Home » Class 12 Accountancy » NCERT Solutions for Class 12 Accountancy – Company Accounts and Analysis of Financial Statements Chapter 6 – Cash Flow Statement

NCERT Solutions for Class 12 Accountancy – Company Accounts and Analysis of Financial Statements Chapter 6 – Cash Flow Statement


Short answers : Solutions of Questions on Page Number : 285


Q1 :What is a Cash Flow Statement?
Answer :  A Cash Flow Statement is a statement showing inflows and outflows of cash and cash equivalents from operating, investing and financing activities of a company during a particular period. It explains the reasons of receipts and payments in cash and change in cash balances during an accounting year in a company.


Q2 :How are the various activities classified (as per AS-3 revised) while preparing cash flow statement?
Answer : As per the Revised Accounting Standard 3 (AS-3), preparation of Cash Flow Statement for each period is mandatory. AS-3 also specifies the classification of all inflows and outflows basically under the following heads:
1. Cash Flow from Operating Activities
2. Cash Flow from Investing Activities
3. Cash Flow from Financing Activities


Q3 :State the uses of cash flow statement?
Answer :  The uses of cash flow statement are as follows:
1. It is useful for short term financial planning about inflows and outflow of cash.
2. It helps in analysing the reason for the change in cash and cash equivalent balances of a company
3. It assists in determining and assessing liquidity and solvency positions of a company.
4. It enables to analyse and study the trends of receipts and payments of cash from various activities of a company and thereby helps in drafting various policy measures and short term planning.
5. It enables the segregation of cash flows from operating, investing and financing activities of the business separately.
6. It assists in making decision about distribution of profit with reference to the availability of cash.


Q4 :What are the objectives of preparing cash flow statement?
Answer : The important objectives for preparing Cash Flow Statement are as follows:
1. The most important objective that is fulfilled by preparing Cash Flow Statement is to ascertain the gross inflows and outflows of cash and cash equivalents from various activities.
2. Secondly, Cash Flow Statement helps in analysing various reasons responsible for change in the cash balances during an accounting year.
3. This statement helps in analysing and understanding the liquidity and solvency of a company , thereby, depicting the true liquidity position to the creditors and the investors.
4. Cash Flow Statement also helps in ascertaining the requirement and availability of cash in near future.


Q5 :What are the objectives of preparing cash flow statement?
Answer :  The important objectives for preparing Cash Flow Statement are as follows:
1. The most important objective that is fulfilled by preparing Cash Flow Statement is to ascertain the gross inflows and outflows of cash and cash equivalents from various activities.
2. Secondly, Cash Flow Statement helps in analysing various reasons responsible for change in the cash balances during an accounting year.
3. This statement helps in analysing and understanding the liquidity and solvency of a company , thereby, depicting the true liquidity position to the creditors and the investors.
4. Cash Flow Statement also helps in ascertaining the requirement and availability of cash in near future.


Q6: Explain the terms: Cash Equivalents, Cash flows.
Answer :  Cash equivalents are short term, highly liquid investments that are easily convertible into cash and which are subject to an insignificant risk of change in value. In other words, cash equivalents are held for the purpose of meeting short term cash commitments rather than for investment or any other purpose. An investment held for short-term maturity, say three months can be regarded as cash equivalent. Some examples of cash equivalents are treasury bills, commercial papers, etc. On the other hand, cash flows are inflows and outflows of cash and cash equivalents. A cash inflow results in increase in the total cash balance and a cash outflow results in decrease in the total cash balance.


Q7 : Prepare a format of cash flow from operating activities under direct method and indirect method.
Answer :
The format of cash flow from operating activities is as follows:

Direct Method

Cash Flow from Operating Activities:

Cash receipts from customers

***

Cash paid to suppliers and employers

(***)

Cash generated from operations

***

Income tax paid

(***)

Cash flow before extraordinary items

***

+/– Extraordinary items

***

Net Cash from operating activities

***

Indirect Method

Cash Flow from Operating Activities:

Net Profit before tax and extraordinary items

***

Add:

Non-Cash Expenses and Non-Operating Expenses

Depreciation

**

Goodwill

**

Interest paid

**

Loss on sale of fixed assets

**

Foreign exchange

**

**

Less:

Non Operating Incomes.

Dividend received

**

Profit on sale of fixed assets

**

Interest received

**

**

Operating profit before working capital changes

***

Add: Decrease in Current Assets

***

Increase in Current Liabilities

***

***

Less: Increase in Current Assets

***

Decrease in Current Liabilities

***

***

Cash generated from Operating Activities

***

Income tax paid

***

Cash Flow before Extraordinary Items

***

Add/Less: Extra ordinary Items

***

Net Cash Flow from Operating Activities

***

Note: Preparation of Cash Flow Statement using Direct Method has been excluded from the prescribed syllabus. The format is given since the question has not specified the method explicitly. Students can refer to the direct method for the knowledge purpose.


Q8 : Now that you know the meaning of operating activities, state clearly what would constitute the operating activities for the following types of enterprises:
(i) Hotel
(ii) Film production house
(iii) Financial enterprise
(iv) Media enterprise
(v) Steel manufacturing unit
(vi) Software business unit.
Answer :
(i) Hotels

1. Receipts from sale of goods to customer.
2. Payment of wages and salaries, electricity, food items and other items used in accommodation.
(ii) Film Production House:
1. Receipts from selling film rights of a film to the distributors.
2. Payment to the staff, actors, actresses, directors, etc.
(ii) Financial Enterprises:
1. Receipts from repayment of loans, interest incomes from investments, etc.
2. Repayment of loans, recovery expenditure for recover of loans etc, salaries of employees.
(iv) Media Enterprises:
1. Receipts from advertisements.
2. Payments to staff, reporters, photographers, etc.
(v) Steel Manufacturing Unit:
1. Receipts from sale of steel sheets, steel castings, steel rods, etc.
2. Payment for iron, coal, salaries to staff, etc.
(vi) Software Business Unit:
1. Receipts from sale of software and renewal of licenses.
2. Payment of salaries to their employees, etc.


Q9: “The nature/type of enterprise can change altogether the category into which a particular activity may be classified.” Do you agree? Illustrate your answer?
Answer:    Yes, the nature or type of an enterprise can change the category into which a particular activity may be classified. This can be better understood with the help of an example of two firms. One engaged in financial services and the other engaged in manufacturing services. For the firm that is engaged in financial services, interests received or paid are classified under operating activities whereas for the firm that is engaged in manufacturing business, interests paid are classified under financing activities and interest received as investing activities. Therefore, the classification of activities depends on the nature and type of enterprise.


Q10 :Describe the procedure to prepare Cash Flow Statement.
Answer : The procedure to prepare Cash Flow Statement is described in the following steps in their chronological order.
Step 1: Ascertain the cash flows from operating activities
Step 2: Ascertain the cash flows from investing activities
Step 3: Ascertain the cash flows from financing activities
Step 4: Ascertain net increase or decrease by summing up the amounts of Steps 1, 2, and 3.
Step 5: Write the opening balance of cash and cash equivalents and deduct it from the amount ascertained in Step 4. The resulting figure arrived is the Closing Balance of Cash and Cash Equivalents.
There are two methods viz. Direct Method and Indirect Method for the preparation of Cash Flow Statement.

Direct Method

 

Cash Flow Statement

 

Particulars

Amount

Rs

Amount

Rs

A.

Cash Flow from Operating Activities

Cash Sales

**

Cash receipt from Debtors

**

Less: Cash Purchases

**

Cash paid to creditors and other expenses

**

Cash Generated from Operating Activities

**

Less: Income Tax Paid

**

Cash flow before Extraordinary Items

**

Add/Less: Extraordinary Items

**

Net Cash Flow from (used in) Operating Activities

**

**

B.

Cash Flow from Investing Activities

**

Sale of Fixed Assets

**

Sale of long-term Investments

**

Interest Received

**

Dividend Received

**

Rent Received

**

Less: Purchase of Fixed Assets

**

Less: Purchase of long-term Investment

**

Net Cash Flow from Investing Activities

**

**

C.

Cash Flow from Financing Activities

Proceeds from Issue of Shares

**

Proceeds from Issue of Debentures and Other Long-term Borrowings

**

Less: Repayment of Debentures and Other Long-term Borrowings

**

Less: Redemption of Preference Shares

**

Less: Interest Paid

**

Less: Dividend Paid

**

Net Cash flow from Financing Activities

**

**

Net Increase (or Decrease in Cash and Cash Equivalents (A+B+C)

**

Cash and Cash Equivalents at the beginning (Cash in Hand,

Cash at Bank, Marketable Securities, Short-term Deposits)

**

Cash and Cash Equivalent at the end

**

 

Indirect Method

Cash Flow Statement

Particulars

Amount

Rs

Amount

Rs

A.

Cash Flow from Operating Activities:

Net Profit before tax and extraordinary items

***

Add: Non-Cash Expenses and non operating expenses.

Depreciation

**

Goodwill

**

Interest paid

**

Loss on sale of fixed assets

**

**

Less:

Non-Operating Incomes.

Dividend received

**

Profit on sale of fixed assets

**

Interest received

**

**

Operating Profit before Working Capital Changes

***

Add: Decrease in Current Assets

***

Increase in Current Liabilities

**

***

Less: Increase in Current Assets

***

Decrease in Current Liabilities

***

***

Cash generated from Operating Activities

***

Less: Income tax paid

***

Cash flow before Extra ordinary items

***

Add/Less: Extra ordinary items

***

Net Cash Flow from Operating Activities

***

B.

Cash Flow from Investing Activities

**

Sale of Fixed Assets

**

Sale of Long-term Investments

**

Interest Received

**

Dividend Received

**

Rent Received

**

Less: Purchase of Fixed Assets

**

Less: Purchase of long term Investment

**

Net Cash Flow from Investing Activities

**

**

 

C.

Cash Flow from Financing Activities

Proceeds from Issue of shares

**

Proceeds from Issue of Debentures and other Long-term Borrowings

**

Less: Repayment of Debentures and other Long-term Borrowings

**

Less: Redemption of preference Share

**

Less: Interest paid

**

Less: Dividend paid

**

Net Cash Flow from Financing Activities

**

**

Net Increase (or Decrease in Cash and Cash Equivalents (A+B+C)

**

Cash and Cash Equivalents at the beginning (Cash in Hand, Cash at Bank, Marketable Securities, Short-term Deposits)

**

Cash and Cash Equivalents at the end

**

 

Note: Preparation of Cash Flow Statement using Direct Method has been excluded from the prescribed syllabus. The format is given since the question has not specified the method explicitly. Students can refer to the direct method for the knowledge purpose.


Q11: Describe”Indirect” method of ascertaining Cash Flow from Operating Activities.
Answer:
Indirect Method: This method starts with the Net Profit before tax and extraordinary items. For this purpose, the Net Profit as revealed by the Profit and Loss Account cannot be taken into consideration as there exists some items which do not leads to outflow of cash. The following are those items that need to be added back to the Net Profit of the Profit and Loss Account.
a. Non-cash items like, depreciation goodwill written off, etc are added to the Net Profit.
b. Non-operating expenses like loss on sale of fixed assets, transfers to reserves, loss on sale of fixed assets are added back to the Net Profit.
c. Provisions like, provisions for doubtful debts and discount for debtors, proposed dividends etc. should be added back to the Net Profit.
d. Decrease in current assets and increase in current liabilities should be added to the operating profit
The following are those items that need to deduct from the Net Profit of the Profit and Loss Account.
a. Non-operating incomes like profit on sale of fixed assets, etc. are deducted from the Net Profit.
b. Non-trading Incomes like dividend received, interest received, tax refund, etc. are to be deducted from the Net Profit.
c. Increase in current assets and decrease in current liabilities should be deducted from the operating profit.

Indirect Method

 

Cash Flow Statement

 

Particulars

Amount

Rs

Amount

Rs

Cash Flow from Operating Activities:

Net Profit before tax and extraordinary items

***

Add: Non-Cash Expenses and Non-Operating Expenses.

Depreciation

**

Goodwill

**

Interest paid

**

Loss on sale of fixed assets

**

**

Less:

Non-Operating Incomes.

Dividend received

**

Profit on sale of fixed assets

**

Interest received

**

**

Operating Profit before Working Capital Changes

***

Add: Decrease in Current Assets

***

Increase in Current Liabilities

**

***

Less: Increase in Current Assets

***

Decrease in Current Liabilities

***

***

Cash generated from Operating Activities

***

Less: Income tax paid

***

Cash flow before Extra ordinary items

***

Add/Less: Extra ordinary items

***

Net Cash Flow from Operating Activities

***


Q12:Explain the major Cash Inflow and outflows from investing activities.
Answer:

Investing activities are those activities that are related to sales and purchases of long-term fixed assets like, land and building, plant and machinery, furniture, etc. These fixed assets are not held for resale. The activities like sale and purchase of investments that are not included in the cash equivalents are also included in Investing activities. Any income arising from such investments (assets) are regarded a part of investing activities.
As per the AS3, the major cash inflows and outflows from investing activities are as follows:
a. Cash payments to acquire fixed assets (including intangibles like, goodwill). These payments include capitalised cost of research and development and self constructed fixed assets.
b. Cash receipts from disposal of fixed assets (including intangible assets).
c. Cash payments to acquire shares, warrants, or debt instruments of other enterprises and interest in joint venture (other than payments of those instruments consider as cash equivalents and are held for the trading purposes).
d. Cash receipts from disposal of shares, warrants or debt instruments of other enterprises and interest from joint ventures (other than receipts from those held for trading purposes).
e. Cash advances and loans made to third parties (other than advances, and loans made by financial enterprises). These will be treated as cash flows from the operating activities.
f. Cash receipts from repayment of advances and loans made to third parties (other than advances and loans of financial enterprises). These will be treated as
cash flows from operating activities.
g. Cash receipts from insurance company for any property involved in accident.
h. Any income arising from fixed assets or investments like interest, dividend, rent etc. In case of financial enterprises interest and dividend is treated as operating activities.

Direct Method

Cash Flow Statement

Particulars

Amount

Rs

Amount

Rs

Net Cash Flow from (used in) Operating Activities

**

**

B.

Cash Flow from Investing Activities

**

Sale of Fixed Assets

**

Sale of long-term Investments

**

Interest Received

**

Dividend Received

**

Rent Received

**

Less: Purchase of Fixed Assets

**

Less: Purchase of long-term Investments

**

Net Cash Flow from Investing Activities

**

**

Indirect Method

Cash Flow Statement

Particulars

Amount

Rs

Amount

Rs

Net Cash Flow from Operating Activities

***

Cash Flow from Investing Activities

**

Sale of Fixed Assets

**

Sale of Long-term Investments

**

Interest Received

**

Dividend Received

**

Rent Received

**

Less: Purchase of Fixed Assets

**

Less: Purchase of long term Investment

**

Net Cash Flow from Investing Activities

**

**

Note: Preparation of Cash Flow Statement using Direct Method has been excluded from the prescribed syllabus. The format is given since the question has not specified the method explicitly. Students can refer to the direct method for the knowledge purpose.


Q13: Explain the major Cash Inflows and outflows from financing activities.
Answer: Financing activities are those activities that are related to capital or long term funds of an enterprise. These activities results in the change in the capital and borrowed funds.
As per the AS3, the major cash inflows from financing activities are as follows:
a. Cash proceeds from issue of shares and other similar instruments.
b. Cash proceeds from issue of debentures, loans, notes, bonds, and other short and long-term borrowings.
As per the AS3, the major cash outflows from financing activities are as follows:
a. Cash repayments of the amount borrowed in form of debentures, loans, notes bonds, and other short and long-term borrowings.
b. Buy-back of shares and debentures.
c. Interest paid on debentures, loans, and advances.
d. Dividend paid to the preference shareholders and equity shareholders.
An important point that must be noted is that the purchase and sale of securities, interest paid or received and dividend received is treated as cash flow from operating activities for an investment company. But dividend paid is treated as cash flow from financing activities.

Direct Method

Cash Flow Statement

Particulars

Amount

Rs

Amount

Rs

Net Cash Flow from Investing Activities

**

**

Cash Flow from Financing Activities

Proceeds from Issue of Shares

**

Proceeds from Issue of Debentures and Other Long-term Borrowings

**

Less: Repayment of Debentures and Other Long-term Borrowings

**

Less: Redemption of Preference Shares

**

Less: Interest Paid

**

Less: Dividend Paid

**

Net Cash flow from Financing Activities

**

**

Net Increase (or Decrease in Cash and Cash Equivalents (A+B+C)

**

Cash and Cash Equivalents at the beginning (Cash in Hand,

Cash at Bank, Marketable Securities, Short-term Deposits)

**

Cash and Cash Equivalent at the end

**

Indirect Method

Cash Flow Statement

Particulars

Amount

Rs

Amount

Rs

Net Cash Flow from Investing Activities

**

**

Cash Flow from Financing Activities

Proceeds from Issue of shares

**

Proceeds from Issue of Debentures and other Long-term Borrowings

**

Less: Repayment of Debentures and other Long-term Borrowings

**

Less: Redemption of preference Share

**

Less: Interest paid

**

Less: Dividend paid

**

Net Cash Flow from Financing Activities

**

**

Net Increase (or Decrease in Cash and Cash Equivalents (A+B+C)

**

Cash and Cash Equivalents at the beginning (Cash in Hand,

Cash at Bank, Marketable Securities, Short-term Deposits)

**

Cash and Cash Equivalents at the end

**

Note: Preparation of Cash Flow Statement using Direct Method has been excluded from the prescribed syllabus. The format is given since the question has not specified the method explicitly. Students can refer to the direct method for the knowledge purpose.


Q14: Anand Ltd. arrived at a net income of Rs 5,00,000 for the year ended March 31, 2007. Depreciation for the year was Rs 2,00,000. There was a gain of Rs 50,000 on assets sold which was credited to profit and loss account. Bills Receivables increased during the year Rs 40,000 and Bills Payables also increased by Rs 60,000. Compute the cash flow operating activities by the indirect approach.
Answer:

Cash Flow from Operating Activities as on March 31, 2007

Particulars

Amount

Rs

Amount

Rs

Net Profit during the year

5,00,000

Items to be adjusted:

Add: Depreciation

2,00,000

Less: Gain on sale of assets

(50,000)

1,50,000

Operating Profit before Working Capital changes

6,50,000

Add: Increase in Bills Payable

60,000

Less: Increase in Bills Receivable

(40,000)

20,000

Net Cash from Operations

6,70,000

 


Q15: From the information given below you are required to prepare the cash paid for the inventory:

Rs

Inventory in the beginning

40,000

Purchases

1,60,000

Inventory in the end

38,000

Trade payables in the beginning

14,000

Trade payables in the end

14,500

Answer:

Trade Payables Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

Cash (Balancing fig.)

1,59,500

Balance b/d

14,000

Balance c/d

14,500

Purchases

1,60,000

1,74,000

1,74,000

Cash paid for Inventory amounts to Rs 1,59,500


Q16: For each of the following transactions, calculate the resulting cash flow and state the nature of cash flow viz., operating, investing and financing
Acquired machinery for Rs 2,50,000 paying 20% drawn and executing a bond for the balance payable
(b) Paid Rs 2,50,000 to acquire shares in Informa Tech. and received a dividend of Rs 50,000 after acquisition.
(c) Sold machinery of original cost Rs 2,00,000 with an accumulated depreciation of Rs 1,60,000 for Rs 60,000.
Answer:

(a)

Part payment Rs 50,000 for acquiring machinery Rs 2,50,000 is related with Investing Activities

(b)

Rs

Amount paid for acquiring shares

(2,50,000)

Dividend received

50,000

Net Cash used in Investing Activities

(2,00,000)

Amount paid to acquire assets and dividend received is a part of Investing Activities.
(c) Inflow of cash of Rs 60,000 on sale of machinery is a part Investing Activities.

 


Q17:The following is the Profit and Loss Account of Yamuna Limited:

Statement of Profit and Loss of Yamuna Ltd.

for the Year ended March 31, 2013

Particulars

Note No.

Amount

(Rs)

i)

Revenue from Operations

10,00,000

ii)

Expenses

Cost of Material Consumed

1

50,000

Purchase of Stock-in-trade

5,00,000

Other Expenses

2

3,00,000

Total Expenses

8,50,000

iii)

Profit before Tax (I – ii)

1,50,000

Additional information:
(i) Trade receivables decrease by Rs 30,000 during the year.
(ii) Prepaid expenses increase by Rs 5,000 during the year.
(iii) Trade creditors decrease by Rs 15,000 during the year.
(iv) Outstanding expenses payable increased by Rs 3,000 during the year.
(v) Operating expenses included depreciation of Rs 25,000.
Compute net cash provided by operations for the year ended March 31, 2013 by the indirect method.

Answer:

Cash Flow from Operating Activities of Yamuna Limited as on March 31, 2013

Particulars

Amount

Rs

Amount

Rs

Net Profit earned during the year

1,50,000

Items to be added:

Depreciation

25,000

Operating Profit before Working Capital changes

1,75,000

Add:

Increase in Current Liabilities

Outstanding Expenses

3,000

Add:

Decrease in Current Assets

Trade Receivables

30,000

Stock

50,000

83,000

Less:

Decrease in Current Liabilities

Trade Creditors

(15,000)

Less:

Increase in Current Assets

Prepaid Expenses

(5,000)

(20,000)

Net Cash from Operations

2,38,000

As per the solution, the Net Cash from Operating Activities is Rs 2,38,000, however, as per the answer given in the book is Rs 2,18,000.


Q18: Compute cash from operations from the following figures:
(i) Profit for the year 2013-14 is a sum of Rs. 10,000 after providing for depreciation of Rs. 2,000.
(ii) The current assets of the business for the year ended March 31, 2013 and 2014 are as follows:

March
31, 2013
(Rs.)
March
31, 2014
(Rs.)
Trade Receivables 14,000 15,000
Provision for Doubtful Debts 1,000 1,200
Trade Payables 13,000 15,000
Inventories 5,000 8,000
Short-term Investments 10,000 12,000
Expenses payable 1,000 1,500
Prepaid Expenses 2,000 1,000
Accrued Income 3,000 4,000
Income received in advance 2,000 1,000

Answer:

Cash Flow Statement

for the Year Ending March 31, 2014

Particulars

Details

(Rs)

Amount

(Rs)

Cash from Operating Activities

Net Profit

10,000

Items to be added:

Depreciation

2,000

2,000

Operating Profit before Working Capital Adjustments

12,000

Less: Increase in Current Assets

Trade Receivables

(1,000)

Accrued Income

(1,000)

Short-term Investments

(2,000)

Inventories

(3,000)

Add: Increase in Current Liabilities

Provision for Doubtful Debts

200

Trade Payables

2,000

Expense Payable

500

Add: Decrease in Current Assets

Prepaid Expenses

(1,000)

Less: Decrease in Current Liabilities

Income received in advance

1,000

Net Cash From Operating Activities

7,700


Q19: From the following particulars of Bharat Gas Limited, calculate Cash Flows from Investing Activities. Also show the workings clearly preparing the ledger accounts:

Balance Sheet of Bharat Gas Ltd. as on ………….
Particulars Note No. Figures as the end of 2011
(Rs)
Figures as at the
end of reporting 2010
(Rs)
II) Assets
1. Non-current Assets
a) Fixed assets
i) Tangible assets
1 12,40,000 10,20,000
ii) Intangible assets
2 4,60,000 3,80,000
b) Non-current investments
3 3,60,000 2,60,000
Notes 1 Tangible assets = Machinery
2 Intangible assets = Patents

Notes

Figures of current year Figures of previous year
1. Tangible Assets
Machinery
12,40,000 10,20,000
2. Intangible Assets
Goodwill
3,00,000 1,00,000
Patents
1,60,000 2,80,000
4,60,000 3,80,000
3. Non-current Investments
10% long term investments
1,60,000 60,000
Investment in land
1,00,000 1,00,000
Shares of Amartex Ltd.
1,00,000 1,00,000
3,60,000 2,60,000

Additional Information:
(a) Patents were written-off to the extent of Rs. 40,000 and some Patents were sold at a profit of Rs. 20,000.
(b) A Machine costing Rs. 1,40,000 (Depreciation provided thereon Rs. 60,000) was sold for Rs. 50,000. Depreciation charged during the year was Rs. 1,40,000.
(c) On March 31, 2007, 10% Investments were purchased for Rs. 1,80,000 and some Investments were sold at a profit of Rs. 20,000. Interest on Investment was received on March 31, 2011.
(d) Amartax Ltd. paid Dividend @ 10% on its shares.
(e) A plot of Land had been purchased for investment purposes and let out for commercial use and rent received Rs. 30,000.
Answer:

Cash Flow from Investing Activities

Particulars

Amount

Rs

Amount

Rs

Cash Inflow

Proceeds from Sale of Patents

1,00,000

Proceeds from Sale of Machinery

50,000

Proceeds from Sale of 10% Long-term Investment

1,00,000

Interest received on 10% Long-term Investment

6,000

Dividend Received from Amartax Ltd.

10,000

Rent Received

30,000

2,96,000

Cash Outflow

Purchase of Goodwill

(2,00,000)

Purchase of Machinery

(4,40,000)

Purchase of 10% Long-term Investment

(1,80,000)

(8,20,000)

Net Cash used in Investing Activities

(5,24,000)

Patents Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

Balance b/d

2,80,000

Profit and Loss (written off)

40,000

Profit and Loss (Profit on sale)

20,000

Bank (sale- Balancing figure)

1,00,000

Balance c/d

1,60,000

3,00,000

3,00,000

Machinery Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

Balance b/d

10,20,000

Depreciation

1,40,000

Bank (Purchases- Balancing figure)

4,40,000

Bank

50,000

Profit and Loss

30,000

Balance c/d

12,40,000

14,60,000

14,60,000

10% Long-term Investment Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

Balance b/d

60,000

Bank (Balancing figure)

1,00,000

Bank

1,80,000

Profit and Loss (Profit on sale)

20,000

Balance c/d

1,60,000

2,60,000

2,60,000

 


Q20: From the following Balance Sheet of Mohan Ltd. Prepare cash flow Statement:

Balance Sheet of Mohan Ltd.
as at ………………………. 2013
Particulars Note No. 2011
(Rs)
2010
(Rs)
I) Equity and Liabilities
1. Shareholders’ Funds
a) Equity share capital
3,00,000 2,00,000
b) Reserves and surplus
2,00,000 1,60,000
2. Non-current liabilities
a) Long-term borrowings
1 80,000 1,00,000
3. Current liabilities
Trade payables
1,20,000 1,40,000
Short-term provisions
2 70,000 60,000
Total 7,70,000 6,60,000
II) Assets
1. Non-current assets
a) Fixed assets
3 5,00,000 3,20,000
2. Current assets
a) Inventories
1,50,000 1,30,000
b) Trade receivables
4,90,000 1,20,000
c) Cash and cash equivalents
5,30,000 90,000
Total 7,70,000 6,60,000

Notes

2011 2010
1. Long-term borrowings
Bank Loan
80,000 1,00,000
2. Short-term provision
Proposed dividend
70,000 60,000
3. Fixed assets 6,00,000 4,00,000
Less: Accumulated Depreciation
1,00,000 80,000
(Net) Fixed Assets
5,00,000 3,20,000
4. Trade receivables
Debtors
60,000 1,00,000
Bills receivables
30,000 20,000
90,000 1,20,000
5. Cash and cash equivalents
Bank
30,000 90,000

Additional Information:
Machine Costing Rs. 80,000 on which accumulated depreciation was Rs. 50,000 was sold for Rs. 20,000.
Answer:

Cash Flow Statement of Mohan Ltd.

Particulars

Amount

Rs

Amount

Rs

A.

Cash Flow from Operating Activities

Profit as per the Balance Sheet (2,00,000 – 1,60,000)

40,000

Proposed Dividend

70,000

Net Profit before Taxation and Extraordinary items

1,10,000

Adjustments:

Depreciation

70,000

Loss on Sale of Machine

10,000

80,000

Operating Profit before Working Capital changes

1,90,000

Add:

Decrease in Current Assets

Debtors

40,000

40,000

2,30,000

Less:

Increase in Current Assets

Inventories

(20,000)

Bills Receivable

(10,000)

Less:

Decrease in Current Liabilities

Trade Payables

(20,000)

(50,000)

Net Cash from Operations

1,80,000

B.

Cash Flow from Investing Activities

Proceeds from Sale of Fixed Assets

20,000

Purchases of Fixed Assets

(2,80,000)

Net Cash outflow from Investing activity

(2,60,000)

C.

Cash Flow from Financing Activities

Issue of Shares

1,00,000

Bank Loan Paid

(20,000)

Dividend Paid

(60,000)

Net Cash from Financing Activities

20,000

D.

Net Decrease in Cash and Cash Equivalents (A+B+C)

(60,000)

Add:

Cash and Cash Equivalents in the beginning

90,000

E.

Cash and Cash equivalents at the end

30,000

Fixed Assets Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

Balance b/d

4,00,000

Bank

20,000

Bank (Purchases- Balancing fig.)

2,80,000

Profit and Loss

10,000

Accumulated Depreciation

50,000

Balance c/d

6,00,000

6,80,000

6,80,000

Accumulated Depreciation Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

Fixed Assets

50,000

Balance b/d

80,000

Balance c/d

1,00,000

Profit and Loss (Balance fig.)

70,000

1,50,000

1,50,000

 


Q21: From the following Balance Sheets of Tiger Super Steel Ltd., prepare Cash Flow Statement:

Balance Sheet of Tiger Super Steel Ltd.
Particulars Note No. 2011
(Rs)
2010
(Rs)
I) Equity and Liabilities
1. Shareholders’ Funds
a) Share capital
1 1,30,000 2,00,000
b) Reserves and surplus
2 22,800 15,200
2. Current Liabilities
a) Trade payables
3 21,200 14,000
b) Other current liabilities
4 2,400 3,200
c) Short-term provisions
5 38,400 22,400
Total 2,14,800 1,74,800
II) Assets
1. Non-Current Assets
a) Fixed assets
i) Tangible assets
6 96,400 76,000
ii) Intangible assets
18,800 24,000
b) Non-current investments
14,000 4,000
2. Current assets
a) Inventories
31,200 34,000
b) Trade receivables
43,200 30,000
c) Cash and cash equivalents
11,200 6,800
Total 2,14,800 1,74,800

Notes

2011 2010
1. Share Capital
Equity share capital
1,20,000 80,000
10% Preference share capital
20,000 40,000
1,40,000 1,20,000
2. Reserves and Surplus
General reserve
12,00 8,000
Balance in statement of profit and loss
10,800 7,200
22,800 15,200
3. Trade payables
Bills payable
21,200 14,000
4. Other current liabilities
Outstanding expenses
2,400 3,200
5. Short-term provisions
Provision for taxation
12,800 11,200
Proposed dividend
15,600 11,200
38,400 22,400

Answer:

Cash Flow Statement of Tiger Super Steels Ltd

Particulars

Amount

Rs

Amount

Rs

A.

Cash Flow from Operating Activities

Profit as per the Balance Sheet (10,800 –7,200)

3,600

General Reserve

4,000

Proposed Dividend

15,600

Provision for Taxation

12,800

Net Profit before Taxation and Extraordinary

36,000

Items to be added:

Depreciation on Land and Building

20,000

Depreciation on Plant

10,000

Goodwill written off

5,200

35,200

Operating Profit before Working Capital changes

71,200

Add:

Increase in Current Liabilities

Bills Payable

7,200

Add:

Decrease in Current Assets

Inventories

2,800

10,000

81,200

Less:

Increase in Current Assets

Trade Receivables

(13,200)

Less:

Decrease in Current Liabilities

Outstanding Expenses

(800)

(14,000)

Cash Generated from Operating Activities

67,200

Less:

Income Tax paid

(11,200)

Net Cash from Operating Activities

56,000

B.

Cash Flow from Investing Activities

Purchases of Plant

(50,400)

Purchases of Investment

(10,000)

Net Cash used in Investing Activities

(60,400)

C.

Cash Flow from Financing Activities

Issue of Equity Shares

40,000

Dividend paid

(11,200)

Redemption of 10% Preference Shares

(20,000)

Net Cash from Financing Activities

8,800

D.

Net Increase in Cash and Cash Equivalent

4,400

Add:

Cash and Cash Equivalent in the beginning

6,800

E.

Cash and Cash Equivalents at the end

11,200

Working Notes
1.

Plant Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

To Balance b/d

36,000

By Depreciation

10,000

To Bank A/c (Purchases- Balancing figure)

50,400

By Balance c/d

76,400

86,400

86,400

2.

Net Profit before Tax

3,600

Profit and Loss Account

12,800

Less:

Provision for Tax

16,400

Note: As per the solution, the Net Cash from Operating Activities, net Cash from Investing Activities and Net Cash from Financing Activities are Rs 56,000, Rs (60400) and Rs 8,800 respectively. However, as per the answer given in the book, the Net Cash from Operating Activities, net Cash from Investing Activities and Net Cash from Financing Activities are Rs 34,800, Rs (50,400) and Rs 20,000 respectively.


Q22: From the following information, prepare cash flow statement:

 
Particulars Note No. 31st March
2014
(Rs)
31st March
2013
(Rs)
I) Equity and Liabilities
1. Shareholders’ Funds
a) Share capital
7,00,000 5,00,000
b) Reserves and surplus
4,70,000 2,50,000
2. Non-current Liabilities
(8% Debentures)
4,00,000 6,00,000
3. Current Liabilities
a) Trade payables
9,00,000 6,00,000
Total 24,70,000 19,50,000
II) Assets
1. Non-current assets
a) Fixed assets
i) Tangible
7,00,000 5,00,000
ii) Intangible-Goodwill
1,70,000 2,50,000
2. Current assets
a) Inventories
6,00,000 5,00,000
b) Trade Receivables
6,00,000 4,00,000
c) Cash and cash equivalents
4,00,000 3,00,000
Total 24,70,000 19,50,000

Additional Information:
Depreciation Charge on Plant amount to Rs. 80,000.
Answer:

Cash Flow Statement

for the year ending March 31, 2014

Particulars

Details

(Rs)

Amount

(Rs)

A.

Cash from Operating Activities

Net Profit

2,20,000

Items to be Added:

Interest on Debentures

48,000

Depreciation on Fixed Assets

80,000

Goodwill Written-off

80,000

2,08,000

Operating Profit before Working Capital Adjustments

4,28,000

Add: Increase in Current Liabilities

Creditors

3,00,000

Less: Increase in Current Assets

Inventories

(1,00,000)

Trade Receivables

(2,00,000)

Cash Generated from Operations

4,28,000

Less: Tax Paid

Net Cash From Operating Activities

4,28,000

B.

Cash From Investing Activities

Purchase of Fixed Assets (WN)

(2,80,000)

Net Cash From Investing Activities

(2,80,000)

C.

Cash From Financing Activities

Issue of Share Capital

2,00,000

Redemption of Debentures

(2,00,000)

Interest Paid on Debentures

(48,000)

(48,000)

Net Cash From Financing Activities (C)

(48,000)

Net Increase in Cash (A + B + C)

1,00,000

Add: Opening Cash and Cash Equivalents

3,00,000

Closing Cash and Cash Equivalents

4,00,000

Working Note:

Fixed Assets Account

Dr.

Cr.

Particulars

J.F.

Amount

(Rs)

Particulars

J.F.

Amount

(Rs)

Balance b/d

5,00,000

Depreciation

80,000

Purchases (Balancing Figure)

2,80,000

Balance c/d

7,00,000

7,80,000

7,80,000

 


Q23: From the following Balance Sheet of Yogeta Ltd., prepare cash flow statement:

 
Particulars Note No. 31st March
2014
(Rs)
31st March
2013
(Rs)
I) Equity and Liabilities
1. Shareholders’ Funds
a) Share capital
1 4,00,000 2,00,000
b) Reserves and surplus-Surplus
2,00,000 1,00,000
2. Non-current Liabilities
a) Long-term borrowings
2 1,50,000 2,20,000
3. Current Liabilities
a) Short-term borrowings
1,00,000
(Bank overdraft)
b) Trade payables
70,000 50,000
c) Short-term provision
50,000 30,000
(Provision for taxation)
Total 9,70,000 6,00,000
II) Assets
1. Non-current assets
a) Fixed assets
i) Tangible
7,00,000 4,00,000
2. Current assets
a) Inventories
1,70,000 1,00,000
b) Trade Receivables
1,00,000 50,000
c) Cash and cash equivalents
50,000
Total 9,70,000 6,00,000

Notes to Accounts

Particulars 31st March
2014
(Rs)
31st March
2013
(Rs)
1. Share capital
a) Equity share capital
3,00,000 2,00,000
b) Preference share capital
1,00,000
4,00,000 2,00,000
2. Long term borrowings
Long-term loan
2,00,000
Long-term Rahul
1,50,000 20,000
1,50,000 2,20,000

Additional Information:
Net Profit for the year after charging Rs. 50,000 as Depreciation was Rs. 1,50,000. Dividend paid on Share was Rs. 50,000, Tax Provision created during the year amounted to Rs. 60,000.
Answer:

Cash Flow Statement of Yogeta Ltd.

Particulars

Amount

Rs

Amount

Rs

A.

Cash Flow from Operating Activities

Profit as per Balance Sheet (2,00,000 –1,00,000)

1,00,000

Proposed Dividend

50,000

Provision for Taxation

60,000

Net Profit before Taxation and Extraordinary items

2,10,000

Items to be added:

Depreciation

50,000

50,000

Operating Profit before Working Capital changes

2,60,000

Add: Increase in Current liabilities

Trade Payable

20,000

20,000

2,80,000

Less: Increase in Current Assets

Inventories

(70,000)

Trade Receivable

(50,000)

(1,20,000)

Cash Generated from Operating Activities

1,60,000

Less: Income Tax paid

(40,000)

Net Cash from Operations

1,20,000

B.

Cash Flow from Investing Activities

Purchases of Fixed Assets

(3,50,000)

Net Cash used in Investing Activities

(3,50,000)

C.

Cash Flow from Financing Activities

Issue of Equity Shares

1,00,000

Issue of Preference Shares

1,00,000

Loan from Rahul

1,30,000

Less: Repayment of Loan

(2,00,000)

Dividend Paid

(50,000)

Net Cash from Financing Activities

80,000

D.

Net decrease in Cash and Cash Equivalent (A+B+C)

(1,50,000)

Add: Cash and Cash Equivalents in the beginning

50,000

E.

Cash and Cash Equivalents at the end (Bank Overdraft)

(1,00,000)

Working Notes:

1.

Provision for Taxation Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

Bank (Balancing figure)

40,000

Balance b/d

30,000

Balance c/d

50,000

Profit and Loss

60,000

90,000

90,000

2.

Fixed Assets Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

Balance b/d

4,00,000

Depreciation

50,000

Bank

3,50,000

Balance c/d

7,00,000

7,50,000

7,50,000

 


Q24: Following is the Financial Statement of Garima Ltd., prepare cash flow statement.

 
Particulars Note No. 31st March
2015
(Rs)
31st March
2014
(Rs)
I) Equity and Liabilities
1. Shareholders’ Funds
a) Share capital
1 4,40,000 2,80,000
b) Reserve and surplus-Surplus
2 40,000 28,000
2. Current Liabilities
a) Trade payables
1,56,000 56,000
c) Short-term provisions
12,000 4,000
(Provision for taxation)
Total 6,48,000 3,68,000
II) Assets
1. Non-current assets
a) Fixed assets
i) Tangible
3,64,000 2,00,000
2. Current assets
a) Inventories
1,60,000 60,000
b) Trade receivables
80,000 20,000
c) Cash and cash equivalents
28,000 80,000
d) Other current assets
16,000 8,000
Total 6,48,000 3,68,000

Notes to Accounts

Particulars 31st March
2015
(Rs)
31st March
2014
(Rs)
1. Share capital
a) Equity share capital
3,00,000 2,00,000
b) Preference share capital
1,40,000 80,000
4,40,000 2,80,000
2. Reserve and surplus
Surplus in statement of profit and loss at the beginning of the year
28,000
Add: Profit of the year
16,000
Less: Dividend
4,000
Profit at the end of the year 40,000

Additional Information:

  1. Interest paid on Debenture Rs 600
  2. Dividend paid during the year Rs 4,000
  3. Depreciation charged during the year Rs 32,000

Answer:

Cash Flow Statement (Indirect Method)

Particulars

Amount

Rs

Amount

Rs

A.

Cash Flow from Operating Activities

Profit as per Balance Sheet (40,000 – 28,000)

12,000

Proposed Dividend

4,000

Provision for Taxation

12,000

Net Profit before Taxation and Extraordinary items

28,000

Items to be added:

Interest paid on Debentures 600

Depreciation

32,000

32,600

Operating Profit before Working Capital changes

60,600

Add: Increase in Current liabilities

Trade Payables

1,00,000

Less: Increase in Current Assets

Other Current Assets

(8,000)

Inventories

(1,00,000)

Trade Receivables

(60,000)

(68,000)

Cash generated from Operating Activities

(7,400)

Less: Income Tax paid

(4,000)

Net Cash used in Operating Activities

(11,400)

B.

Cash Flow from Investing Activities

Purchase of Fixed Assets

(1,96,000)

Net Cash used in Investing Activities

(1,96,000)

C.

Cash Flow from Investing Activities

Issue of Equity Shares

1,00,000

Issue of Preference Shares

60,000

Less: Interest Paid on Debentures (600)

Less: Dividend Paid

(4,000)

Net Cash from Financing Activities

1,55,400

D.

Net decrease in cash and cash equivalent (A+B+C)

(52,000)

Add: Cash and Cash Equivalents in the beginning

80,000

E.

Cash and Cash Equivalents at the end

28,000

Working Notes:

 

Plant and Machinery Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

Balance b/d

2,00,000

Depreciation

32,000

Bank (Purchases- Balancing fig.)

1,96,000

Balance c/d

3,64,000

3,96,000

3,96,000

Note: As per our solution Cash flow from Operating, Investing and Financing Activities is (Rs 11,400), (Rs 1,96,000) and Rs 1,55,400 respectively. But as per the book it is Rs (12,000), (Rs 1,96,000) and Rs 1,56,000.


Q25: From the following Balance Sheet of Computer India Ltd., prepare cash flow statement.
(Rs in ‘000)

Particulars Note No. 31st March
2015
(Rs)
31st March
2014
(Rs)
I) Equity and Liabilities
1. Shareholders’ Funds
a) Share capital
50,000 40,000
b) Reserves and surplus-Surplus
1 3,700 3,000
2. Non-Current Liabilities
10% Debentures
6,500 6,000
3. Current Liabilities
a) Short-term borrowings
2 6,800 12,500
b) Trade payables
11,000 12,000
c) Short-term provisions
3 10,000 8,000
Total 88,000 81,500
II) Assets
1. Non-current assets
a) Fixed assets
4 25,000 30,000
2. Current assets
a) Inventories
35,000 30,000
b) Trade receivables
24,000 20,000
c) Cash and cash equivalents-cash
3,500 1,200
d) Other current assets-prepaid exp.
500 300
Total 88,000 81,500

Notes to Accounts

Particulars 31st March
2015 (Rs)
31st March
2014 (Rs)
1. Reserve and surplus
(i) Balance in statement of profit and loss 1,200 1,000
(ii) General reserve 2,500 2,000
3,700 3,000
2. Short-term borrowings
Bank Overdraft
6,800 12,500
3. Short-term provisions
(i) Provision for taxation
4,200 3,000
(ii) Proposed dividend
5,800 5,000
10,000 8,000
4. Fixed Assets:
Fixed Assets 40,000 41,000
Less: Accumulated Depreciation (15,000) (11,000)
25,000 30,000

Additional Information:
Interest paid on Debenture Rs. 600
Answer:

Cash Flow Statement of Computer India Ltd.

(00,000)

Particulars

Amount

Rs

Amount

Rs

A.

Cash Flow from Operating Activities

Profit as per Balance Sheet (1,200 – 1,000)

200

Proposed Dividend

5,800

General Reserve

500

Provision for Taxation

4,200

Net Profit before Tax and Extraordinary items

10,700

Items to be added

Provision for Depreciation

4,000

Interest paid on Debentures

600

4,600

Operating Profit before Working Capital changes

15,300

Adjustments

Less:

Increase in Current Assets

Trade Receivables

(4,000)

Inventories

(5,000)

Prepaid Expenses

(200)

(9,200)

6,100

Less:

Decrease in Current Liabilities

Trade Creditors

(1,000)

(1,000)

Cash generated from Operating Activities

5,100

Less:

Income Tax Paid

(3,000)

Net Cash from Operation

2,100

B.

Cash Flow from Investing Activities

Sale of Fixed Assets

1,000

Net Cash from Investing Activities

1,000

C.

Cash Flow from Financing Activities

Issue of Equity Shares

10,000

Issue of 10% Debentures

500

Less:

Dividend paid

(5,000)

Less:

Interest paid

(600)

Net Cash from Financing Activities

4,900

D.

Net Increase in Cash and Cash Equivalent (A+B+C)

8,000

Add:

Cash and Cash Equivalent in the beginning

Cash

1,200

Bank overdraft

(12,500)

(11,300)

E.

Cash and Cash Equivalents at the end

Cash

3,500

Bank overdraft

(6,800)

(3,300)

 


 

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