve 2,000
(vi) Net Profit after above adjustments 15,000
(vii) Increase in Current Assets 2,500
(viii) Decrease in Current Liabilities 3,500
Ans. (31,000)
5. Calculate cash flow from operating activities from the following :

Particulars 2004 2005
Rs (Rs.)
Profit and Loss Appropriation A/c 20,000 30,000
Bills Receivables 14,000 18,000
Provisions for Depreciation 30,000 32,000
Rent Outstanding 1,600 4,000
Prepaid Insurance 1,400 1,200
Goodwill 20,000 16,000
Stock 14,000 18,000
Ans. (Rs. 10,600)
6. Calculate cash flow from operating activities from the following Profit and Loss A/c of a
business for the year ended on 31.3.2005 :

To Salaries 22,300 By Gross Profit 54,500
To Depreciation on fixed assets 8,200 By Rent Received 3,200
To Preliminary Exp. w/off. 1,500 By Profit on Sale of fixed
11,300
To Discount on issue of deb. 1,000 assets
To General Reserve 12,000
To Discount on Sales 4,180
To Goodwill 3,220
To Net Profit 16,600
69,000
Ans. (Rs. 31,220)
7. Calculate cash flow from operating activities from the following details:
Particulars 31.3.07 31.3.08
Rs (Rs.)
Profit and Loss A/c 45,000 60,000
General Reserve 5,000 10,000
Provisions for Depreciation
18,000 28,000
Prepaid Expenses
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Unearned Incomes 2,400 1,800
Outstanding Expenses 1,500 2,500
Goodwill
800 1,200
Sundry Creditors
Bills Receivable 10,000 7,000
5,000 3,000
6,400 9,600
Ans. (Rs 29,800)
8. Calculate cash flow from operating activities from the following data :
I. Profits made during the year Rs. 1,45,000 after considering the following items :
(Rs)
a) Amortisation of Goodwill 3,000
b) Depreciation of Fixed Assets 17,000
c) Loss on Sale of Fixed Assets 2,500
d) Transfer to General Reserve 15,000

II. The following is the position of current assets and current liabilities :

Rs (Rs.)
Debtors 16,200 12,000
Prepaid Expenses 250 750
Bills Payable 5,000 7,000
Ans. (Rs. 1,84,400)
9. Compute cash flow from operating activities from the following Profit and Loss A/c :

To Expenses 3,00,000 By Gross Profit 4,50,000
To Depreciation 70,000 By Gain on Sale of Fixed 60,000
To Loss on Sale of Machine 4,000 Assets
To Discount 200
To Goodwill 20,000
To Net Profit 1,15,800
5,10,000 5,10,000
Ans. (Rs. 1,50,000)

10. Compute cash flow from operating activities from the following data :

Rs (Rs.)
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Profit and Loss A/c 15,950 24,400
General Reserve 1,200 1,800
Goodwill 5,000 3,000
Depreciation 4,500 6,300
Discount on Issue of Debenture 500 350
Sundry Debtors 4,100 2,800
Sundry Creditors 1,500 2,100
3,300 2,100
Ans. (Rs 26,100)

11. The following is the position of current assets and current liabilities of X Ltd. :
2007 (Rs) 2008(Rs.)
Provision for Bad debts 1,000
Short term loans 10,000 19,000
Creditors 15,000 10,000
The company incurred a loss of Rs. 45,000 during the year. Calculate cash from operating
activities. Ans. (Rs. 62,000)

12. The following is the position of current assets and current liabilities :

Rs (Rs.)
Profit & Loss Appropriation A/c 2,000 3,000
Provision for Depreciation 3,000 3,200
Outstanding Rent Payable 160 480
Prepaid Insurance 140 120
Goodwill 2,000 1,600
Stock 1,400 1,800
Ans. (Rs. 1060)
13. Compute cash flow from operating activities from the following details :

Rs (Rs.)
Profit & Loss A/c 1,10,000 1,20,000
Debtors 50,000 62,000
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Outstanding Rent 24,000 42,000
Goodwill 80,000 76,000
Prepaid Insurance 8,000 4,000
Creditors 26,000 38,000
Ans. (Rs. 36,000)
14. Calculate cash flow from operating acidities during 2007-08 from the following :

7
Capital 50 70 Cash & Bank 30 40
Debentures 60 40 Trade Debtors 40 60
Accumulated Profits 30 50 Stock 50 60
Trade Creditors 60 90 Goodwill 30 20
Machinery 50 70
200 250 200 250
Ans. (Rs. 40,000)

15. From the following information, calculate cash from operating activities :

Rs (Rs.)
Stock 6,000 5,000
Debtors 2,500 2,300
Expenses Outstanding 350 450
Accrued Income 800 900
Profit & Loss A/c 8,000 9,000
Ans. (Rs. 500)

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16. Calculate cash from operating activities from the following Profit and Loss account.

Profit and Loss Account
(for the year ending on 31.3.08)
Dr. Cr.
.
To Rent 1,000 By Profit on Sale of Plant 700
To Provision for Bad debts 200 By Income Tax Refund 600
To Depreciation 400
To Loss on Sale of land 300
To Goodwill written off 500
To Proposed dividend 700
To Provision for tax 400
To Net Profit 2,500
7,800 7,800
Ans. (Rs. 3700)
17. From the following information prepare a Cash Flow Statement :-
(Rs)
Operating Cash Balance 15,000
Closing Cash Balance 19,000
Fixed assets purchase 30,000
Redemption of 12% debentures 14,000
Profit for the year 18,000

Ans. Cash flow from operating investing and financing activities = Rs. 48000, Rs. 30,000 Rs.
14,000).

18. From the following information prepare a Cash Flow Statement :-
(Rs)
Operating Cash Balance 1,00,000
Closing Cash Balance 1,20,000
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Fixed assets purchase 2,00,000
Redemption of 12% debentures 5,00,000
Profit for the year 2,00,000

Ans. Cash flow from operating investing and financing activities = Rs. 320,000 Rs. 2,00,000 &
Rs. 5,00,000).

19. Calculate Cash Flow operating acidities from the following Profit and Loss A/c for the
year ending on 31.3.05:

Liabilities 2007 Particulars 2008
(Rs.)
To Depreciation 200 By Profit on Sale of land 400
To Loss on Sale of Plant 100 By Income tax Refund 400
To Goodwill written off 400
To Provision for tax 1,000
To Net Profit 1,100

5,300 5,300
Ans. (Rs 2,000)

20. From the following Balance Sheets of M/s Rahman & Bros. Ltd. prepare a Cash Flow
Statement as per (AS-3 (Revised) :

(Rs.) (Rs.) (Rs (Rs.)
Equity Share Capital 1,50,00 2,00,00 Goodwill 36,000 20,000
15% Preference 0 0 Buildings 80,000 60,000
Share Plant 40,000 1,00,000
Capital 75,000 50,000 Debtors 1,19,00 1,54,500
General Reserve 20,000 35,000 Stock 0 15,000
Profit & Loss A/c 20,000 24,000 Cash 10,000 9,000
Creditors 32,500 49,500 12,500
3,58,500
2,97,50 3,58,50 2,97,50
0 0 0
Depreciation charged on Plant was Rs. 10,000 and on building was Rs. 20,000.
Ans. (Rs. 41,500 Rs. 70,000 & Rs. 25,000)

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21. Prepare Cash Flow Statement as per AS.3 (Revised) from the following Balance Sheets of
2007 and 2008.

(Rs.) (Rs.) (Rs (Rs.)
Equity Share Capital 30,00 40,000 Fixed Assets 40,00 65,000
Reserve & Surplus 0 11,000 Less: Accumulated 0
Bank Loan 8,50 7,500 Depreciation 13,500
Creditors 0 39,000 8,000 51,500
Bank Overdraft 10,00 500 Investments 32,00 11,000
Proposed Dividend 0 6,000 Stock 0 22,500
31,00 Debtors 8,000 19,000
0 Bank 20,00 —
— 1,04,00 0 1,04,000
4,500 0 21,00
0
3,000
84,00 84,00
0 0
Ans. (Rs. 14,500, Rs. 2,500, Rs. 7,500)

22. Following are the comparative Balance Sheets of Washi & Bros. Ltd.. for the year 2007
and 2008.

Liabilities 31.3.07 31.3.08 Assets 31.3.07 31.3.08
(Rs.) (Rs.) (Rs (Rs.)
Share Capital 70,000 74,000 Cash 9,000 7,800
15% Debentures 12,000 6,000 Trade Debtors (good) 14,900 17,700
Trade Creditors 10,360 11,840 Stock in trade 49,200 42,700
Provision for 700 800 Land 20,000 30,000
doubtful Goodwill 10,000 5,000
debts 10,040 10,560
Profit & Loss A/c 1,03,10 1,03,20 1,03,10 1,03,200
0 0 0
Ans. (Rs. 10,800, Rs 10,000 & Rs. 2000)

(i) Dividends were paid totaling Rs. 3,500
(ii) Land was purchased for Rs. 10,000
(iii) Amount provided for amortization of goodwill Rs 5,000
(iv) Debenture loan was repaid Rs 6,000

You are required to prepare a Cash Flow Statement as per AS-3 (Revised)

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23. The Balance Sheets of MD & Sons Ltd. as on 31.3.07 and 31.3.08 were as follows :

(Rs.) (Rs.) (Rs (Rs.)
Equity Share Capital 90,000 1,30,00 Fixed Assets 93,400 1,66,000
General Reserve 10,000 0 Stock 22,000 26,000
Profit & Loss A/c 20,000 15,000 Debtors 36,000 39,000
15% Debentures — 30,000 Bank 4,000 5,000
Creditors 37,400 20,000 Preliminary Expenses 2,000 1,000
42,000
1,57,40 1,57,40 2,37,000
0 2,37,00 0
0


(i) Depreciation written off on Fixed Assets Rs. 23,400
(ii) Dividend paid on Equity Share Capital Rs. 20,000
Prepaid Cash Flow Statement as per AS-3 (Revised)
Ans. (Rs. 57000, Rs. 96,000 & Rs. 40,000)
24. Following are the Balance Sheets of Ali & Bros. Ltd.

(Rs.) (Rs.) (Rs (Rs.)
Equity Share 4,80,000 7,20,000 Investments 42,200 —
Capital 2,60,000 1,20,000 Discount on
15% Redeemable Issue of Shares 1,20,000 96,000
Preference Share Factory Buildings 2,00,000 1,20,000
Capital 48,000 72,000 Machinery 2,16,000 4,58,400
General Reserve — 64,800 Fixed Deposits 24,000 84,000
Profit & Loss A/c Preliminary 24,000 16,800
Current Expenses
Liabilities: Current Assets
Proposed Dividend 67,200 93,600 Sundry Debtors 1,80,000 2,59,200
Sundry Creditors 70,000 1,00,000 Stock 2,04,000 1,87,200
Bills Payable 17,200 27,200 Bank 30,600 50,000
Outstanding Salary 39,200 14,400 Cash 7,000 17,200
Provision for Tax 67,200 76,800

10,48,80 12,88,80 10,48,00 12,88,800
0 0 0
Ans. (Rs. 1,76,000, Rs. 1,79,200 & Rs. 32,800)
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Prepare Cash Flow Statement as per AS-3 (Revised)
25. Following are the Balance Sheets of Shafi & Bros. Ltd. as at 31st March, 2008

(Rs.) (Rs.) (Rs (Rs.)
Share Capital 1,00,00 1,10,00 Goodwill 5,000 4,000
15% Debentures 0 0 Land 42,000 66,000
General Reserve 50,000 30,000 Machinery 60,000 80,000
Profit & Loss A/c 20,000 20,000 Stock 25,000 21,000
Prov. for Income Tax 11,000 19,000 Debtors 30,000 24,000
Creditors 4,000 11,000 Preliminary Expenses 3,000 2,000
Bills Payable 5,000 4,000 Cash 30,000 2,400
Prov. for doubtful 2,000 3,000
debts 3,000 2,400 1,95,00 1,99,400
1,95,00 1,99,40 0
0 0
Ans. (Rs. 35,900, Rs. 53,500 & Rs. 10,000)

(i) During the year 2008, a part of Machine costing Rs. 7,500 (Accumulated depreciation
thereon being Rs. 2,500) was sold for Rs. 3,000.
(ii) Income tax was paid Rs, 4,000 during 2008.
(iii) Depreciation on Machinery for 2008 was provided at Rs. 5,000. Prepare Cash Flow
Statement as per AS-3 (revised)

26. From the following Balance Sheets of M/s Neyamat & Bros. Ltd. for two years 2007 and
2008, prepare cash Flow Statement

7 8 7 8
(Rs.) (Rs.) (Rs (Rs.)
Share Capital 36,000 30,000 Goodwill 5,000 6,000
P & L A/c 20,000 14,000 Machinery 20,000 25,000
15% Debentures — 5,000 Stock 18,000 12,000
Creditors 9,000 11,000 Debtors 19,000 15,000
Cash 3,000 2,000
65,000 60,000 65,000 60,000
(i) A Machine of the book value of Rs 6,000 was sold for Rs.6,500 during 2008.
(ii) Debentures were redeemed for Rs. 4,900.
(iii) Cash dividend of Rs. 2,500 was paid during 2008.
(iv) Depreciation on Machinery was provided Rs. 1,000
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Ans. (Rs. 2100, 4500 & Rs. 4900)
27. From the following Balance Sheets of Shahid & Bros. Ltd. prepare Cash Flow Statement as
per AS-3 (Revised)
Balance Sheet

(Rs.) (Rs.) (Rs (Rs.)
Share Capital 3,00,00 4,00,00 Goodwill 1,15,00 90,000
15% Debentures 0 0 Buildings 0 1,70,000
General Reserve 1,50,00 1,00,00 Debtors 2,00,00 2,00,000
P & L A/c 0 0 Cash 0 18,000
Creditors 40,000 70,000 Bills Receivable 1,60,00 30,000
Bills Payable 72,000 98,000 Stock 0 3,09,000
Prov. for tax 55,000 83,000 25,000
20,000 16,000 20,000 8,17,000
40,000 50,000 1,57,00
6,77,00 8,17,00 0
0 0
6,77,00
0

(i) Depreciation on Building is 15%.
(ii) Income Tax paid is Rs. 40,000.
Note : Provision for tax is to be treated as a non-current liability.
Ans. (Rs. 57,000, Rs NIL & Rs. 50,000)

28. Following are the comparative Balance Sheets of ABC Co. Ltd. for the year 2007 and
2008.
7 (Rs.) 7 (Rs.)
(Rs.) (Rs
Equity Share Capital 45,000 65,000 Fixed Assets 46,700 83,000
15% Debentures 10,000 20,000 Stock 11,000 13,000
Trade Creditors 8,700 11,000 Debtors 18,000 19,500
General Reserve 5,000 7,500 Cash 2,000 2,500
Profit & Loss A/c 10,000 15,000 Preliminary Exp. 1,000 500
78,700 1,18,50 78,700 1,18,500
0

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Prepare Cash Flow Statement. As per AS-3 (revised)
Ans. (Rs. 6,800 Rs. 36,500 & Rs. 30,000)

29. From the following Balance Sheets of Zia-ul-Haque & Co, Prepare Cash Flow Statement
as per AS-3 (revised)

(Rs.) (Rs.) (Rs (Rs.)
Share Capital 80,000 1,00,00 Machinery (at cost) 1,20,00 1,44,000
Depreciation Reserve 40,000 0Debtors 0 35,000
Profit and Loss A/c 30,000 43,000 Stock 40,000 32,000
15% Debentures 40,000 50,000 Preliminary Expenses 30,000 3,000
Creditors 20,000 20,000 Bank Balance 4,000 16,000
17,000 16,000
2,10,00 2,30,000
0 2,30,00 2,10,00
0 0
Ans. (Rs. 24,000, Rs. 24,000, Rs. NIL)

30. From the following Balance Sheets of Bakhte Munaeem Co. Ltd., prepare the Cash Flow
Statement. As per AS-3 (revised)

(Rs.) (Rs.) (Rs (Rs.)
Share Capital 1,20,00 2,00,00 Machinery (at cost) 20,000 1,25,000
Depreciation Reserve 0 0 Debtors 95,000 80,000
Profit and Loss A/c 9,000 9,500 Stock 37,000 62,000
13% Debentures 6,000 9,000 Bank Balance 43,000 25,000
Bills Payable 35,000 20,000 Preliminary Expenses 15,000 8,000
Creditors 15,000 10,500
25,000 51,000 2,10,00 3,00,000
2,10,00 3,00,00 0
0 0
Ans. (Rs. 22,000, Rs, 1,05,000 & Rs.65,000)

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