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1. Vinay Electronics Company had a net loss of Rs. 48,000 but cash increased due to proceeds from issuing secured debentures, unsecured loans, and equity shares totaling Rs. 17,800 under financing activities. 2. Arun Music Company had a net profit of Rs. 2,900 but cash decreased because of a rise in current assets like inventory and debtors, and large investments in plant and machinery. 3. Both companies' cash flows were impacted by financing activities like loans and investments, as well as changes in working capital, even though one had a net loss and the other a net profit.

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1K views4 pages

Solution All

1. Vinay Electronics Company had a net loss of Rs. 48,000 but cash increased due to proceeds from issuing secured debentures, unsecured loans, and equity shares totaling Rs. 17,800 under financing activities. 2. Arun Music Company had a net profit of Rs. 2,900 but cash decreased because of a rise in current assets like inventory and debtors, and large investments in plant and machinery. 3. Both companies' cash flows were impacted by financing activities like loans and investments, as well as changes in working capital, even though one had a net loss and the other a net profit.

Uploaded by

Lanka Saikiran
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Solution 12.C.

4, Pg 627 In the Books of Vinay Electronics Company CASH FLOW STAMENT for the year ended 31st July, 20X7 (using indirect method)

` Cash Flow from Operating Activities Net profit before income tax and extra ordinary items (4800) - 1700 for Insurance proceeds Adjustments + Depreciation 2100 - Gain on Sale of Investments (1900) - Dividend Income (1200) + Provision for Doubtful debts 2200 - Interest Income (1400) + Interest Expense 6400 + Loss of sale of Patents 2600 Operating Profit before Working Capital Changes + Decrease in Inventories 5800 +Increase in Bills Payable 3200 -Increase in Debtors(including provision of 2200) (6600) -Increase in prepaid expenses (300) +Decrease in creditors (4100) A Cash generated from Operations Income Tax Paid Cash flow before extra ordinary items Extra Ordinary Item: Proceeds from Earthquake Insurance Claim Net Cash provided by Operating activities Cash Flow from Investing Activities Purchase of Machinery (13900) Proceeds from sale of Patents 300 Proceeds from sale of Investments 6800 Purchase of Investments (1300) Dividend Income 1200 Interest Income 1400 B Net cash used in investing activities Cash Flow from Financing Activities Repayment of Unsecured Loan (1400) Redemption of Secured debentures (2400) Proceed from Issuance of Secured Debentures 15000 Proceed from Issuance of unsecured loans 11000 Proceed from Issuance of equity shares 2000 Interest Expense (6400) C Net Cash provided by Financing activities A+B+C Net Increase in Cash and Cash Equivalents Opening balance of Cash and Cash Equivalents Closing Balance of Cash and Cash Equivalents

`
(6500)

8800 2300

(2000) 300 (1500) (1200) 1700 500

(5500)

17800 12800 3300 16100

Supplement Schedule of Non Cash Financing Activities That the company purchased machinery for ` 6300 on unsecured credit. Disclosure of Accounting Policy That for the purpose of the cash flow statement, the company considers all highly liquid debt instruments purchased with a maturity of three months or less from the date of acquisition to be cash equivalents.

3. In spite of a net loss of ` 48,000 the company, Vinay Electronics has demonstrated an increase in cash because the company has a considerable income from Financing activities due to proceeds from issuance of Secured Debentures, unsecured loans and equity shares.

Solution 12B.5, Pg 624 In the books of Arun Music Company CASH FLOW STAMENT for the year ended 31st July, 20X5 (using indirect method)
Cash Flow from Operating Activities Net profit before income tax Adjustments + Depreciation - Gain on Sale of Plant - Dividend Income + Provision for Doubtful debts - Interest Income +Loss on sale of Investment + Interest Expense Operating Profit before Working Capital Changes -Increase in Inventories +Incraese in Bills Payable -Increase in Debtors(including provision of 3200) -Increase in prepaid expenses +Increase in creditors Cash generated from Operations Income Tax Paid Net Cash provided by Operating activities Cash Flow from Investing Activities Purchase of Machinery Proceeds from sale of Plant Proceeds from sale of Investments Purchase of Investments Dividend Income Interest Income Net cash used in investing activities Cash Flow from Financing Activities Repayment of Unsecured Loan Redumption of Secured debentures Proceed from Issuance of equity shares Interest Expense Net Cash provided by Financing activities Net Increase in Cash and Cash Equivalents Opening balance of Cash and Cash Equivalents Closing Balance of Cash and Cash Equivalents 4800 6100 (2300) (1800) 3200 (1200) 1400 2200 (4900) 1200 (8700) (900) 4300

7600 12400

(9000) 3400 (2900) 500

A
(19900) 5000 9600 (1900) 1800 1200

B
(4100) (600) 8000 (2200)

(4200)

C A+B+C

1100 (2600) 3800 1200

Supplement Schedule of Non Cash Investing Activities That the company purchased machinery for ` 5500 on unsecured credit. Disclosure of Accounting Policy That for the purpose of the cash flow statement, the company considers all highly liquid debt instruments purchased with a maturity of three months or less from the date of acquisition to be cash equivalents.

3. In spite of a net profit of ` 2900 the company, Arun Music has a decrease in cash because the company has a considerable rice in current assets (Inventory and Debtors) also, the company has made huge investments in Plant and Machinery.

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