NCERT Solutions for Class 12 Accountancy Part 2 Chapter 6 Cash Flow Statement
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Short Answer Type Questions
1. What is a cash flow statement?
Ans. A cash flow statement shows inflow and outflow of cash and cash equivalents from various activities of a company during a specific period. The primary objective of cash flow statement is to provide useful information about cash flows (inflows and outflows) of an enterprise during a particular period under various heads, i.e., operating activities, investing activities and financing activities.
2. How the various activities are classified (as per AS-3 revised) while preparing cash flow statement?
Ans. As per Accounting Standard-3 various activities of cash flow statement are classified into three categories as follows
(i) Cash Flow from Operating Activities: These are the principal revenue producing activities of the enterprise and other activities. The cash flow statement begins with the operating activities section. Operating activities generally reflect cash generated and/or paid as a result of the firm’s core business functions. Under US GAAP, this category incorporates the cash received from customers, paid to
suppliers, paid for operating costs, paid for income taxes, received from interest or dividends, and paid for periodic interest costs.
(ii) Investing Activities: These are the acquisition and disposal of long-term assets, other investments not included in cash equivalents. Cash flows from investing activities are those involving non-current capital assets used in the firm’s operations, such as Property, Plant, Equipment (PP&E) and intangible
assets. Purchase of any kind of non-current asset results in outflow and its disposal results in outflow.
(iii) Financing Activities: These are the activities that result in changes in the size and composition of the owner’s capital and borrowings of the enterprise. Cash flows from financing activities are those that take place between a firm and its investors. These include both the equity investments of stockholders (owners) and the loans from bondholders and other creditors. When the company issues new shares, it records a cash inflow from financing, and when it repurchases shares, pays dividends or pays off debt, it records a cash outflow.
3. State the objectives of cash flow statement
Ans. The various objectives of cash flow statement are as follows:
(i) Cash flow statement along with other financial statements provides information that enables users to evaluate changes in net assets of an enterprise, its financial structure (including its liquidity and solvency) and its ability to affect the amounts and timings of cash flows in order to adapt to changing circumstances and opportunities.
(ii) Cash flow information is useful in assessing the ability of the enterprise to generate cash and cash equivalents.
(iii) It also enhances the comparability of the reporting of operating performance by different enterprises.
(iv) Historical cash flow information is often used as an indicator of the amount, timing and certainty of future cash flows. It is also helpful in checking the accuracy of past assessments of future cash flows and in examining the relationship between profitability and net cash flow and impact of changing prices.
4. What are the objectives of preparing cash flow statement?
Ans. The various objectives of preparing cash flow statement are as follows:
(i) The first and most important objective of cash flow statement is that helps to ascertain the gross
inflows and out flows of cash and cash equivalents from operating, investing and financial activities.
(ii) A cash flow statement helps in determining the various causes for change in the cash balances during an accounting period.
(iii) A cash flow statement is also prepared to determine the liquidity position of an organisation.
(iv) Moreover a cash flow statement is prepared to know about the requirement of cash in future.
5. Explain the terms : (i) Cash equivalents, (ii) Cash flows.
Ans. A cash flow statement shows inflows and outflows of cash and cash equivalents from various activities of an enterprise during a particular period. As per AS-3, ‘Cash equivalents’ means short term highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
An investment normally qualifies as cash equivalent only when it has a short maturity, of say, three months or less from the date of acquisition.
Investments in shares are excluded from cash equivalents unless they are in substantial cash equivalents, e.g., preference shares of a company acquired shortly before their specific redemption date provided there is only insignificant risk of failure of the company to repay the amount at maturity. Similarly, short term marketable securities which can be readily converted into cash are treated as cash equivalents.
6. Prepare a format of cash flow from operating activities under direct method and indirect method.
Ans. Format of cash flow from operating activities under indirect method is as follows:
| Indirect Method | ||
| Cash Flow from Operating Activities | ||
| Net Profit before Tax and Extraordinary Items | — | |
| (+) Non-Cash Expenses and Non-Operating Expenses | — | |
| Depreciation | — | |
| Goodwill | — | |
| Interest Paid | — | |
| Loss on Sale of Fixed Assets | — | |
| (–) Non-operating Incomes | ||
| Dividend Received | — | |
| Profit on Sale of Fixed Assets | — | |
| Interest Received | — | — |
| Operating Profit before Working Capital Changes | — | |
| (+) Decrease in Current Assets | — | |
| (+) Decrease in Current Assets | — | — |
| (–) Increase in Current Assets | — | |
| (–) Decrease in Current Liabilities | — | — |
| Cash Generated from Operating Activities | — | |
| (–) Income Tax Paid | — | |
| Cash Flow before Extraordinary Items | — | |
| (+)/(–) Extraordinary Items | — | |
| Net Cash Flow from Operating Activities | — |
7. 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
Ans. Operating Activities: As we know that these are the principal revenue producing activities of the enterprise and other activities. Operating activities generally reflect cash generated and/or paid as a result of the firm’s core business functions. Hence, the following will be the operating activities in the above mentioned enterprises respectively.
(i) In Case of a Hotel : Receipts from sale of goods and services to the customer will be operating activity related to revenue generation. And payment of wages and salaries, electricity, food items and other items used in accommodation and stay of customer will be an operating activity related to expenditure.
(ii) Film Production House: In case of film production house revenue generating operating activity would be its receipts from selling film rights of a film to the distributors and its operating activity related to expenditure would be payment made to the staff member, unit, actors, actresses, directors, location rent and air fare etc.
(iii) Financial Enterprise: In case of a financial enterprise like bank, the receipts from repayment of loans, interest incomes from investments, etc will be considered as revenue generating operating activity and repayment of loans, recovery expenditure for recover of loans, etc. Salaries of employees will be considered as operating activity related to the expenditure.
(iv) Media Enterprise: A media enterprise is involved in service industry and its revenue generating operating activity would be receipts from advertisements and expenditure related operating activity would be payments to staff, reporters, photographers, etc.
(v) Steel Manufacturing Unit: The main source for revenue for a steel manufacturing unit would be its receipts from sale of steel sheets, steel castings, steel rods, etc. And the expenditure related operating activity would be payment for raw material (iron, coal), salaries to staff, etc.
(vi) Software Business Unit: A software business unit is basically a service providing unit which get its revenue through receipts from sale of software and renewal of licenses as an operating activity and various payment made by it in the form of salaries to its employees, etc. It is the part of operating activity as expenditure.
8. “The nature/type of enterprise can change altogether the category into which a particular activity may be classified.” Do you agree? Illustrate your answer.
Ans. Yes, the nature or type of an enterprise can change altogether 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 real estate and the other engaged in general business.
For the firm that is engaged in real estate business purchase and sales of building will be part of the operating activity on the other hand firm that is engaged in general business purchase and sales of building will be part of the investing activity. Hence, it can be said that the classification of activities depends on the nature and type of enterprise.
Long Answer Type Questions
1. Describe the procedure to prepare cash flow statement.
Ans. The procedure for preparing cash flow statement is as follows
Step 1 First of all cash flows from operating activities is ascertained.
Step 2 After that cash flows from investing activities is ascertained.
Step 3 The third step is to ascertain the cash flows from financing activities.
Step 4 Sum up the total of all the three steps and ascertain net increase or decrease.
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. The main difference in direct and indirect method is to calculate the cash flow from operating activities. Computation of rest of the two activities will remain same. Here are the Proforma of cash flow statement from both the methods.
| Particulars | Amount (₹) | Amount (₹) | |
| A. | Cash Flow from Operating Activities | ||
| Net Profit before Tax and Extraordinary Items | — | ||
| (+) Non-Cash Expenses and Non-operating Expenses | |||
| Depreciation | — | ||
| Goodwill | — | ||
| Interest paid | — | ||
| Loss on Sale of Fixed Assets | — | — | |
| (–) Non-operating Incomes Dividned Received | — | — | |
| Profit on Sale of Fixed Assets | — | ||
| Interest Received | — | — | |
| Operating Profit before Working Capital Changes and Extraordinary | — | ||
| Items | |||
| (+) Decrease in Current Assets | — | ||
| Increase in Current Liabilities | — | — | |
| (–) Increase in Current Assets | — | ||
| Decrease in Current Liabilities | — | ||
| Cash Generated from Operating Activities | — | ||
| (–) Income Tax Paid | — | ||
| +/– 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 | — | ||
| (–) Purchase of Fixed Assets | — | ||
| (–) 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 | — | ||
| (–) Repayment of Debentures and Other Long Term Borrowings | — | ||
| Redemption of preference share | |||
| (–) Interest Paid | — | ||
| (–) 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 | — |
2. Describe ''Indirect'' method of ascertaining cash flow from operating activities.
Ans. Computation of Cash Flow From Operating Activities:
Indirect Method: Following is the indirect method formula which is used to calculate cash flow from operating activities.
| Net Profit/Loss before Tax and Extraordinary Items | |
| Add: Deductions already made in Profit and Loss on account of | × × × |
| Non-Cash items such as Depreciation, Goodwill to be written-off | |
| Add: Deductions already made in Profit and Loss on Account of Non-operating Items such as interest | × × × |
| Addtion (income) mode in profit and loss on account of non-operating items such as Dividend | |
| Received Profit on Sale of Fixed Assets. | |
| Add/Less: Effects of Extraordinary Items | × × × |
| Operating Profit before Working Capital Changes and after Extraordinary Items | |
| Add: Increase in Current Liabilities | × × × |
| Add: Decrease in Current Assets | × × × |
| Less: Increase in Current Assets | × × × |
| Less: Decrease in Current Liabilties | × × × |
| Cash Flows from Operating Activities before Tax and Extraordinary Items | |
| Less: Income Tax Paid | × × × |
| Net Cash from Operating Activities | × × × |
3. Explain the major cash inflows and outflows from investing activities.
Ans. Cash Flows from Investing Activities: The next step in building cash flow statement is to look at money a company spent on new capital investments. If a company capitalizes an investment, then that outflow of money does not show up on the income statement. That’s because accounting rules allow the company to depreciate (expense) the cost of the investment over time.
From a practical standpoint, if a company purchase an asset such as new plant equipment or machinery, then they most likely paid for that asset in cash. When money leaves a company, we have an outflow of cash that we need to show in our statement.
Example let’s say ‘X’ Company purchased a new computer system for ₹15,00,000 along with an assembly line machine for ₹20,00,000. These were the only two capital investments made by ‘X’ Company for the year. In this example, the company was also required to buy a new Machinery worth `5,00,000 into a special decommissioning fund.
In this example, we are going to show these items separately:
| Cash Flows from Investing Activities | (₹) |
| Purchase of New Computer | (15,00,000) |
| Purchase of Assembly Line Machine | (20,00,000) |
| Purchase of New Machinery | (5,00,000) |
| Net Cash used in Investing Activities | (40,00,000) |
In the above example, we saw that the company made investment in fixed assets and used ₹40,00,000.
4. Explain the major Cash inflows and outflows from financing activities.
Ans. Cash Flows from Financing Activities : The final category of adjustments we need to address on a statement of cash flows is money raised by financing activities. As was the case with cash from operations, we can have both positive and negative adjustments to cash flow depending on the financing activities the company is engaged during the year.
Typical adjustments appearing here include changes in long and short term debt (issuing and redemption), issuing of preferred stock, issuing of common stock, retirement of stock, and stock dividends paid in cash.
Example ‘X’ Company decided to raise ₹2,50,000 by issuing common stock. They also issued around ₹5,00,000 in preference share, and redeemed around ₹3,00,000 in long term debt.
| Net Cash Flows from Financing Activities | Amount (₹) |
| Issuance of Common Stock | 2,50,000 |
| Issue of Preference Shares | 5,00,000 |
| Redemption of Long Term Debt | (3,00,000) |
| Net Cash Provided by Financing Activites | 4,50,000 |
In this example, ‘X’ Company used less money in their financing activities than they generated during the year.
Numerical Type Questions
1. Anand Ltd arrived at a net income of ₹5,00,000 for the year ended March 31, 2017. Depreciation for the year was ₹2,00,000. There was a gain of ₹50,000 on assets sold which was credited to profit and loss account. Trade receivable increased during the year by ₹40,000 and trade payable also increased by ₹60,000. Compute the cash flow from operating activities by the indirect approach.
Ans.
| Particulars | Amount (₹) | Amount (₹) |
| 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 | ||
| Add: Increase in Bills Payable | 60,000 | |
| Less: Increase in Bills Receivable | (40,000) | 20,000 |
| Net Cash from Operating activities. | 6,70,000 |
2. From the information given below, you are required to calculate the cash paid for the inventory.
| Particulars | Amount (₹) |
| Inventory in the Beginning | 40,000 |
| Credit Purchase | 1,60,000 |
| Inventory in the End | 38,000 |
| Trade Payables in the Beginning | 14,000 |
| Trade Payables in the End | 14,500 |
Ans. Dr. Creditor's Account Cr.
| Date | Particulars | JF | Amount (₹) | Date | Particulars | JF | Amount (₹) |
| To Cash (Balancing Figure) | 1,59,500 | By Balance b/d | 14,000 | ||||
| To Balance c/d | 14,500 | By Purchase | 1,60,000 | ||||
| 1,74,000 | 1,74,000 |
Cash paid for inventory amounts to ₹1,59,500
Note: Purchase is considered to be credit purchase. Inventory in beginning and end has no effect.
3. For each of the following transactions, calculate the resulting cash flow and state the nature of cash flow viz, operating, investing and financing.
(i) Acquired machinery for ₹2,50,000 paying 20% by cheque and executing a bond for the balance payable.
(ii) Paid ₹2,50,000 to acquire shares in Informa Tech and received a dividend of ₹50,000 after acquisition.
(iii) Sold machinery of original cost ₹2,00,000 with an accumulated depreciation of ₹1,60,000 for ₹60,000.
Ans. (i) Related to investing activity 50,000 as part payment
$$\text{Working Note :} \\2,50,000×\frac{20}{100}=50,000\space\text{(Outflow)}$$
(ii) Related to investing activity. Acquiring shares in Informa Tech is an investment and dividend received on it is also part of same (₹2,50,000-50,000 = ₹2,00,000 outflow).
(iii) Related to investing activity. It is treated as sale of investment. ₹60,000 inflow and ₹20,000 as profit on sale of investment as operating activity.
4. The following is the profit and loss account of Yamuna Limited:
| Particulars | Amount (₹) | Amount (₹) |
| (i) Revenue from Operations | 10,00,000 | |
| (ii) Expenses | ||
| Cost of Materials Consumed | 1 | 50,000 |
| Purchases 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 Informations:
(i) Trade Receivables decrease by ₹30,000 during the year.
(ii) Prepaid expenses increase by ₹5,000 during the year.
(iii) Trade Payable decrease by ₹15,000 during the year.
(iv) Outstanding expenses increased by ₹3,000 during the year.
(v) Operating expenses included depreciation of ₹25,000.
Compute net cash provided by operations for the year ended March 31, 2017 by the indirect method.
Ans.
| Particulars | Amount (₹) | Amount (₹) |
| Net Profit 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 | |
| Trade Payables | 15,000 | |
| Add: Decrease in Current Assets | 15,000 | |
| Trade Receivables | 30,000 | 48000 |
| Less: Increase in Current Assets | ||
| Prepaid Expenes | (5,000) | (5,000) |
| Net Cash from Operations | 2,18,000 |
5. Compute cash from operations from the following figures:
(i) Profit for the year 2016-17 is a sum of ₹10,000 after providing for depreciation of ₹2,000.
(ii) The current assets and current liabilities of the business for the year ended March 31, 2017 and 2016 are as follows:
| Particulars | March 31, 2016 (₹) | March 31, 2017 (₹) |
| 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 |
| Other Current Assets | 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 |
Ans.
| Particulars | Amount (₹) | Amount (₹) |
| 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) | |
| Other Current Assets | (2,000) | |
| Inventories | (3,000) | (7,000) |
| Add: Increase in Current Liabilities | ||
| Provision for Doubtful Debts | 200 | |
| Trade Payables | 2,000 | |
| Expense Payable | 500 | 2,700 |
| Add: Decrease in Current Assets | ||
| Prepaid Expenses | 1,000 | 1,000 |
| Less: Decrease in Current Liabilities | ||
| Income Received in Advance | (1,000) | (1,000) |
| Net Cash From Operations Activities | 7,700 |
6. From the foltowing Particulars of Bharat Gas Limited, calculate cash flows from investing activities. Also show the workings clearly preparing the ledger accounts.
as on 31 March, 2016 and 31 March, 2017
| Particulars | Note No. | March 31, 2017 (₹) | March 31, 2017 (₹) |
| II. Assets | |||
| 1. Non-current Assets | |||
| (a) Proceeds from of Machinery | |||
| (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 |
Note: 1. Tangible assets = Machinery
2. Intangible assets = Patents
| Notes to Accounts | March 31, 2017 (₹) | March 31, 2017 (₹) |
| 1. Tangible Assets Machinery | 12,40,000 | 10,20,000 |
| 2. Intangible Assets | ||
| Goowill | 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 Amartax Ltd. | 1,00,000 | 1,00,000 |
| 3,60,000 | 2,60,000 |
Additional Informations
(i) Patents were written-off to the extent of ₹40,000 and some patents were sold at a profit of ₹20,000.
(ii) A machine costing ₹1,40,000 (depreciation provided thereon ₹60,000) was sold for ₹50,000. Depreciation charged during the year was ₹1,40,000.
(iii) On March 31, 2017, 10% investments were purchased for ₹1,80,000 and some investments were sold at a profit of ₹20,000. Interest on investment was received on March 31, 2017.
(iv) Amartax Ltd. paid dividend @ 10% on its shares.
(v) A plot of land had been purchased for investment purposes and let out for commercial use and rent received ₹30,000.
Ans.
| Particulars | Amount (₹) | Amount (₹) |
| Cash Inflow | ||
| Proceeds from Sale of Patents | 1,00,000 | |
| Proceeds from 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 | ||
| Purchases 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) |
Dr.
Patents Account
Cr.
| Date | Particulars | JF | Amount (₹) |
Date | Particulars | JF | Amount (₹) |
| To Balance b/d | 2,80,000 | By Profit and Loss (Written off) | 40,000 | ||||
| To Profit and Loss | 20,000 | By Bank (Sale-Balancing figure) | 100,000 | ||||
| (Profit on Sale) | By Balance c/d | 1,60,000 | |||||
| 3,00,000 | 3,00,000 |
Working Note: Machine costing ₹1,40,000 less depreciation ₹60,000, present value ₹80,000 sold for ₹50,000 i.e., loss on sale ₹30,000.
Dr.
Machinery Account
Cr.
| Date | Particulars | JF | Amount (₹) |
Date | Particulars | JF | Amount (₹) |
| To Balance b/d | 10,20,000 | By Depreciation | 1,40,000 | ||||
| To Bank (Purchase Balancing Figure) | 4,40,000 | By Bank | 50,000 | ||||
| (Profit on Sale) | By Profit and Loss (Loss on Sale) | 30,000 | |||||
| By Balance c/d | 12,40,000 | ||||||
| 14,60,000 | 14,60,000 |
Dr.
10% Long Term Investment Account
Cr.
| Date | Particulars | JF | Amount (₹) |
Date | Particulars | JF | Amount (₹) |
| To Balance b/d | 60,000 | By Bank | |||||
| To Bank | 1,80,000 | (Balancing Figure) | 1,00,000 | ||||
| To Profit and Loss | 20,000 | By Balance c/d | 1,60,000 | ||||
| (Profit on Sale) | |||||||
| 2,60,000 | 2,60,000 |
7. From the following Balance Sheet of Mohan Ltd. prepare cash flow statement.
Balance Sheet of Mohan Limited
as on........
| Particulars | Note No. | March 31, 2017 (₹) | March 31, 2016 (₹) |
| I. Equity and Liabilities | |||
| 1. Shareholders' Funds | |||
| (a) Equity Share Capital | 3,00,000 | 2,00,000 | |
| (b) Reserves and Surplus | 2,70,000 | 2,20,000 | |
| 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 | |
| Total | 7,70,000 | 6,60,000 | |
| II. Assets | |||
| 1. Non-current Assets | |||
| Fixed assets | 2 | 5,00,000 | 3,20,000 |
| 2. Current assets | |||
| (a) Inventories | 1,50,000 | 1,30,000 | |
| (b) Trade receivables | 3 | 90,000 | 1,20,000 |
| (c) Cash and cash equivalents | 4 | 30,000 | 90,000 |
| Total | 7,70,000 | 6,60,000 |
| Notes to Accounts | March 31, 2017 (₹) |
March 31, 2017 (₹) |
| 1. Long-term borrowings 9% Bank Loan | 80,000 | 1,00,000 |
| 2. 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 |
| 3. Trade receivables | ||
| Debtors | 60,000 | 1,00,000 |
| Bills receivables | 30,000 | 20,000 |
| 90,000 | 1,20,000 | |
| 4. Cash and Cash equivalents | ||
| Bank | 30,000 | 90,000 |
Ans.
| Particulars | Amount (₹) | Amount (₹) | |
| A. | Cash Flow from Operating Activities | ||
| Profit as per the Balance Sheet (2,70,000 – 2,20,000) | 50,000 | ||
| Proposed Divided | 60,000 | ||
| Net Profit before Taxation and Extraordinary items Adjustments: | 1,10,000 | ||
| Depreciation | 70,000 | ||
| Loss on Sale of Machine | 10,000 | ||
| Interest on Loan | 9,000 | 89,000 | |
| Operating Profit before Working Capital Charges | 1,99,000 | ||
| Add: Decrease in Current Assets Debtors | 40,000 | 40,000 | |
| 2,39,000 | |||
| 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 | 1,89,000 | ||
| B. | Cash Flow from Investing Activities | ||
| Proceeds from Sale of Fixed Assets | (20,000) | ||
| Purchase 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 | ||
| Interest paid | 9,000 | ||
| Net Cash from Financing Activities | 11,000 | ||
| 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 |
Dr.
Fixed Assets Account
Cr.
| Date | Particulars | JF | Amount (₹) |
Date | Particulars | JF | Amount (₹) |
| To Balance b/d | 4,00,000 | By Bank | 20,000 | ||||
| To Bank (Purchase) | By Profit and Loss | 10,000 | |||||
| Balancing Figure | 2,80,000 | (Loss on Sale) | |||||
| By Accumulated Depreciation | 50,000 | ||||||
| By Balance c/d | 6,00,000 | ||||||
| 6,80,000 | 6,80,000 |
Dr.
Accumulated Depreciation Account
Cr.
| Date | Particulars | JF | Amount (₹) |
Date | Particulars | JF | Amount (₹) |
| To Fixed Assets | 50,000 | By Balance b/d | 80,000 | ||||
| To Balance c/d | 1,00,000 | By Profit and Loss | |||||
| (Balancing Figure) | 70,000 | ||||||
| 1,50,000 | 1,50,000 |
8. From the foltowing Batance Sheet of Tiger Super Steel Ltd, prepare Cash flow statement.
Balance Sheet of Tiger Super Steel Ltd.
as at 31st March, 2014 and 31st March 2017
| Particulars | Note No. | March 31, 2017 (₹) |
March 31, 2016 (₹) |
| I. Equity and Liabilities | |||
| 1. Shareholders' Funds | |||
| (a) Share Capital | 1 | 1,40,000 | 1,20,000 |
| (b) Reserves and Surplus | 2 | 38,400 | 26,400 |
| 2. Current Liabilities | |||
| (a) Trade payables | 2 | 21,200 | 14,000 |
| (b) Other current liabilities | 3 | 2,400 | 3,200 |
| (c) Short-term provisions | 4 | 12,800 | 11,200 |
| 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 | |||
| 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 to Accounts | 2017 (₹) | 2016 (₹) |
| 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 | 12,000 | 8,000 |
| Balance in statement of profit and loss | 26,400 | 18,400 |
| 38,400 | 26,400 | |
| 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 |
| 6. Tangible assets | ||
| Land and building | 20,000 | 40,000 |
| Plant | 76,400 | 36,000 |
| 96,400 | 76,000 |
Additional Information
''Proposed dividend for 2016-17 is ₹15,600 and for 2015-16 is ₹11,200. Depreciation Charged on Land and Building ₹20,000, and Plant ₹10,000 during the year. Proposed dividend for 2016-17 ₹15,600 and 2015-16 ₹11,200
Ans.
Cash Flow Statement of Tiger Super Steels Ltd.
| Particulars | Amount (₹) | Amount (₹) | |
| A. | Cash Flow from Operating Activities | ||
| Profit as per the Balance Sheet (26,400 – 18,400) | 3,600 | ||
| General Reserve | 4,000 | ||
| Proposed Dividend | 11,200 | ||
| Provision for Taxation | 12,800 | 36,000 | |
| Net Profit before Taxation and Extraordinary Items to be Added | |||
| Depreciation on Land and Building | 20,000 | ||
| Depreciation on Plant | 10,000 | ||
| Goodwill Written-off | 5,200 | 35,200 | |
| 71,200 | |||
| Operating Profit before Working Capital Changes | |||
| Add: Increase in Current Liabilities (Trade Payables) | 7,200 | ||
| Add: Decrease in Current Assets (Inventors) | 2,800 | 10,000 | |
| 81,200 | |||
| Less: Increase in Current Assets Trade Receivable | 13,200 | ||
| Less: Decrease in Current Liabilities Outstanding expense | 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 | ||
| Purchase of Plant | 50,400 | ||
| Purchase 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 | 11,800 | ||
| Redemption of 10% Preference Shares | 20,000 | ||
| Net Cash from Financing Activities | 8,800 | ||
| D. | Net Increase in Cash and Cash Equivalents | 4,400 | |
| Add: Cash and Cash Equivalents in the Beginning | 6,800 | ||
| E. | Cash and Cash Equivalents at the End | 11,200 |
Dr.
Plant Account
Cr.
| Date | Particulars | JF | Amount (₹) |
Date | Particulars | JF | Amount (₹) |
| To Balance b/d | 36,000 | By Depreciation | 10,000 | ||||
| To Bank (Purchase) | 50,400 | By Balance c/d | 76,400 | ||||
| Balancing Figure | |||||||
| 86,400 | 86,400 |
9. From the following information, prepare cash flow statement:
Balance Sheet
| Particulars | Note No. | March 31, 2017 (₹) |
March 31, 2017 (₹) |
| 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 | |||
| Trade papables | 9,00,000 | 6,00,000 | |
| Total | 24,70,000 | 19,50,000 | |
| II. Assets | |||
| 1. Non-current Assets | |||
| (a) Fixed assets | |||
| (i) Tangible assets | 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 charged on plant amount to ₹80,000.
Ans.
Cash Flow Statement
| Particulars | Amount (₹) | Amount (₹) | |
| A. | Cash Flow from Operating Activities | ||
| Profit before tax (4,70,000 – 2,50,000) | 2,20,000 | ||
| Adjustment for Non-cash and Non-operating items | |||
| Depreciation | 80,000 | ||
| Written-off Goodwill | 80,000 | ||
| Interest on Debentures | 48,000 | 2,08,000 | |
| Operating Profit before Working Capital Charges | 4,28,000 | ||
| Add: Increase in Trade Payables | 3,00,000 | ||
| Less: Increase in Inventories | (1,00,000) | ||
| Less: Increase in Trade Receivables | (2,00,000) | ||
| Cash from Operating Activities | 4,28,000 | ||
| B. | Cash Flow from Investing Activities | ||
| Purchase of Plant (7,00,000 + 80,000 – 5,00,000) | (2,80,000) | ||
| Net Cash used in Investing Activities | (2,80,000) | ||
| C. | Cash Flow from Financing Activities | ||
| Issue of Share | 2,00,000 | ||
| Redemption of Debentures | (2,00,000) | ||
| Interest on Debentures | (48,000) | ||
| Cash used in Financing Activities | (48,000) | ||
| Net effect | 1,00,000 | ||
| (+) Opening Cash and Cash Equivalents | 3,00,000 |
10. From the following Balance Sheet of Yogeta Ltd. prepare cash flow statement:
Balance Sheet
| Particulars | Note No. | March 31, 2017 (₹) |
March 31, 2016 (₹) |
| 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 | |||
| Long-term borrowings | 2 | 1,50,000 | 2,20,000 |
| 3. Current Liabilities | |||
| (a) Short-term borrowings (Bank overdraft) | 1,00,000 | — | |
| (b) Trade payables | 70,000 | 50,000 | |
| (a) Short-term provision (Provision for taxation) | 50,000 | 30,000 | |
| Total | 9,70,000 | 6,00,000 | |
| II. Assets | |||
| 1. Non-current Assets | |||
| (a) Fixed assets | |||
| Tangible assets | 7,00,000 | 4,00,000 | |
| (b) Non-current investments | |||
| 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 | March 31, 2017 (₹) |
March 31, 2016 (₹) |
| 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 | 2,00,000 | |
| 8% Long-term loan | 2,00,000 | |
| 9% Loan from Rahul | 1,50,000 | 20,000 |
| 1,50,000 | 2,20,000 |
Additional Information
Net profit for the year after charging ₹50,000 as depreciation was ₹1,50,000, dividend paid on share was ₹50,000. Tax provision created during the year amounted to ₹60,000. 8% loan was repaid on March 31st 2017 and an additional 9% loan of ₹1,30,000 was obtained from Rahul on April 01, 2016.
Ans.
Cash Flow Statement of Yogeta Ltd.
| Particulars | Amount (₹) | Amount (₹) | |
| A. | Cash Flow from Operating Activities | ||
| Net Profit after (2,00,000 – 1,00,000) | 1,00,000 | ||
| Add: Provisions for Tax | 50,000 | ||
| Net Profit before Taxation | 1,50,000 | ||
| Adjustments for non-cash and Non-operating items | |||
| Add: Depreciation | 50,000 | ||
| Add: Dividend paid | 60,000 | ||
| Add: Interest paid | 29,500 | 1,39,500 | |
| Operating profit before working capital changes | 2,89,500 | ||
| Less: Increase in Inventories | (70,000) | ||
| Less: Increase in Trade Receivables | (50,000) | ||
| Add: Increase in Trade Payables | (20,000) | ||
| Cash Generated from Operations | 1,89,500 | ||
| Less: Income Tax Paid | (40,000) | ||
| Cash from Operating Activities | 1,49,500 | ||
| B. | Cash Flow from Investing Activities | ||
| Purchase of Fixed Assets | (3,50,000) | ||
| Net Cash used in Inesting 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 | ||
| Add: Bank overdraft | 1,00,000 | ||
| Less: Repayment of Loan | (2,00,000) | ||
| Less: Dividend Paid | (50,000) | ||
| Less: Interest on Loan | (29,500) | ||
| Net Cash from Financing Activities | 1,50,500 | ||
| D. | Net Effect | (50,000) | |
| Add: Cash and Cash Equivalents in the Beginning | 50,000 | ||
| Cash and Cash Equivalents at the End | NIL |
Working Notes:
Dr.
Provision for Taxation Account
Cr.
| Date | Particulars | JF | Amount (₹) |
Date | Particulars | JF | Amount (₹) |
| To Bank | 40,000 | By Balance c/d | 30,000 | ||||
| To Balance b/d | 50,000 | By Profit and Loss | 60,000 | ||||
| 90,000 | 90,000 |
Calculation of Interest:
- 8% Loan of ₹2,00,000 = ₹2,00,000 × 8% = ₹16,000
- 9% Loan of ₹1,50,000 = ₹1,50,000 × 9% = ₹13,500
Total Interest = ₹16,000 + ₹13,000 = ₹29,500
Dr.
Fixed Assets Account
Cr.
| Date | Particulars | JF | Amount (₹) |
Date | Particulars | JF | Amount (₹) |
| To Balance b/d | 4,00,000 | By Depreciation | 50,000 | ||||
| To Bank | 3,50,000 | By Balance c/d | 7,00,000 | ||||
| 7,50,000 | 7,50,000 |
11. Following is the Balance Sheet of Garima Ltd. Prepare cash flow statement.
| Particulars | Note No. | March 31, 2017 (₹) |
March 31, 2016 (₹) |
| I. Equity and Liabilities | |||
| 1. Shareholders' Funds | |||
| (a) Share Capital | 1 | 4,40,000 | 2,80,000 |
| (b) Reserves and Surplus (Surplus) | 2 | 40,000 | 28,000 |
| 2. Current Liabilities | |||
| (a) Trade payables | 1,56,000 | 56,000 | |
| (b) Short-term provisions (Provision for taxation) | 12,000 | 4,000 | |
| Total | 6,48,000 | 3,68,000 | |
| II. Assets | |||
| 1. Non-current Assets | |||
| (a) Fixed assets | |||
| Tangible assets | 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 (prepaid expenses) | 16,000 | 8,000 | |
| Total | 6,48,000 | 3,68,000 |
| Notes to Accounts | March 31, 2017 (₹) |
March 31, 2016 (₹) |
| 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: Interim Dividend | 4,000 | |
| Profit at the end of the year | 40,000 |
Additional Information:
- Depreciation charged during the year ₹32,000
Ans.
Cash Flow Statement of Garima Ltd.
| Particulars | Amount (₹) | Amount (₹) | |
| A. | Cash Flow from Operating Activities | 12,000 | |
| Net Profit before Taxation and Extraordinary Items (40,000 – 28,000) | 12,000 | ||
| Adjustments for: | |||
| Add: Depreciation | 32,000 | ||
| Add: Proposed Dividend (Interim Dividend) | 4,000 | ||
| Add: Provision for Taxation | 12,000 | ||
| Operating profit before working capital changes: | 60,000 | ||
| Add: Increase in Current liabilities | |||
| Trade Payables | 1,00,000 | ||
| Less: Increase in Current Assets | |||
| Inventories | (1,00,000) | ||
| Other Current Assets (Prepaid Expenses) | (8,000) | ||
| Trade receivables | (60,000) | (68,000) | |
| Cash generated from Operating Activities | (8,000) | ||
| Less: Income Tax paid | (4,000) | ||
| Net Cash used in Operations Activities | (12,000) | ||
| 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 Financing Activities: | ||
| Issue of Equity Shares | 1,00,000 | ||
| Issue of Preference Shares | 60,000 | ||
| Less: Dividend Paid | (4,000) | ||
| Net Cash from Financing Activities | 1,56,000 | ||
| D. | Net decrease in Cash and Cash Equivalent (A + B + C) | 52,000 | |
| Add: Cash and Cash Equivalents in the Beginning | 80,000 | ||
| 28,000 |
Working Notes:
Dr.
Plant and Machinery Account
Cr.
| Date | Particulars | JF | Amount (₹) | Date | Particulars | JF | Amount (₹) |
| To Balance b/d | 20,00,000 | By Depreciation | 32,000 | ||||
| To Bank (Purchase-) | 1,96,000 | By Balance c/d | 3,64,000 | ||||
| Balancing Figur) | |||||||
| 3,96,000 | 3,96,000 |
12. From the following Balance Sheet of Computer India Ltd. prepare cash flow statement.
| Particulars | Note No. | March 31, 2017 (₹) |
March 31, 2016 (₹) |
| I. Equity and Liabilities | |||
| 1. Shareholders' Funds | |||
| (a) Share Capital | 52,000 | 40,000 | |
| (b) Reserves and Surplus-Surplus | 1 | 9,500 | 8,000 |
| 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 | 4,200 | 3,000 |
| Total | 90,000 | 81,500 | |
| II. Assets | |||
| 1. Non-current Assets | |||
| (a) Fixed assets | 4 | 27,000 | 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 | 90,000 | 81,500 |
Notes to Accounts
| Particulars | March 31, 2017 (₹) |
March 31, 2016 (₹) |
| 1. Reserve and surplus | ||
| (a) Balance in statement of profit and loss | 7,000 | 6,000 |
| (b) General reserve | 2,500 | 2,000 |
| 9,500 | 8,000 | |
| 2. Short-term borrowings Bank overdraft | 6,800 | 12,500 |
| 3. Short-term Provisions | ||
| (a) Provision for Taxation | 4,200 | 3,000 |
| 4. Fixed Assets: | ||
| Fixed Assets | 42,000 | 41,000 |
| Less: Accumulated Depreciation | (15,000) | (11,000) |
| 27,000 | 30,000 |
Additional Information:
Proposed dividend for the year 2015-16 is ₹2,50,00,000
Ans.
Cash Flow Statement of Computer India Ltd.
| Particulars | Amount (₹) | Amount (₹) | |
| A. | Cash Flow from Operating Activities | ||
| Net Profit After Tax and appropriations | 1,000 | ||
| Add: General Reserve | 500 | ||
| Add: Proposed Dividend | 2,500 | ||
| Add: Provision for Tax | 4,200 | ||
| Profit before Tax and Appropriations | 8,200 | ||
| Adjustments for Non-Cash and Non-Operating Items | |||
| Depreciation | 4,000 | ||
| Interest (6,000 × 10%) | 600 | ||
| Operating profit before Working Capital Changes | 12,800 | ||
| Less: Trade Payables (Decrease) | (1,000) | ||
| Less: Inventories (Increase) | (5,000) | ||
| Less: Trade Receivables (Increase) | (4,000) | ||
| Less: Prepaid Expenses (Increase) | (200) | ||
| Cash Generated from operations | 2,600 | ||
| Less: Tax Paid | (3,000) | ||
| Cash used in Operating Activities | (4,00) | ||
| B. | Cash Flow from Investing Activities | ||
| Purchase of Fixed Assets | (1,000) | ||
| Net Cash used in Investing Activities | (1,000) | ||
| C. | Cash Flow from Financing Activities: | ||
| Issue of Shares Capital | 12,000 | ||
| Issue of Debentures | 500 | ||
| Payment of Bank o/d | (5,700) | ||
| Interest Paid | (600) | ||
| Dividend Paid | (2,500) | ||
| Net Cash from Financing Activities | 3,700 | ||
| Net Effect (A + B + C) | 2,300 | ||
| Add: Opening Cash and Cash Equivalents | 1,200 | ||
| Closing Cash and Cash Equivalents | 3,500 |
