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		**	**

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

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.	31^st March 2014 (Rs)	31^st 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.	31^st March 2014 (Rs)	31^st 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:

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

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.	31^st March 2015 (Rs)	31^st 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:

Interest paid on Debenture Rs 600
Dividend paid during the year Rs 4,000
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.	31^st March 2015 (Rs)	31^st 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