Topic Cash Flow Problems.pdf

Solution 1: Cash flow statement of Anju Ltd.. Cash flow from operating activitiesCash flow from operating activities Receipts from customers Payment to creditors Payment of wages and Pa

Problems on cash flow statements

1. The following is the summary of cash transactions of Anju Ltd for the year ended March 31, 2005

(Amount in ‘000)

R

Balance as on 1.4.2004 Issue of equity shares Receipts from customers Sale of fixed assets

150 900 8,400 300

Payment to creditors Purchase of fixed assets Expenses

Wages and salaries Tax

Dividends Repayment of bank loan Balance as on 31.3.2005

6,000 600 600 300 750 150 900 450

9

You You are requiredare required to prepare a Cash flow statement for the year ended March 31, 2005 in accordance with AS-3 (Revised) using

accordance with AS-3 (Revised) using direct method.direct method

Solution 1:

   Cash flow statement of Anju Ltd For the Cash flow statement of Anju Ltd For the year ended March 31, 2005year ended March 31, 2005

(Amount in ‘000) P

i

i Cash flow from operating activitiesCash flow from operating activities Receipts from customers

Payment to creditors Payment of wages and Payment of wages and salariessalaries Payment of overhead expenses Cash generated from operations Payment of tax

Net flow from operating Net flow from operating activitiesactivities ii

ii Cash flow from investing activitiesCash flow from investing activities Proceeds on sale of fixed assets Acquisition of fixed assets Net flow from investing Net flow from investing activitiesactivities iii

iii Cash flow from financing activitiesCash flow from financing activities Proceeds on issue of shares

Payment of dividends Repayment of bank loan Net flow used in financing activities Net cash flow for the

Net cash flow for the year ended March 31,2005year ended March 31,2005 Cash balance at the beginning of

Cash balance at the beginning of the periodthe period Cash balance at the end of the period

8,400 (6,000) (300) (600)

750

(300)

(150)

1500 (750)

300 (600)

900 (150) (900)

300 150 450

2. The summarized Balance Sheet of M/s Ankit Ltd as The summarized Balance Sheet of M/s Ankit Ltd as at March 31, 2005 at March 31, 2005 and 2006 are given and 2006 are given below.below

Balance Sheet of M/s Ankit Ltd.  as on March 31, 2005 and 2006as on March 31, 2005 and 2006 P

Paarrttiiccuullaarrss 22005 5 RRss 22006 6 RRss PPaarrttiiccuullaarrss 22005 5 RRss 22006 6 RRss S

Shhaarre e CCaappiittaall 99,,0000,,0000 99,,0000,,0000 FFiixxeed d AAsssseettss 88,,0000,,000000 66,,4400,,000000 G

Geenneerraal l RReesseerrvvee 66,,0000,,0000 66,,2200,,0000 IInnvveessttmmeennttss 11,,0000,,000000 11,,2200,,000000 P

Prrooffiit t & & lloosss s aa//cc 11,,1122,,0000 11,,3366,,0000 SSttoocckk 44,,8800,,000000 44,,2200,,000000 C

Crreeddiittoorrss 33,,3366,,0000 22,,6688,,0000 DDeebbttoorrss 44,,2200,,000000 99,,1100,,000000

P Prroovviissiioon n ffoor r ttaaxx 11,,5500,,0000 2200,,0000 BBaannkk 22,,9988,,000000 33,,9944,,000000 M

Moorrttggaagge e llooaann 55,,4400,,0000

2

200,,9988,,0000 2244,,8844,,0000 2200,,9988,,000000 2244,,8844,,000000 Additional Information:

i InvInvestestmenments cots costisting Rng Rs.1s.16,06,000 w00 were sere sold old durduring ting the yhe year fear for Rsor Rs.17.17,00,0000 ii

ii PrProvovisisioion fn for or tatax dx dururining tg the he yeyear ar RsRs.1.18,8,000000 ii

iii.i DurDuring thing the yeae year, a parr, a part of the ft of the fixeixed assed assets cots costisting Rsng Rs.20.20,00,000 was so0 was sold for Rld for Rs.2s.24,04,000 an00 andd

the profit was included in Profit and the profit was included in Profit and Loss accountLoss account iv

iv DiDivividedendnds pas paid aid amomoununteted to Rd to Rs.s.8080,0,00000 You

You are requiredare requiredto prepare a Cash Flow Statement in accordance with AS 3 to prepare a Cash Flow Statement in accordance with AS 3 accounting standardaccounting standard

Solution 2    Cash flow statement of Ankit Ltd For the year Cash flow statement of Ankit Ltd For the year ended March 31, 2006ended March 31, 2006

(Amount in ‘000) P

i

i Cash flow from operating activitiesCash flow from operating activities Cash flow from operating activities before working capital changes

Decrease in Stock  Increase in Debtors Decrease in Creditors Tax Paid during the year  Net flow from operating Net flow from operating activitiesactivities ii

ii Cash flow from investing activitiesProceeds on sale of investmentsCash flow from investing activities Proceeds on

Proceeds on sale of sale of fixed assetfixed assetss Purchase of investments

Net flow from investing Net flow from investing activitiesactivities iii

iii Cash flow from financing activitiesCash flow from financing activities Raising of Mortgage loan

Payment of dividends Net flow from financing Net flow from financing activitiesactivities Net cash flow for the

Net cash flow for the year ended March 31,2005year ended March 31,2005 Cash balance at the beginning of

Cash balance at the beginning of the periodthe period Cash balance at the end of the period

2,77,000

60,000 (4,90,000) (68,000) (1,48,000)

17,000 24,000 (36,000)

5,40,000 (80,000)

(3,69,000)

5,000

4,60,000 96,000 2,98,000 3,94,000   

Working Notes:

P Paarrttiiccuullaarrss RRss PPaarrttiiccuullaarrss RRss

T

To o BBaallaanncce e bb//dd 88,,0000,,0000 BBy y BBaannkk 2244,,000000 T

To o PPrrooffiit t & & lloosss s aa//cc 44,,0000 BBy y DDeepprreecciiaattiioonn 11,,4400,,000000

B

By y BBaallaanncce e cc//dd 66,,4400,,000000 8

8,,0044,,0000 88,,0044,,000000

P Paarrttiiccuullaarrss RRss PPaarrttiiccuullaarrss RRss

T

To o BBaallaanncce e bb//dd 11,,0000,,0000 BBy y BBaannkk 1177,,000000 T

To o PPrrooffiit t & & lloosss s aa//cc 11,,0000 BBy y BBaallaanncce e cc//dd 11,,2200,,000000 T

TooBBaannkk 3366,,0000

1 1,,3377,,0000 11,,3377,,000000

P Paarrttiiccuullaarrss RRss PPaarrttiiccuullaarrss RRss

T

To o BBaannkk 11,,4488,,0000 BBy y BBaallaanncce e bb//dd 11,,5500,,000000 T

To o BBaallaanncce e cc//dd 2200,,0000 BBy y PPrrooffiit t & & lloosss s aa//cc 1188,,000000

1 1,,6688,,0000 11,,6688,,000000   

Calculation of cash from Calculation of cash from operations:operations:

Closing Closing Balance Balance of of Profit Profit & & loss loss a/c a/c 1,36,000 Add: Non-operating expenses

General General Reserve Reserve 20,000

Provision Provision for for tax tax 18,000 2,58,000 Less: Non-operating incomes

Profit Profit on on sale sale of of investments investments 1,000 Profit

Profit on on sale sale of of fixed fixed assets assets 4,000 5,000 Opening

Opening Balance Balance of of Profit Profit & & loss loss a/c a/c 1,12,000 Cash

Cash from from operations operations before before Working Working Capital Capital Changes Changes 2,77,000   

3.

The financial The financial position of position of MNR Ltd on MNR Ltd on 11stApril 2005 and 31stMarch 2006 was as March 2006 was as followsfollows

1-4-2005 Rs

31-3-2006 Rs

1-4-2005 Rs

31-3-2006 Rs

C

Cuurrrreennt t LLiiaabbiilliittiiees s 33,,6600,,000000 44,,1100,,0000 CCaasshh 4400,,000000 3366,,000000 Loan from

associate company

2,00,000

Debtors Stock  Land

3,50,000 2,50,000 2,00,000

3,84,000 2,20,000 3,00,000 L

Looaan n ffrroom m BBaannkk 33,,0000,,000000 22,,5500,,0000 BBuuiillddiinnggss 55,,0000,,000000 55,,5500,,000000 Ca

Capipittal al aand nd ReReseservrveess 1414,,8080,,0000

0

1

144,,9900,,0000 MMaacchhiinneerryy 1100,,7700,,0000

0 12,20,000 Prov.for 

Depreciation

2 2,,7700,,000000 33,,6600,,0000

24,10,00

0

2

277,,1100,,0000 2244,,1100,,0000

0 27,10,00

0 During the year Rs 2,60,000 were paid as dividends You

During the year Rs 2,60,000 were paid as dividends You are requiredare required to prepare a Cash Flow Statement as per Revised AS-3

Solution 3:

Cash Flow Statement of MNR Ltd for the year 2005 – Cash Flow Statement of MNR Ltd for the year 2005 – 0606

R Rss RRss

(A) Cash Flows from Cash Flows from Operational ActivitiesOperational Activities Net profit before taxation and

Net profit before taxation and extraordinary itemsextraordinary items 2,70,000 (14,90,000 – 14,80,000 + 2,60,000 dividend)

Adjustment Adjustment for for Depreciation Depreciation 90,000

Pr Profofit it frfrom om TrTradadining g OpOpereratatioionsns 3,3,6060,0,00000 IInnccrreeaasse e iin n SSuunnddrry y DDeebbttoorrss ((3344,,000000)) D

Deeccrreeaasse e iin n SSttoocckk 3300,,000000 Increase

Increase in in Current Current Liabilities Liabilities 50,000

  N Neet t CCaassh h ffrroom Oppeerraattiioonnaal l AAccttiivviittiieess 44,,0066,,0000 (B) Cash Flows from Investing Activities

P

Puurrcchhaasse e oof f BBuuiillddiinngg ((5500,,000000)) P

Puurrcchhaasse e oof f LLaanndd ((11,,0000,,000000)) P

Puurrcchhaasse e oof f MMaacchhiinneerryy ((11,,5500,,000000))

  NNeet t CCaassh h uusseed d oon n iinnvveessttiinng g aaccttiivviittiieess ((33,,0000,,0000)) (C) Cash Flows from Financing Activities

Looaan n ffrroom m AAssssoocciiaatteed d CCoommppaannyy 22,,0000,,000000 R

Reeppaayymmeennt t oof f BBaannk k LLooaann ((5500,,000000)) P

Paayymmeennt t oof f DDiivviiddeenndd ((22,,6600,,000000))

  NNeet t ddeeccrreeaasse e iin n CCaassh h aannd d CCaassh h eeqquuiivvaalleennttss ((11,,1100,,0000))

(4,000) C

Caassh h aannd Caassh h eeqquuiivvaalleenntts s aat t tthhe e bbeeggiinnnniinng g oof f tthhe e ppeerriioodd 4400,,000000 C

Caassh h aannd d CCaassh h eeqquuiivvaalleenntts s aat t tthhe e eennd d oof f tthhe e ppeerriioodd 3366,,000000

4

4 Sun Ltd giveSun Ltd gives you the follows you the following information ing information for the yeafor the year ended March 31, 20r ended March 31, 200606

a SaleSales for the ys for the year totear totaled Rsaled Rs.96,0.96,00,0000,000 The com The company sepany sells goolls goods for cds for cash onlyash only

 b. Cost of goods sold was 60% of sales Closing inventory was higher than opening inventory by Rs.43,000 Trade creditors on March 31, 2006 exceede

Rs.43,000 Trade creditors on March 31, 2006 exceede those on March 31those on March 31st, 2005 by Rs.23,000

c.   Net profit before tax was Rs.13,80,000 Tax paid amounted to Rs.7,00,000 Depreciation on fixe

fixed d assetassets s for the for the yeayear r was Rs.3,15was Rs.3,15,000 where ,000 where as as otheother r expeexpenses totaled Rs.21,nses totaled Rs.21,45,0045,000.0 Out

Outstastandinding ng expexpensenses es on on MarMarch ch 31, 2005 31, 2005 and on and on MarMarch ch 3131st, , 2002006 6 wewere re RsRs.82.82,00,000 0 andand Rs.91,000

Rs.91,000 respectivelyrespectively

d New maNew machinechinery and fury and furnitrniture cosure costing Rting Rs.10,s.10,27,5027,500 in all w0 in all were purere purchaschased.ed

e A rightA rights issue ws issue was made oas made of 50,00f 50,000 equit0 equity shary shares of Rs.es of Rs.10 eac10 each at a premih at a premium of Rs.um of Rs.3 per shar3 per share.e The entire money was

The entire money was received with applications.received with applications

f DivDivideidends nds paipaid amd amounounted ted to Rto Rs.4s.4,07,07,00,000.0

g. Cash in hand and at bank on March 31st, 2005 and March 31st, 2006 are Rs.2,13800 and Rs.4,13,300

You are required to prepare a You are required to prepare a cash flow statement using (a) direct method and cash flow statement using (a) direct method and (b) indirect method.(b) indirect method

  Solution 4

(a) Direct Method    Cash flow statement of Sun Ltd for the year Cash flow statement of Sun Ltd for the year ended March 31, 2006ended March 31, 2006 P

Cash flows from operating activities:

C Caassh h rreecceeiipptts s ffrroom m ccuussttoommeerrss 9966,,0000,,0000 C

Caassh h ppaaiid d tto o ssuupplliieerrs s aannd d eemmppllooyyeeeess ((7799,,1166,,000000)) C

Caassh h iinnfflloow w ffrroom m ooppeerraattiioonnss 1166,,8844,,0000 T

  N Neet t ccaassh h ffrroom m ooppeerraattiinng g aaccttiivviittiieess 99,,8844,,0000 Cash flows from investing activities:

P

Puurrcchhaasse e oof f ffiixxeed d aasssseettss ((1100,,2277,,550000))   N

Neet t ccaassh h uusseed d iin n iinnvveessttiinng g aaccttiivviittiieess ((1100,,2277,,550000)) Cash flows from financing

Cash flows from financing activities:activities:

P Prroocceeeedds s ffrroom m iissssuue e oof f sshhaarre e ccaappiittaall 66,,5500,,0000 D

Diivviiddeenndds s aannd d ccoorrppoorraatte e ddiivviiddeennd d ttaax x ppaaiidd ((44,,0077,,000000))   N

Neet t ccaassh h ffrroom m ffiinnaanncciinng g aaccttiivviittiieess 22,,4433,,0000   N

Neet t iinnccrreeaasse e iin n ccaassh h aannd d ccaassh h eeqquuiivvaalleennttss 11,,9999,,5500 C

Caassh h aannd d ccaassh h eeqquuiivvaalleenntts s aas s aat t MMaarrcch h 3311, , 200055 22,,1133,,8800 C

Caassh h aannd d ccaassh h eeqquuiivvaalleenntts s aas s aat t MMaarrcch h 3311, , 200066 44,,1133,,3300 Working notes:

   (i) Calculation of cash paid to (i) Calculation of cash paid to suppliers and employeessuppliers and employees

Cost Cost of of sales sales (60% (60% of of Rs.96,00,000) Rs.96,00,000) 57,60,000 Add:

Add: Expenses Expenses incurred incurred 21,45,000 outstanding

outstanding expenses expenses on on March March 31, 31, 2005 2005 82,000 closing

closing inventory inventory excess excess over over opening opening inventory inventory 43,000

80,30,000 Less:

Less: Excess Excess of of closing closing creditors creditors over over opening opening creditors creditors 23,000 outstanding

outstanding expenses expenses as as on on March March 31, 31, 2006 2006 91,000

79,16,000 (b) Indirect Method:

   Cash flow statement of Sun Ltd for the year Cash flow statement of Sun Ltd for the year ended March 31, 2006ended March 31, 2006 P

Cash flows from operating activities:

   N Neet t PPrrooffiit t bbeeffoorre e ttaaxx 1133,,8800,,000000 A

Adddd: : ddeepprreecciiaattiioonn 33,,1155,,0000 O

Oppeerraattiinng pg prrooffiit bt beeffoorre we woorrkkiinng cg caappiittaal cl chhaannggeess 1166,,9955,,0000 Adjustments for:

Increase in inventory Increase in trade Increase in trade creditorscreditors Increase in outstanding expenses

(43,000) 23,000 9,000   N

Neet t ccaassh h ffrroom m ooppeerraattiinng g aaccttiivviittiieess 1166,,8844,,000000 L

Leesss s ttaax x ppaaiidd ((77,,0000,,000000)) 99,,8844,,0000 Cash flows from investing activities:

P

Puurrcchhaasse e oof f ffiixxeed d aasssseettss ((1100,,2277,,550000))   N

Neet t ccaassh h uusseed d iin n iinnvveessttiinng g aaccttiivviittiieess ((1100,,2277,,550000)) Cash flows from financing

Cash flows from financing activities:activities:

P Prroocceeeedds s ffrroom m iissssuue e oof f sshhaarre e ccaappiittaall 66,,5500,,0000 D

Diivviiddeenndds s aannd d ccoorrppoorraatte e ddiivviiddeennd d ttaax x ppaaiidd ((44,,0077,,000000))   N

Neet t ccaassh h ffrroom m ffiinnaanncciinng g aaccttiivviittiieess 22,,4433,,0000   N

Neet t iinnccrreeaasse e iin n ccaassh h aannd d ccaassh h eeqquuiivvaalleennttss 11,,9999,,5500 C

Caassh h aannd d ccaassh h eeqquuiivvaalleenntts s aas s aat t MMaarrcch h 3311, , 200055 22,,1133,,8800 C

Caassh h aannd d ccaassh h eeqquuiivvaalleenntts s aas s aat t MMaarrcch h 3311, , 200066 44,,1133,,3300

5

5 Pioneer Ltd’s Pioneer Ltd’s summarized balasummarized balance sheets as at nce sheets as at March 31, 2005 aMarch 31, 2005 and March 31, 2006 arnd March 31, 2006 are given belowe given below

Balance Sheet of Pioneer Ltd.  as on March 31, 2005 and 2006as on March 31, 2005 and 2006 P

Paarrttiiccuullaarrss 22005 5 RRss 22006 6 RRss PPaarrttiiccuullaarrss 2200005 5 RRss 22006 6 RRss E

Eqquuiitty y sshhaarre e ccaappiittaall 55,,0000,,0000 1122,,0000,,0000 PPllaannt t & & mmaacchhiinneerryy 77,,0000,,0000 99,,0000,,000000 S

Seeccuurriittiiees s pprreemmiiuumm 33,,5500,,0000 FFuurrnniittuurre e & & ffiixxttuurreess 9900,,0000 8811,,000000 G

Geenneerraal l rreesseerrvvee 22,,8800,,0000 33,,3300,,0000 SSttoocck k 44,,2255,,0000 66,,1199,,000000 P

Prrooffiit t & & lloosss s aa//cc 6600,,0000 5599,,7750 DDeebbttoorrs s 11,,2200,,0000 22,,3300,,000000 1

133% % cconvveerrttiibbllee debentures

3 3,,0000,,0000 CCaassh h aat t bbaannk  k  

Share issue expenses

2,52,500

5,80,000 20,000 B

Biilllls s ppaayyaabbllee 5500,,0000 3300,,0000 CCoosst t oof f iissssuue e oof  f  

debentures

5

S

Suunnddrry y ccrreeddiittoorrss 11,,9900,,0000 11,,9955,,0000 P

Prroovviissiioon n ffoor r ttaaxx 11,,3300,,0000 11,,5522,,5500 P

Prrooppoosseed d ddiivviiddeennddss 7755,,0000 11,,0022,,5500 P

Prroovviissiioon n ffoor  r   co

corprpororatate e didivividedendnd tax

7 7,,5500 1100,,2250

1

155,,9922,,5500 2244,,3300,,0000 1155,,9922,,5500 2244,,3300,,000000 The following additional information is provided for you:

i On AprOn April1il1stst, 2005 13, 2005 13% conv% convertertiblible debee debentuntureres of the facs of the face value value of Rs.e of Rs.3,03,00,00,000 wer00 were convee convertertedd into 20,000 equity shares of Rs.10 each

into 20,000 equity shares of Rs.10 each issued at a premium of issued at a premium of Rs.5 each.Rs.5 each

ii PlanPlant wat was purs purchasechased durid during the ng the year year for Rfor Rs.3,s.3,00,0000,000; ha0; half of lf of the cthe considonsiderateration wion was dias dischascharged brged byy issue to the vendor 10,000 equity shares of Rs.10 each at a premium of Rs.5 each while the  balance was paid in cash

iii Tax Tax liabliability ility for for the athe accounccounting ting year year 2004-02004-05 Rs5 Rs.1,30.1,30,000 ,000 was was dischdischargearged in d in May, May, 2005.2005

iv PropProposed osed dividdividend aend and cond corporarporate dite dividenvidend tax d tax therthereon foeon for 200r 2004-05 4-05 was was paid paid in Ain Augustugust, 200, 2005.5

You are required to prepare a You are required to prepare a cash flow statement for the year ended March cash flow statement for the year ended March 3131st, 2006

Solution 5:

   Cash flow Statement (CFS) for the year ended 31.3.2006

P Paarrttiiccuullaarrss AAmmoouunntt AAmmoountt

a Cash flow from operating activities (Indirect approach)

C Clloossiinng g bbaallaanncce e oof f pprrooffiit t aannd d lloosss s aa//cc 5599,,775500 L

Leessss: : OOppeenniinng g bbaallaanncce e oof f pprrooffiit t & & lloosss s aa//cc 6600,,000000   

N Neet t ddeeccrreeaasse e iin n pprrooffiit t & & lloosss s aa//cc ((2250)) Add: non-cash and

Add: non-cash and non-operating expensesnon-operating expenses D

Deepprreecciiaattiioon n oon n ppllaannt t & & mmaacchhiinneerryy 11,,0000,,000000 Depreciati

Depreciation on on on furniture furniture 9,000 C

Coosst t oof f iissssuue e oof f ddeebbeennttuurrees s wwrriitttteen n ooffff 55,,000000 T

Trraannssffeer r tto o ggeenneerraal l rreesseerrvvee 5500,,000000 P

Prrooposseed d ddiivviiddeennddss 11,,0022,,550000 D

Diivviiddeennd d ttaax x oon n pprrooppoosseed d ddiivviiddeennddss 1100,,225500 P

Prroovviissiioon n ffoor r ttaaxx 11,,5522,,550000 Cash

Cash from from operations operations before before tax tax 4,29,000 L

Leessssttaaxxppaaiidd ((11,,3300,,000000)) C

Casash h ffrrom om opopeerratatiionons s bebefforore e wwororkiking ng ccapapititaal l chchananggeses 2,2,9999,,000000 Adjustments for WC changes

IInnccrreeaasse e iin n ssttoocckk ((11,,9944,,000000)) IInnccrreeaasse e iin n ddeebbttoorrss ((11,,1100,,000000)) D

Deeccrreeaasse e iin n BBiilllls s ppaayyaabbllee ((2200,,000000)) IInnccrreeaasse e iin n ccrreeddiittoorrss 55,,000000 C

Caassh h uusseed d iin n ooppeerraattiinng g aaccttiivviittiieess ((2200,,0000))

 b Cash flows from investing activities

P

Puurrcchhaasse e oof f mmaacchhiinneerryy ((11,,5500,,000000)) C

Caassh h uusseed d iin n iinnvveessttiinng g aaccttiivviittiieess ((11,,5500,,0000))

c Cash flows from financing activities

IIssssuue e oof f sshhaarre e ccaappiittaall 44,,0000,,000000 R

Reecceeiippt t oof f sshhaarre e pprreemmiiuumm 22,,0000,,000000 Dividends

D Diivviiddeennd d ttaax x ppaaiidd ((77,,550000)) E

Exxppeennssees s oof f sshhaarre e iissssuuee ((2200,,000000)) C

Caassh h ffrroom m ffiinnaanncciinng g aaccttiivviittiieess 44,,9977,,5500   N

Neet t iinnccrreeaasse e iin n ccaassh h aannd d ccaassh h eeqquuiivvaalleennttss 33,,2277,,5500 A

Adddd: : ooppeenniinng g bbaallaanncce e oof f ccaassh h aannd d ccaassh h eeqquuiivvaalleennttss 22,,5522,,5500 C

Clloossiinng g bbaallaanncce e oof f ccaassh h aannd d ccaassh h eeqquuiivvaalleennttss 55,,8800,,0000 WN-1:

P Paarrttiiccuullaarrss AAmmoouunnt Pt Paarrttiiccuullaarrss AAmmoouunntt T

To o BBaallaanncce e bb//d d 77,,0000,,0000 BBy y ddeepprreecciiaattiioonn 11,,0000,,0000

To purchase of machinery (cash)

1,5 1,50,00,00000 By bBy balaalance cnce c/d/d

9,00,000

To

To pupurcrchahase se of of plplanant (t (shsharareses)) 1,1,5050,0,00000

10,00,00

6

6 From the fFrom the following inforollowing information preparmation prepare cash flow ste cash flow statement for atement for the year the year ended 31.12.2004 by ended 31.12.2004 by IndirectIndirect

Method:

Balance Sheet as at 31st December L

Liiaabbiilliittiieess 220033 220044 AAsssseettss 220033 220004 S

Shhaarre e ccaappiittaall 33,,0000,,0000 33,,5500,,0000 LLaannd d & & BBuuiillddiinnggss 22,,2200,,000000 33,,0000,,0000 B

Baannk k oovveerrddrraafftt 33,,2200,,0000 22,,0000,,0000 MMaacchhiinneerryy 44,,0000,,000000 22,,8800,,0000 B

Biilllls s ppaayyaabbllee 11,,0000,,0000 8800,,0000 SSttoocckk 11,,0000,,000000 9900,,0000 C

Crreeddiittoorrss 11,,8800,,0000 22,,5500,,0000 DDeebbttoorrss 11,,4400,,000000 11,,66000000

C Caasshh 4400,,000000 5500,,0000 9

9,,0000,,0000 88,,8800,,0000 99,,0000,,000000 88,,8800,,0000 Additional Information

a NeNet prt profofit fit for tor the yhe yeaear 20r 2004 a04 amomoununteted to d to RsRs.1.1,2,20,0,000000

 b DuriDuring tng the yhe year, ear, a Ma Machinachinery ery costcosting ing Rs.5Rs.50,000 0,000 (acc(accumulaumulated dted depreepreciatciation ion Rs.20Rs.20,000) ,000) waswas

sold for Rs.26,000 The provision for depreciation against Machinery as on 31.12.2003 was Rs.1,00,000 and on

Rs.1,00,000 and on 31.12.2004 Rs.1,70,000.31.12.2004 Rs.1,70,000

Solution 6:

Cash flow Statement (CFS) for the year ended 31.12.2004

P Paarrttiiccuullaarrss AAmmoouunntt AAmmoountt

a Cash flow from operating activities (Indirect approach)

P Prrooffiit t bbeeffoorre e ttaax x aannd d eexxttrra a oorrddiinnaarry y iitteemmss 11,,2200,,000000 A

Adddd: : DDeepprreecciiaattiioon n [[WWN N ((bb))]] 9900,,000000 A

Adddd: : LLoosss s oon n ssaalle e oof f aasssseet t ((WWNN 11((cc))]] 44,,000000 O

Oppeerraattiinng g pprrooffiit t bbeeffoorre e wwoorrkkiinng g ccaappiittaal l cchhaannggeess 22,,1144,,000000 Adjustments for WC changes

D Deeccrreeaasseeiinnssttoocckk 1100,,000000 IInnccrreeaasse e iin n ddeebbttoorrss ((2200,,000000)) D

Deeccrreeaasse e iin n BBiilllls s ppaayyaabbllee ((2200,,000000)) IInnccrreeaasse e iin n ccrreeddiittoorrss 7700,,000000 D

Deeccrreeaasse e iin n BBaannk k oovveerrddrraafftt ((11,,2200,,000000)) C

Caassh h ffrroom m ooppeerraattiinng g aaccttiivviittiieess 11,,3344,,0000

 b Cash flows from investing activities

S Saalleeooffmmaacchhiinneerryy 2266,,000000 P

Puurrcchhaasse e oof f LLaannd d & & BBuuiillddiinnggss ((8800,,000000)) ((5544,,0000))

c Cash flows from financing activities

D

IInnccrreeaasse e iin n ccaassh h & ccaassh h eeqquuiivvaalleennttss 1100,,0000 WN-1:

P Paarrttiiccuullaarrss AAmmoount Pt Paarrttiiccuullaarrss AAmmoouunntt

To Balance b/d (4,00,000 + 1,00,000)

5,00,00 0

B

By y ssaalle e oof f mmaacchhiinneerry y aa//cc 5500,,0000 B

By y bbaallaanncce e cc//dd 44,,5500,,0000 5,00,00

  b DDrr Depreciation Reserves a/c Cr P

Paarrttiiccuullaarrss AAmmoount Pt Paarrttiiccuullaarrss AAmmoouunntt T

To o SSaalle e oof f MMaacchhiinneerry y aa//cc 2200,,0000 BBy y bbaallaanncce e bb//dd 11,,0000,,0000 T

To o BBaallaanncce e cc//dd 11,,7700,,0000

0

By P&L a/c (c.y depn.)

90,000 1,90,00

P Paarrttiiccuullaarrss AAmmoount Pt Paarrttiiccuullaarrss AAmmoouunntt T

To o MMaacchhiinneerry y aa//cc 5500,,0000 BBy y DDeepprreecciiaattiioon Reesseerrvvees s aa//cc 2200,,0000

B

By y BBaannk k ((ssaallee)) 2266,,0000 B

By y PP&&L L aa//cc– – LLoosss s oon n ssaallee 44,,0000 5

WN-2:

Rs

O

Oppeenniinng g ccaappiittaall 33,,0000,,0000 A

Adddd:: PPrrooffiit t dduurriinng g tthhe e yyeeaarr 11,,2200,,0000

4,20,000 L

Leessss:: CClloossiinng g ccaappiittaall 33,,5500,,0000

D

Reconciliation:

O

Oppeenniinng g ccaassh h bbaallaannccee 4400,,0000 C

Clloossiinng g ccaassh h bbaallaannccee 5500,,0000 IInnccrreeaasse e iin n ccaasshh 1100,,0000

7. The following data were provided by the accounting records of The following data were provided by the accounting records of Nally Ltd At the year end MarchNally Ltd At the year end March

31¸2004

Income statement P

S

C

Coossttooffggooddssssoolldd 11,,0044,,0000 G

O

Oppeerraattiinng g eexxppeennssees s iinncclluuddiinng g ddeepprreecciiaattiioon n eexxpp oof f RRss 77,,440000 2299,,4400 O

Other Other expenses/incomeexpenses/income::

IInntteerreesst t eexxppeennssees s ppaaiidd ((44,,6600)) IInntteerreesst t iinnccoomme e rreecceeiivveedd 11,,220000 G

Gaaiin n oon n ssaalle e oof f iinnvveessttmmeennttss 22,,440000 L

Loosss s oon n ssaalle e oof f ppllaanntt ((6600)) ((11,,6600))

4,600

P

Comparative Balance Sheet Liabilities 31.03.2004

Rs

31.03.2003

31.03.2004 Rs

31.03.2003 Rs S

Shhaarre e ccaappiittaall 9933,,0000 6633,,0000 PPllaanntt 11,,4433,,0000 11,,0011,,0000 R

Reesseerrvvees s & & SSuurrpplluuss 2288,,0000 2266,,4400 LLeessss: : AAccccuumullaatteed d DDeepp 2200,,6600 1133,,6600 B

Boondss 5599,,0000 4499,,0000 11,,2222,,4400 8877,,4400

Cuurrrreennt t LLiiaabbiilliittiieess:: IInnvveessttmmeennttss 2233,,0000 2255,,4400 A

Accccoountts s ppaayyaabbllee 1100,,0000 88,,6600 CCuurrrreennt t aasssseettss::

L Liiaabbiilliittiieess 22,,4400 11,,88000 I0 Innvveennttoorryy 2288,,8800 2222,,0000 IInnccoommee ttaax x ppaayyaabbllee 6600 11,,0000 DDeebbttoorrss 99,,4400 1111,,0000

C

P Prreeppaaiid d eexxppeennsseess 2200 11,,0000 1

1,,9933,,0000 11,,4499,,8800 11,,9933,,0000 11,,4499,,8800 Analysis of selected accounts and transaction during 2003-04

ii PPuurrcchhaasseed d iinnvveessttmmeenntts s ffoor r RRss 1155,,660000

ii ii SoSold ld ininveveststmementnts fs for Ror Rs.s.2020,4,40000 T Thehese se ininveveststmementnts cs cosost Rt Rs.s.1818,0,00000

iiiiii PPuurrcchhaasseed pd pllaannt ft foor Rr Rss 2244,,0000

iv iv SoSold ld plplanant tt thahat ct cosost Rt Rs.s.2,2,00000 w0 witith ah accccumumululatated ed dedeprprececiaiatition on of of RsRs.4.400 00 fofor Rr Rs.s.1,1,00000.0 v

v Issued Rs.20,000 worth Bonds at face value in exchange for plant purchased on 31st March, 2004.Issued Rs.20,000 worth Bonds at face value in exchange for plant purchased on 31st March, 2004 vi

vi On On mamatuturirityty, b, bononds ds of of RsRs.1.10,0,00000 r0 repepaiaid at d at faface ce vavalulue.e

vi vii.i IIssssueued 3d 3,,00000 s0 shahareres os of Rf Rs.s.10 10 eaeachch

vi viiiii PPaiaid cd casash dh diviviidedend nd RRs.s.1,1,606000

Prepare cash flow statement as per AS-3 (indirect method), and direct method

Solution 7:

Cash Flow Statement for the year ended 31.3.2004

P

A Cash from operating activities (Indirect Method)

1 1 PPrrooffiit t bbeeffoorre e ttaax x aannd d eexxttrra a oorrddiinnaarry y iitteemmss 44,,6600 2

2 AAddjjuussttmmeenntts s ffoor  r  

   b b LLoosss s oon n ssaalle e oof f PPllaanntt 6600 cc LLeessss: : GGaaiin n oon n SSaalle e oof f IInnvveessttmmeennttss ((22,,4400))

d LeLessss: : InIntetererest st inincocome me rerececeivived ed (1(1,2,20000))

ee IInntteerreesst t eexxppeennssees s ppaaiid d 44,,6600 O

Oppeerraattiinng g pprrooffiit t bbeeffoorre e wwoorrkkiinng g ccaappiittaal l cchhaannggeess 1133,,6600

3 AdAdjujuststmement nt fofor wr wororkiking ng cacapipitatal cl chahangngeses

aa IInnccrreeaasse e iin n IInnvveennttoorryy ((66,,8800))   

b b DDeeccrreeaasse e iin n ddeebbttoorrss 11,,6600 cc DDeeccrreeaasse e iin n PPrreeppaaiid d EExxppeennsseess 8800 d

d IInnccrreeaasse e iin n AAccccoountts s PPaayyaabbllee 11,,4400 ee IInnccrreeaasse e iin n aaccccrruueed d lliiaabbiilliittiieess 6600 C

Caassh h ggeenneerraatteed d ffrroom m ooppeerraattiioonnss 1111,,2200 T

Cash Cash flow flow before before extraordinarextraordinary y items items 9,400

Add/Less:

C Caassh h fflloow w ffrroom m ooppeerraattiinng g aaccttiivviittiieess 99,,4400

B Cash flow from investing activities

1 1 PPuurrcchhaasse e oof f PPllaannttss ((2244,,000000)) 2

2 SSaalle e pprroocceeeedds s oof f ppllaanntt 11,,000000 3

3 PPuurrcchhaasse e oof f iinnvveessttmmeennttss ((1155,,660000)) 4

4 SSaalle e pprroocceeeedds s oof f iinnvveessttmmeennttss 2200,,440000 5

5 IInntt iinnccoomme e rreecceeiivveedd 11,,220000

(17,000)

C Cash flow from financing activities

1 1 IIssssuueeooffsshhaarreess 3300,,000000 2

2 RReeppaayymmeennt t oof f ffuunnddss ((1100,,000000)) 3

3 IInntteerreessttppaaiidd ((44,,660000)) 4

4 DDiivviiddeennddppaaiidd ((11,,660000))

13,800 1

1 RReeccoonncciilliiaattiioonn

O

Oppeenniinng g bbaallaannccee 33,,000000 C

Clloossiinng g BBaallaannccee 99,,220000

Indirect Method WN-1:

Plant A/c

D

Rs

Rs T

To o BBaallaanncce e bb//dd 8877,,4400 BBy y BBaannk k ((SSaallee)) 11,,000000

” BBaannkk 2244,,0000 ” PPrrooffiit t & LLoosss s aa//cc 660000

” BBoonnddss 2200,,0000 ” DDeepprreecciiaattiioonn 77,,440000

” BBaallaanncce e cc//dd 11,,2222,,440000 1

1,,3311,,4400 11,,3311,,440000

Accumulated Depreciation a/c

D

Rs

Rs T

To o PPllaannt t aa//cc 4400 BBy y BBaallaanncce e bb//dd 1133,,660000 T

To o BBaallaanncce e cc//dd 2200,,6600 BBy y PPrrooffiit t & & LLoosss s aa//cc 77,,440000

2

Tax a/c

D