Class | Subject | Book | Chapter | Session | Questions covered |
|---|---|---|---|---|---|
XII | Accountancy | Accountancy Part II (NCERT) | 6 – Cash Flow Statement | 2026-27 | 24 of 24 |
Chapter at a glance
Topic | Key point |
|---|---|
Cash flow statement (AS-3 revised) | Shows inflows and outflows of cash and cash equivalents during a period, classified into operating, investing and financing activities |
Cash equivalents | Short-term, highly liquid investments readily convertible into known amounts of cash with insignificant risk (maturity of 3 months or less) |
Operating activities | Principal revenue-producing activities (sales, purchases, wages, expenses, tax paid) |
Investing activities | Acquisition and disposal of long-term assets and investments; interest and dividend received (non-financial companies) |
Financing activities | Changes in size/composition of owners’ capital and borrowings; interest and dividend paid |
Indirect method | Net profit before tax ± non-cash and non-operating items = operating profit before working capital changes; ± changes in current assets/liabilities; – tax paid |
Working capital rule | Increase in current asset → deduct; decrease → add; increase in current liability → add; decrease → deduct |
Proposed dividend | Previous year’s proposed dividend is paid in the current year (financing outflow) and is added back to find net profit |
Questions for Practice – Short Answer Questions
Question SA – Q1
What is a Cash flow statement?
Answer
A cash flow statement is a statement that shows the inflows and outflows of cash and cash equivalents of an enterprise during a period, classified into operating, investing and financing activities, and explains the change in cash and cash equivalents between the beginning and the end of the period. It is prepared as per AS-3 (revised) and is a part of the financial statements of companies (Sec. 2(40), Companies Act, 2013).
A cash flow statement shows the inflows and outflows of cash and cash equivalents during a period, classified into operating, investing and financing activities.
Question SA – Q2
How are the various activities classified (as per AS-3 revised) while preparing cash flow statement?
Answer
- Operating activities – the principal revenue-producing activities and other activities that are not investing or financing (e.g. cash from sale of goods and services, cash paid to suppliers and employees, income tax paid).
- Investing activities – acquisition and disposal of long-term assets and investments not included in cash equivalents (e.g. purchase/sale of fixed assets, investments; interest and dividend received by non-financial companies).
- Financing activities – activities that change the size and composition of owners’ capital and borrowings (e.g. issue/redemption of shares and debentures, loans raised/repaid, interest and dividend paid).
Into operating activities (main revenue-producing), investing activities (long-term assets and investments) and financing activities (capital and borrowings).
Question SA – Q3
State the objectives of cash flow statement.
Answer
- To show the sources (inflows) and uses (outflows) of cash under operating, investing and financing activities.
- To explain the reasons for the change in cash and cash equivalents during the period.
- To help assess the ability to generate cash and the timing and certainty of future cash flows.
- To help evaluate liquidity and solvency.
To show sources and uses of cash under the three activities, explain the change in cash balance, and help assess cash-generating ability, liquidity and solvency.
Question SA – Q4
What are the objectives of preparing cash flow statement?
Answer
- To assess the ability of the enterprise to generate cash and cash equivalents from operations.
- To evaluate the liquidity and financial flexibility – the ability to pay debts, dividends and meet commitments.
- To help short-term planning and cash management.
- To compare the operating performance of different enterprises (it removes the effect of different accounting treatments).
- To help in predicting future cash flows and checking the accuracy of past estimates.
To judge cash-generating ability, liquidity and flexibility, aid cash planning, compare performance across enterprises and predict future cash flows.
Question SA – Q5
State the meaning of the terms: (i) Cash Equivalents, (ii) Cash flows.
Answer
(i) Cash equivalents – short-term, highly liquid investments that are readily convertible into known amounts of cash and are subject to an insignificant risk of change in value, usually with a maturity of three months or less from the date of acquisition (e.g. treasury bills, commercial paper, money-market funds).
(ii) Cash flows – inflows and outflows of cash and cash equivalents. Movements between items that are all cash or cash equivalents (e.g. depositing cash in bank) are not cash flows.
Cash equivalents are short-term (≤ 3 months), highly liquid investments easily convertible into known cash; cash flows are inflows and outflows of cash and cash equivalents.
Question SA – Q6
Prepare a format of cash flow from operating activities.
Answer
Cash Flow from Operating Activities (Indirect method)
Particulars | ₹ | ₹ |
|---|---|---|
Net profit before tax and extraordinary items | xxx | |
Adjustments for non-cash and non-operating items | ||
Add: Depreciation and amortisation | xxx | |
Add: Goodwill, patents, preliminary expenses written off | xxx | |
Add: Loss on sale of fixed assets / investments | xxx | |
Add: Interest on borrowings and debentures (finance cost) | xxx | |
Less: Profit on sale of fixed assets / investments | (xxx) | |
Less: Interest and dividend received | (xxx) | |
Less: Rent received (non-operating) | (xxx) | xxx |
Operating profit before working capital changes | xxx | |
Add: Decrease in current assets / Increase in current liabilities | xxx | |
Less: Increase in current assets / Decrease in current liabilities | (xxx) | xxx |
Cash generated from operations | xxx | |
Less: Income tax paid | (xxx) | |
Net cash from (used in) operating activities | xxx |
Net profit before tax, adjusted for non-cash and non-operating items, gives operating profit before working capital changes; adjusting for changes in working capital and deducting tax paid gives net cash from operating activities.
Question SA – Q7
State clearly what would constitute the operating activities for each of the following enterprises: (i) Hotel (ii) Film production house (iii) Financial enterprise (iv) Media enterprise (v) Steel manufacturing unit (vi) Software development business unit.
Answer
Enterprise | Operating activities |
|---|---|
(i) Hotel | Providing lodging, food and beverages, banquets and related services; paying for food, staff, housekeeping |
(ii) Film production house | Producing and distributing films; receipts from distributors, satellite/OTT rights; payments to artists, technicians, studios |
(iii) Financial enterprise | Lending and borrowing money, accepting deposits; interest and dividend received and paid; investment dealings in its trading book |
(iv) Media enterprise | Publishing/broadcasting news and content; revenue from advertisements and subscriptions; payment for newsprint, content and staff |
(v) Steel manufacturing unit | Producing and selling steel; buying iron ore, coal and other inputs; wages and manufacturing expenses |
(vi) Software development unit | Developing and selling software and IT services; receipts from clients; salaries of developers and related expenses |
Operating activities are each enterprise’s main revenue-producing activities: hospitality for a hotel, film production and distribution, lending and borrowing for a financial enterprise, advertisement and subscription revenue for media, steel production and sale, and software development and services.
Question SA – Q8
“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 same transaction can be operating for one enterprise and investing or financing for another, depending on its main business:
Item | Financial enterprise (bank, NBFC, investment company) | Other (non-financial) enterprise |
|---|---|---|
Interest and dividend received | Operating activity | Investing activity |
Interest paid | Operating activity | Financing activity |
Purchase/sale of securities | Operating (dealing/trading securities) | Investing activity |
Loans and advances given | Operating activity | Investing activity |
Similarly, the purchase and sale of vehicles is operating for a car dealer but investing for a manufacturing company that buys vehicles for its own use.
Yes – e.g. interest and dividend received and interest paid are operating activities for a financial enterprise, but investing (received) and financing (paid) for other enterprises.
Questions for Practice – Long Answer Questions
Question LA – Q1
Describe the procedure to prepare Cash Flow Statement.
Answer
- Compute cash flow from operating activities (indirect method):
- Find net profit before tax: change in surplus + transfers to reserves + proposed/interim dividend paid + provision for tax made.
- Add non-cash expenses (depreciation, amortisation, write-offs) and non-operating expenses (loss on sale of assets, interest paid); deduct non-operating incomes (profit on sale, interest/dividend/rent received).
- Adjust for changes in current assets and current liabilities (other than cash, cash equivalents and short-term borrowings).
- Deduct income tax paid.
2. Compute cash flow from investing activities
- Prepare accounts (or workings) for fixed assets, investments, etc., to find purchases and sale proceeds.
- Include interest, dividend and rent received.
3. Compute cash flow from financing activities
- Issue/redemption of shares and debentures; loans raised/repaid.
- Interest and dividend paid.
- Add the three to get net increase/decrease in cash and cash equivalents.
- Reconcile with opening and closing cash and cash equivalents.
Work out operating cash flow (indirect method), then investing and financing cash flows using ledger workings, add them to get the net change in cash and reconcile with opening and closing balances.
Question LA – Q2
Describe “Indirect” method of ascertaining Cash Flow from operating activities.
Answer
Under the indirect method, net profit (or loss) is adjusted for the effects of non-cash transactions, deferrals or accruals and non-operating items:
- Start with net profit before tax (and extraordinary items).
- Add non-cash and non-operating charges – depreciation, amortisation of intangibles, goodwill/preliminary expenses written off, loss on sale of fixed assets/investments, interest and finance costs, provision for doubtful debts (if debtors are taken gross).
- Deduct non-cash and non-operating incomes – profit on sale of fixed assets/investments, interest and dividend received, rent received, write-back of provisions.
- Result is operating profit before working capital changes.
- Adjust for changes in working capital – increase in current assets / decrease in current liabilities is deducted; decrease in current assets / increase in current liabilities is added.
- Result is cash generated from operations; deduct income tax paid (and adjust extraordinary items) → net cash from operating activities.
Start from net profit before tax, add back non-cash and non-operating expenses, deduct non-operating incomes, adjust for working capital changes and deduct tax paid to get net cash from operating activities.
Question LA – Q3
Explain the major Cash Inflows and outflows from investing activities.
Answer
Cash inflows
- Sale of fixed assets (land, building, machinery), intangible assets.
- Sale of shares, debentures and other investments (other than cash equivalents and trading securities).
- Repayment of loans and advances made to third parties (non-financial companies).
- Interest and dividend received (non-financial companies).
- Rent received from investment property.
Cash outflows
- Purchase of fixed assets (including capital work-in-progress and capitalised development costs) and intangible assets.
- Purchase of shares, debentures and other investments.
- Loans and advances made to third parties (non-financial companies).
Inflows: sale of fixed assets and investments, recovery of loans, interest, dividend and rent received. Outflows: purchase of fixed assets, intangibles and investments, loans given.
Question LA – Q4
Explain the major Cash Inflows and outflows from financing activities.
Answer
Cash inflows
- Issue of equity or preference shares (including securities premium).
- Issue of debentures, bonds.
- Long-term and short-term borrowings (loans from banks/others, bank overdraft).
Cash outflows
- Redemption of preference shares, buy-back of equity shares.
- Redemption of debentures, repayment of loans.
- Interest paid on debentures and loans (non-financial companies).
- Dividends paid (final and interim) and dividend distribution tax, if any.
- Share issue expenses.
Inflows: issue of shares and debentures, borrowings. Outflows: redemption of shares and debentures, repayment of loans, interest and dividends paid.
Questions for Practice – Numerical Questions
Question Num – Q1
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 profit of ₹ 50,000 on assets sold which was transferred to Statement of Profit and Loss account. Trade Receivables increased during the year ₹ 40,000 and Trade Payables also increased by ₹ 60,000. Compute the cash flow from operating activities by the indirect approach.
Answer
Particulars | ₹ |
|---|---|
Net income | 5,00,000 |
Add: Depreciation | 2,00,000 |
Less: Profit on sale of assets | (50,000) |
Operating profit before working capital changes | 6,50,000 |
Less: Increase in trade receivables | (40,000) |
Add: Increase in trade payables | 60,000 |
Cash flow from operating activities | 6,70,000 |
Cash flow from operating activities = ₹ 6,70,000.
Question Num – Q2
From the information given below you are required to calculate the cash paid for the inventory: Inventory in the beginning ₹ 40,000; Credit 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
Cash paid to suppliers = Opening trade payables + Credit purchases – Closing trade payables = 14,000 + 1,60,000 – 14,500 = ₹ 1,59,500.
(The inventory figures do not affect the cash paid; they are used in computing cost of goods sold.)
Cash paid for inventory = ₹ 1,59,500.
Question Num – Q3
For each of the following transactions, calculate the resulting cash flow and state the nature of cash flow, viz., operating, investing and financing. (a) Acquired machinery for ₹ 2,50,000 paying 20% by cheque and executing a bond for the balance payable. (b) Paid ₹ 2,50,000 to acquire shares in Informa Tech. and received a dividend of ₹ 50,000 after acquisition. (c) Sold machinery of original cost ₹ 2,00,000 with an accumulated depreciation of ₹ 1,60,000 for ₹ 60,000.
Answer
Transaction | Cash flow | Nature |
|---|---|---|
(a) 20 % of 2,50,000 paid by cheque; the bond is a non-cash transaction | ₹ 50,000 outflow | Investing |
(b) Purchase of shares ₹ 2,50,000 (outflow) less dividend received ₹ 50,000 (inflow) | Net ₹ 2,00,000 outflow | Investing |
(c) Sale proceeds of machinery (book value ₹ 40,000; profit ₹ 20,000 is non-cash) | ₹ 60,000 inflow | Investing |
- ₹ 50,000 investing outflow; (b) ₹ 2,00,000 net investing outflow; (c) ₹ 60,000 investing inflow.
Question Num – Q4
The following is the Profit and Loss Account of Yamuna Limited for the year ended March 31, 2017: Revenue from Operations ₹ 10,00,000; Expenses – Cost of Materials Consumed ₹ 50,000; Purchases of Stock-in-trade ₹ 5,00,000; Other Expenses ₹ 3,00,000; Total Expenses ₹ 8,50,000; Profit before tax ₹ 1,50,000. Additional information: (i) Trade receivables decrease by ₹ 30,000 during the year. (ii) Prepaid expenses increase by ₹ 5,000 during the year. (iii) Trade payables increase by ₹ 15,000 during the year. (iv) Outstanding expenses payable increased by ₹ 3,000 during the year. (v) Other expenses included depreciation of ₹ 25,000. Compute net cash from operations for the year ended March 31, 2017 by the indirect method.
Answer
Particulars | ₹ |
|---|---|
Profit before tax | 1,50,000 |
Add: Depreciation | 25,000 |
Operating profit before working capital changes | 1,75,000 |
Add: Decrease in trade receivables | 30,000 |
Less: Increase in prepaid expenses | (5,000) |
Add: Increase in trade payables | 15,000 |
Add: Increase in outstanding expenses | 3,000 |
Net cash from operating activities | 2,18,000 |
Net cash from operating activities = ₹ 2,18,000.
Question Num – Q5
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 (March 31, 2016 / 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.
Answer
Particulars | ₹ |
|---|---|
Profit for the year | 10,000 |
Add: Depreciation | 2,000 |
Operating profit before working capital changes | 12,000 |
Less: Increase in trade receivables | (1,000) |
Add: Increase in provision for doubtful debts | 200 |
Add: Increase in trade payables | 2,000 |
Less: Increase in inventories | (3,000) |
Less: Increase in other current assets | (2,000) |
Add: Increase in expenses payable | 500 |
Add: Decrease in prepaid expenses | 1,000 |
Less: Increase in accrued income | (1,000) |
Less: Decrease in income received in advance | (1,000) |
Cash from operations | 7,700 |
Cash from operations = ₹ 7,700.
Question Num – Q6
From the following particulars of Bharat Gas Limited, calculate Cash Flows from Investing Activities. Also show the workings clearly preparing the ledger accounts. (2017 / 2016) Machinery 12,40,000 / 10,20,000; Goodwill 3,00,000 / 1,00,000; Patents 1,60,000 / 2,80,000; 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. Additional Information: (a) Patents were written-off to the extent of ₹ 40,000 and some Patents were sold at a profit of ₹ 20,000. (b) 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. (c) 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. (d) Amartex 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 ₹ 30,000.
Answer
Machinery Account (net book values)
Particulars | ₹ | Particulars | ₹ |
|---|---|---|---|
Balance b/d | 10,20,000 | Bank (sale) | 50,000 |
Bank (purchase – balancing figure) | 4,40,000 | Statement of P&L (loss on sale: 80,000 – 50,000) | 30,000 |
Depreciation | 1,40,000 | ||
Balance c/d | 12,40,000 | ||
Total | 14,60,000 | Total | 14,60,000 |
Patents Account
Particulars | ₹ | Particulars | ₹ |
|---|---|---|---|
Balance b/d | 2,80,000 | Statement of P&L (written off) | 40,000 |
Statement of P&L (profit on sale) | 20,000 | Bank (sale – balancing figure) | 1,00,000 |
Balance c/d | 1,60,000 | ||
Total | 3,00,000 | Total | 3,00,000 |
10 % Investments Account
Particulars | ₹ | Particulars | ₹ |
|---|---|---|---|
Balance b/d | 60,000 | Bank (sale – balancing figure) | 1,00,000 |
Bank (purchase) | 1,80,000 | Balance c/d | 1,60,000 |
Statement of P&L (profit on sale) | 20,000 | ||
Total | 2,60,000 | Total | 2,60,000 |
Goodwill purchased = 3,00,000 – 1,00,000 = ₹ 2,00,000. Interest is taken at 10 % on the opening holding of ₹ 60,000 = ₹ 6,000 (the investments bought during the year earn no interest for this year), as in the textbook answer. Dividend from Amartex = 10 % × 1,00,000 = ₹ 10,000.
Cash Flows from Investing Activities
Particulars | ₹ |
|---|---|
Purchase of machinery | (4,40,000) |
Sale of machinery | 50,000 |
Purchase of goodwill | (2,00,000) |
Sale of patents | 1,00,000 |
Purchase of 10 % investments | (1,80,000) |
Sale of 10 % investments | 1,00,000 |
Interest received | 6,000 |
Dividend received | 10,000 |
Rent received | 30,000 |
Net cash used in investing activities | (5,24,000) |
Net cash used in investing activities = ₹ 5,24,000 (outflow).
Question Num – Q7
From the following Balance Sheet of Mohan Ltd., prepare cash flow Statement (2017 / 2016): Equity share capital 3,00,000 / 2,00,000; Reserves and Surplus 2,70,000 / 2,20,000; 9% Bank Loan 80,000 / 1,00,000; Trade payables 1,20,000 / 1,40,000; Total 7,70,000 / 6,60,000. Fixed assets (net) 5,00,000 / 3,20,000 [cost 6,00,000 / 4,00,000 less accumulated depreciation 1,00,000 / 80,000]; Inventories 1,50,000 / 1,30,000; Trade receivables 90,000 / 1,20,000 [Debtors 60,000 / 1,00,000; Bills receivable 30,000 / 20,000]; Cash (Bank) 30,000 / 90,000. Additional Information: Machine costing ₹ 80,000 on which accumulated depreciation was ₹ 50,000 was sold for ₹ 20,000. 9% bank loan ₹ 20,000 was repaid on March 31, 2017. Proposed dividend for the year 2015-16 was ₹ 60,000.
Answer
Workings
- Net profit = 2,70,000 – 2,20,000 + 60,000 (2015-16 dividend paid this year) = ₹ 1,10,000.
- Depreciation = 1,00,000 + 50,000 – 80,000 = ₹ 70,000. Loss on sale = (80,000 – 50,000) – 20,000 = ₹ 10,000.
- Purchase of fixed assets = 6,00,000 + 80,000 – 4,00,000 = ₹ 2,80,000.
- Interest on bank loan = 9 % × 1,00,000 = ₹ 9,000.
Cash Flow Statement of Mohan Ltd. for the year ended March 31, 2017
Particulars | ₹ | ₹ |
|---|---|---|
A. Operating activities | ||
Net profit before tax | 1,10,000 | |
Add: Depreciation | 70,000 | |
Add: Loss on sale of machine | 10,000 | |
Add: Interest on bank loan | 9,000 | 89,000 |
Operating profit before working capital changes | 1,99,000 | |
Less: Increase in inventories | (20,000) | |
Add: Decrease in trade receivables | 30,000 | |
Less: Decrease in trade payables | (20,000) | (10,000) |
Net cash from operating activities | 1,89,000 | |
B. Investing activities | ||
Purchase of fixed assets | (2,80,000) | |
Sale of machine | 20,000 | |
Net cash used in investing activities | (2,60,000) | |
C. Financing activities | ||
Issue of equity shares | 1,00,000 | |
Repayment of bank loan | (20,000) | |
Interest paid | (9,000) | |
Dividend paid | (60,000) | |
Net cash from financing activities | 11,000 | |
Net decrease in cash and cash equivalents (A + B + C) | (60,000) | |
Add: Cash and cash equivalents at the beginning | 90,000 | |
Cash and cash equivalents at the end | 30,000 |
Operating ₹ 1,89,000 (inflow); investing ₹ 2,60,000 (outflow); financing ₹ 11,000 (inflow); cash falls by ₹ 60,000 to ₹ 30,000.
Question Num – Q8
From the following Balance Sheets of Tiger Super Steel Ltd., prepare Cash Flow Statement (2017 / 2016): Equity share capital 1,20,000 / 80,000; 10% Preference share capital 20,000 / 40,000; General reserve 12,000 / 8,000; Balance in statement of profit and loss 26,400 / 18,400; Bills payable 21,200 / 14,000; Outstanding expenses 2,400 / 3,200; Provision for taxation 12,800 / 11,200; Total 2,14,800 / 1,74,800. Land and building 20,000 / 40,000; Plant 76,400 / 36,000; Intangible assets 18,800 / 24,000; Non-current investments 14,000 / 4,000; Inventories 31,200 / 34,000; Trade receivables 43,200 / 30,000; Cash and cash equivalents 11,200 / 6,800; Total 2,14,800 / 1,74,800. Additional Information: Proposed dividend for 2016-17 is ₹ 15,600 and for 2015-16 is ₹ 11,200. Depreciation charged on Land & Building ₹ 20,000, and Plant ₹ 10,000 during the year.
Answer
Workings
- Net profit before tax = increase in surplus 8,000 + transfer to general reserve 4,000 + dividend 2015-16 paid 11,200 + provision for tax made 12,800 = ₹ 36,000. (Tax is assumed paid = opening provision ₹ 11,200, and provided = closing provision ₹ 12,800.)
- Intangible assets written off = 24,000 – 18,800 = ₹ 5,200.
- Plant purchased = 76,400 + 10,000 – 36,000 = ₹ 50,400. Land and building: 40,000 – 20,000 depreciation = 20,000, so there was no purchase or sale.
Cash Flow Statement of Tiger Super Steel Ltd. for the year ended March 31, 2017
Particulars | ₹ | ₹ |
|---|---|---|
A. Operating activities | ||
Net profit before tax | 36,000 | |
Add: Depreciation (20,000 + 10,000) | 30,000 | |
Add: Intangible assets written off | 5,200 | 35,200 |
Operating profit before working capital changes | 71,200 | |
Add: Decrease in inventories | 2,800 | |
Less: Increase in trade receivables | (13,200) | |
Add: Increase in bills payable | 7,200 | |
Less: Decrease in outstanding expenses | (800) | (4,000) |
Cash generated from operations | 67,200 | |
Less: Income tax paid | (11,200) | |
Net cash from operating activities | 56,000 | |
B. Investing activities | ||
Purchase of plant | (50,400) | |
Purchase of non-current investments | (10,000) | |
Net cash used in investing activities | (60,400) | |
C. Financing activities | ||
Issue of equity shares | 40,000 | |
Redemption of preference shares | (20,000) | |
Dividend paid (2015-16) | (11,200) | |
Net cash from financing activities | 8,800 | |
Net increase in cash and cash equivalents | 4,400 | |
Add: Opening cash and cash equivalents | 6,800 | |
Closing cash and cash equivalents | 11,200 |
Operating ₹ 56,000 (inflow); investing ₹ 60,400 (outflow); financing ₹ 8,800 (inflow); cash rises by ₹ 4,400.
Question Num – Q9
From the following information, prepare cash flow statement (31 March 2015 / 2014): Share capital 7,00,000 / 5,00,000; Reserve and surplus 4,70,000 / 2,50,000; 8% Debentures 4,00,000 / 6,00,000; Trade payables 9,00,000 / 6,00,000; Total 24,70,000 / 19,50,000. Tangible fixed assets 7,00,000 / 5,00,000; Goodwill 1,70,000 / 2,50,000; Inventories 6,00,000 / 5,00,000; Trade Receivables 6,00,000 / 4,00,000; Cash and cash equivalents 4,00,000 / 3,00,000; Total 24,70,000 / 19,50,000. Additional Information: Depreciation charged on Plant amounted to ₹ 80,000.
Answer
Workings
- Net profit = 4,70,000 – 2,50,000 = ₹ 2,20,000.
- Goodwill written off = ₹ 80,000.
- Interest on debentures = 8 % × 6,00,000 = ₹ 48,000 (redemption assumed at year-end).
- Fixed assets purchased = 7,00,000 + 80,000 – 5,00,000 = ₹ 2,80,000.
Cash Flow Statement for the year ended March 31, 2015
Particulars | ₹ | ₹ |
|---|---|---|
A. Operating activities | ||
Net profit | 2,20,000 | |
Add: Depreciation | 80,000 | |
Add: Goodwill written off | 80,000 | |
Add: Interest on debentures | 48,000 | 2,08,000 |
Operating profit before working capital changes | 4,28,000 | |
Less: Increase in inventories | (1,00,000) | |
Less: Increase in trade receivables | (2,00,000) | |
Add: Increase in trade payables | 3,00,000 | – |
Net cash from operating activities | 4,28,000 | |
B. Investing activities – Purchase of fixed assets | (2,80,000) | |
C. Financing activities | ||
Issue of shares | 2,00,000 | |
Redemption of debentures | (2,00,000) | |
Interest on debentures | (48,000) | |
Net cash used in financing activities | (48,000) | |
Net increase in cash and cash equivalents | 1,00,000 | |
Add: Opening balance | 3,00,000 | |
Closing balance | 4,00,000 |
Operating ₹ 4,28,000 (inflow); investing ₹ 2,80,000 (outflow); financing ₹ 48,000 (outflow); cash rises by ₹ 1,00,000.
Question Num – Q10
From the following Balance Sheet of Yogeta Ltd., prepare cash flow statement (2017 / 2016): Equity share capital 3,00,000 / 2,00,000; Preference share capital 1,00,000 / –; Reserve and surplus 2,00,000 / 1,00,000; 8% Long-term loan – / 2,00,000; 9% Loan from Rahul 1,50,000 / 20,000; Bank overdraft 1,00,000 / –; Trade payables 70,000 / 50,000; Provision for taxation 50,000 / 30,000; Total 9,70,000 / 6,00,000. Tangible fixed assets 7,00,000 / 4,00,000; Inventories 1,70,000 / 1,00,000; Trade Receivables 1,00,000 / 50,000; Cash and cash equivalents – / 50,000; Total 9,70,000 / 6,00,000. Additional Information: Net Profit for the year after charging ₹ 50,000 as Depreciation was ₹ 1,50,000. Dividend paid on Shares was ₹ 50,000. Tax Provision created during the year amounted to ₹ 60,000. 8% loan was repaid on March 31, 2017 and an additional 9% loan of ₹ 1,30,000 was obtained from Rahul on April 01, 2016.
Answer
Workings
- Net profit before tax = 1,50,000 + 60,000 = ₹ 2,10,000. (Check: surplus rises by 1,50,000 – 50,000 = ₹ 1,00,000 ✓.)
- Interest:
- 8 % on ₹ 2,00,000 = ₹ 16,000.
- 9 % on ₹ 1,50,000 (Rahul’s loan for the full year) = ₹ 13,500.
- Total = ₹ 29,500.
- Tax paid = 30,000 + 60,000 – 50,000 = ₹ 40,000.
- Fixed assets purchased = 7,00,000 + 50,000 – 4,00,000 = ₹ 3,50,000.
Cash Flow Statement of Yogeta Ltd. for the year ended March 31, 2017
Particulars | ₹ | ₹ |
|---|---|---|
A. Operating activities | ||
Net profit before tax | 2,10,000 | |
Add: Depreciation | 50,000 | |
Add: Interest on loans | 29,500 | 79,500 |
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 | (1,00,000) |
Cash generated from operations | 1,89,500 | |
Less: Tax paid | (40,000) | |
Net cash from operating activities | 1,49,500 | |
B. Investing activities – Purchase of fixed assets | (3,50,000) | |
C. Financing activities | ||
Issue of equity shares | 1,00,000 | |
Issue of preference shares | 1,00,000 | |
Repayment of 8 % loan | (2,00,000) | |
Loan from Rahul | 1,30,000 | |
Bank overdraft raised | 1,00,000 | |
Interest paid | (29,500) | |
Dividend paid | (50,000) | |
Net cash from financing activities | 1,50,500 | |
Net decrease in cash and cash equivalents | (50,000) | |
Add: Opening balance | 50,000 | |
Closing balance | Nil |
(The key’s investing figure “₹ 13,50,000” is a misprint for ₹ 3,50,000. Its financing figure of ₹ 1,50,000 is rounded; the exact figure is ₹ 1,50,500.)
Operating ₹ 1,49,500 (inflow); investing ₹ 3,50,000 (outflow); financing ₹ 1,50,500 (inflow); cash falls by ₹ 50,000 to nil.
Question Num – Q11
Following is the Balance sheet of Garima Ltd., prepare cash flow statement (2017 / 2016): Equity share capital 3,00,000 / 2,00,000; Preference share capital 1,40,000 / 80,000; Surplus 40,000 / 28,000; Trade payables 1,56,000 / 56,000; Provision for taxation 12,000 / 4,000; Total 6,48,000 / 3,68,000. Tangible fixed assets 3,64,000 / 2,00,000; Inventories 1,60,000 / 60,000; Trade receivables 80,000 / 20,000; Cash and cash equivalents 28,000 / 80,000; Prepaid expenses 16,000 / 8,000; Total 6,48,000 / 3,68,000. Surplus: opening 28,000 + Profit of the year 16,000 – Interim Dividend 4,000 = 40,000. Additional Information: Depreciation charged during the year ₹ 32,000.
Answer
Workings
- Profit for the year (after tax) ₹ 16,000. Tax provided = closing provision ₹ 12,000; tax paid = opening provision ₹ 4,000.
- Net profit before tax = 16,000 + 12,000 = ₹ 28,000.
- Fixed assets purchased = 3,64,000 + 32,000 – 2,00,000 = ₹ 1,96,000.
Cash Flow Statement of Garima Ltd. for the year ended March 31, 2017
Particulars | ₹ | ₹ |
|---|---|---|
A. Operating activities | ||
Net profit before tax | 28,000 | |
Add: Depreciation | 32,000 | |
Operating profit before working capital changes | 60,000 | |
Less: Increase in inventories | (1,00,000) | |
Less: Increase in trade receivables | (60,000) | |
Less: Increase in prepaid expenses | (8,000) | |
Add: Increase in trade payables | 1,00,000 | (68,000) |
Cash used in operations | (8,000) | |
Less: Tax paid | (4,000) | |
Net cash used in operating activities | (12,000) | |
B. Investing activities – Purchase of fixed assets | (1,96,000) | |
C. Financing activities | ||
Issue of equity shares | 1,00,000 | |
Issue of preference shares | 60,000 | |
Interim dividend paid | (4,000) | |
Net cash from financing activities | 1,56,000 | |
Net decrease in cash and cash equivalents | (52,000) | |
Add: Opening balance | 80,000 | |
Closing balance | 28,000 |
(The key’s ₹ 1,56,400 for financing is a misprint; only ₹ 1,56,000 reconciles the cash balance.)
Operating ₹ 12,000 (outflow); investing ₹ 1,96,000 (outflow); financing ₹ 1,56,000 (inflow); cash falls by ₹ 52,000.
Question Num – Q12
From the following Balance Sheet of Computer India Ltd., prepare cash flow statement (₹ in ’000) (2017 / 2016): Share capital 52,000 / 40,000; Reserve and surplus 9,500 / 8,000 [Balance in statement of P&L 7,000 / 6,000; General reserve 2,500 / 2,000]; 10% Debentures 6,500 / 6,000; Bank overdraft 6,800 / 12,500; Trade payables 11,000 / 12,000; Provision for taxation 4,200 / 3,000; Total 90,000 / 81,500. Fixed assets 27,000 / 30,000 [cost 42,000 / 41,000 less accumulated depreciation 15,000 / 11,000]; Inventories 35,000 / 30,000; Trade receivables 24,000 / 20,000; Cash 3,500 / 1,200; Prepaid expenses 500 / 300; Total 90,000 / 81,500. Additional Information: Proposed dividend for the year 2015-16 is ₹ 2,500 thousand (₹ 25,00,000).
Answer
Workings (₹ ’000)
- Profit after tax = increase in P&L balance 1,000 + transfer to general reserve 500 + dividend 2015-16 paid 2,500 = 4,000.
- Tax provided 4,200; paid 3,000. Net profit before tax = 4,000 + 4,200 = 8,200.
- Depreciation = 15,000 – 11,000 = 4,000. Fixed assets purchased = 42,000 – 41,000 = 1,000.
- Debenture interest = 10 % × 6,000 = 600.
Cash Flow Statement of Computer India Ltd. for the year ended March 31, 2017 (₹ ’000)
Particulars | ₹ ’000 | ₹ ’000 |
|---|---|---|
A. Operating activities | ||
Net profit before tax | 8,200 | |
Add: Depreciation | 4,000 | |
Add: Interest on debentures | 600 | 4,600 |
Operating profit before working capital changes | 12,800 | |
Less: Increase in inventories | (5,000) | |
Less: Increase in trade receivables | (4,000) | |
Less: Increase in prepaid expenses | (200) | |
Less: Decrease in trade payables | (1,000) | (10,200) |
Cash generated from operations | 2,600 | |
Less: Tax paid | (3,000) | |
Net cash used in operating activities | (400) | |
B. Investing activities – Purchase of fixed assets | (1,000) | |
C. Financing activities | ||
Issue of shares | 12,000 | |
Issue of debentures | 500 | |
Repayment of bank overdraft | (5,700) | |
Interest paid | (600) | |
Dividend paid | (2,500) | |
Net cash from financing activities | 3,700 | |
Net increase in cash | 2,300 | |
Add: Opening cash | 1,200 | |
Closing cash | 3,500 |
(The key’s figures – operating ₹ 2,100, investing ₹ 1,000, financing ₹ 4,900 – do not add up to the actual change in cash of ₹ 2,300 thousand. The working above reconciles exactly. If the bank overdraft is treated as a negative cash equivalent instead, financing is ₹ 9,400 thousand and cash and cash equivalents rise by ₹ 8,000 thousand, from (11,300) to (3,300).)
(₹ ’000) Operating (400) outflow; investing (1,000) outflow; financing 3,700 inflow; net increase in cash 2,300 (₹ 1,200 → ₹ 3,500).
Topic checklist
- ☒ Meaning, objectives, classification and cash equivalents (SA 1–5, 7, 8)
- ☒ Indirect method of operating cash flow (SA 6; LA 2; Num 1, 4, 5)
- ☒ Investing and financing activities (LA 3, 4; Num 3, 6)
- ☒ Complete cash flow statements (LA 1; Num 7–12)