Cash Flow Statements

Learning Objectives:
• Meaning of Cash Flow Statement
• Cash and Cash Equivalents
• Preparation of cash flow statement by direct method and indirect method.
• Reporting Cash Flows from Operating Activities
• Reporting Cash Flows from Investing and Financing Activities

1. Meaning of Cash Flow Statement

Cash Flow Statements is a statements which presents Inflows and Outflows of cash
and cash equivalents during specified period. It is a part of the financial statements.

2. Cash and Cash Equivalents

Cash and cash equivalent includes:
• cash in hand
• cash at bank
• drafts or cheques in hand and
• demand deposits with banks
• 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. It includes short term investments or deposits or
advances which can be realised within 3 months (intention for realisation
is critical). Sometimes such short term investments are referred to as
marketable securities.

Example 1
X Ltd. purchased debentures of ₹10 lacs of Y Ltd., which are redeemable within three
months.

Solution:
As per AS 3 on ‘Cash flow Statement’, cash and cash equivalents consists of cash in
hand, balance with banks and short-term, highly liquid investments (Intended to be
realised within 3 months). If investment, of ₹10 lacs, made in debentures is for short-
term period then it is an item of ‘cash equivalents’.
However, if investment of ₹10 lacs made in debentures is for long-term period then as
per AS 3, it should be shown as cash flow from investing activities.

Cash Flow Statements CA Bishnu Kedia

3. Classification of Cash Flows
Cash Flows are inflows and outflows of cash and cash equivalents and are classified
into following activities:
• Cash Flow from Operating Activities.
• Cash Flow from Investing Activities.
• Cash Flow from Financing Activities.

4. Operating activities
Operating activities are the principal revenue-producing activities of the enterprise
and other activities that are not investing or financing activities.
Examples of cash flows from operating activities are:
Inflows Outflows
Cash Sales Cash Purchases
Collection from customers Payment to creditors
Commission received Expenses paid (excluding interest)
Royalty / Other revenue received Income tax paid
Tax refund GST / Other taxes paid
Insurance cliam received for loss of stock Cash defalcation
Lottery received Cash lost by fire
Receipts relating to derivatives held for Payments relating to derivatives held for
trading trading

Direct Method (A)

Cash Sale xxx
Collection from Debtors xxx
Cash Purchases (xx)
Payment to Creditors (xx)
Payment for Operating Expenses (xx)
Cash Generated from Operations xxx
Taxes Paid (xx)
Cash Flow before extra-ordinary items xxx
Extra-ordinary items xxx
Net Cash from Operating Activities xxx

Cash Flow Statements CA Bishnu Kedia

Indirect Method (A)
Net Profit before Tax and Extraordinary Items (NPBT&EOI) xxx
Adjustments for Non Cash and Non-Operating items:
Add: xxx
Depreciation / Amortisation xxx
Loss on issue, Prelim. Exp, share issue exp. Underwriter comm. w/off in PL xxx
Interest Expense xxx
Loss on sale of asset / loss on sale of investment xxx
Less:
Interest income (xxx)
Dividend income (xxx)
Rent income (xxx)
Profit on sale of asset asset / loss on sale of investment (xxx)
Liability written back (xxx)
Operating Profit before Working Capital changes xxx
Adjustments for Working Capital Changes:
Add:
Decrease in Inventory/ Debtor/ BR/ Prepaid expense xxx
Increase in Creditor/ BP/ Outstanding expense xxx
Less:
Increase in Inventory/ Debtor/ BR/ Prepaid expense (xxx)
Decrease in Creditor/ BP/ Outstanding expense (xxx)
Cash generated from Operations xxx
Taxes Paid (Net of Refund) (xxx)
Cash Flow before Extraordinary items xxx
Extraordinary items xxx
Net Cash flow from / used in Operating Activities xxx

Calculation of Net Profit before Tax and Extraordinary Items (NPBT&EOI)

Closing Surplus in P/L XX

Less: Opening Surplus in P/L (XX)
Change in surplus XX
Add:
Dividend DECLARED during the year (Equity / Preference / Final / Interim) XX
Transferred to Reserves XX
Tax provided during the year XX
Net Profit before Tax and Extraordinary Items XX

Cash Flow Statements CA Bishnu Kedia

5. Investing activities
Investing activities are the acquisition and disposal of long-term assets and other
investments not included in cash equivalents.
Inflows Outflows
Proceeds from sale of asset/ investments Payment on purchase of asset/ investment
Interest received Loan given
Dividend received Capital gain tax paid
Rent received Purchase of shares in group entities
Repayment of loan given Expenditure on Capital work in progress
Insurance cliam received for loss of asset
Grant received for capital assets

Cash flow from Investing Activities (B)

Proceeds from sale of assets / investments xxx
Income from Investments received like interest / dividend / rent received xxx
Repayment of loan given xxx
Grant received for capital assets xxx
Insurance claim received for loss of asset xxx
Payment on purchase of assets / investment (xxx)
Loan given (xxx)
Purchase of shares in subsidiaries / associates / joint ventures (xxx)
Expenditure on capital work in progress (xxx)
Net Cash from Investing Activities xxx

6. Financing activities
Financing activities are activities that result in changes in the size and composition
of the owners’ capital (including preference share capital in the case of a company)
and borrowings of the enterprise.
Inflows Outflows
Loan taken Payment on buyback of equity shares
Proceeds from issue of shares/ debentures Payment on redemption of preference
(including premium amount and net of shares / debentures
share issue expenses/ underwriting Interest paid
commission, if any) Dividend paid (Equity / Preference / Final
/ Interim) and CDT / DDT pain on it.
Public deposits accepted Loan repaid
Increase in overdraft balance Public deposits repaid
Decrease in overdraft balance

Cash Flow Statements CA Bishnu Kedia

Cash flow from Financing Activities (C)
Proceeds from Issue of Equity shares / Preference shares / Debentures xxx
(including premium amount and net of share issue expenses/
underwriting commission, if any)
Loan taken / Public deposits accepted xxx
Increase in overdraft balance xxx
Buyback of equity shares / redemption of preference capital / debentures (xxx)
Decrease in overdraft balance (xxx)
Interest paid / dividend paid (xxx)
Net Cash from Financing Activities xxx
TOTAL (A + B + C) xxx
Add : Cash & Cash Equivalent at the beginning of the period xxx
Cash & Cash equivalent at the end of the period xxx

Example 2
Activity Inflow / Operating /
Outflow / Investing /
No Flow Financing /
Cash
Equivalent
Purchase of Machinery
Proceeds from issuance of equity share capital
Cash Sales
Proceeds from long-term borrowings
Cheques collected from Trade receivables
Cash receipts from Trade receivables
Trading Commission received
Purchase of investment
Redemption of Preference Shares
Cash Purchases
Proceeds from sale of investment
Purchase of goodwill
Cash paid to suppliers
Interim Dividend paid on equity shares
Wages and salaries paid
Proceed from sale of patents
Interest received on debentures held as investment
Interest paid on Long-term borrowings
Office and Administration Expenses paid

Cash Flow Statements CA Bishnu Kedia

 Manufacturing Overheads paid
Dividend received on shares held as investments
Rent Received on property held as investment
Selling and distribution expense paid
Income tax paid
Dividend paid on Preference shares
Underwritings Commission paid
Rent paid
Brokerage paid on purchase of investments
Goods lost by fire
Machinery purchased by issue of shares
Creditor settled by accepting Bill
Cash deposited into bank
Interest received on marketable securities
Interest paid by financial enterprise
Deposit with bank for a term of 2 years
Insurance claim received for loss of machinery by fire.
Bad debts written off
Corporate income tax paid
Payment of Advance tax
Payment of capital gain tax
Loans & advances to Subsidiary and interest earned
Invest in Subsidiary and dividend received
Bank Overdraft obtained
Cash Credit
Highly liquid Marketable Securities (without risk of
change in value)
Refund of Income Tax received

Important Notes:
1. In case of financial entities, interest and dividend received are considered operating
activities and interest paid is also considered operating activities.
2. Interest received by Financial institutions like banks,NBFC, etc. classify it as
Operating Activity (For others it is investing activity)
3. Interest paid by Financial institutions like Banks,NBFC etc., classify it as Operating
Activities ( For others it is Financing activity )
4. Dividend Paid is always classified as Financing Activity for all the entities.
5. Investment in Subsidiary or group Company is classified as Investing Activities.

Cash Flow Statements CA Bishnu Kedia

6. Taxes (including Self-Assessment Tax, TDS, Withholding tax) should be classified
as follows :
Corporation Dividend Tax is Financing Activity
Tax on investment income is Investing Activity
Other taxes paid are Operating Activity
7. Extraordinary Items are reported as separate item in Cash Flows.
a. Voluntary Retirement Compensation Paid → Operating Items
b. Law suit payment/received → Operating Item
c. Insurance Claim on loss of PPE → Investing Activity
8. Government Grant received for Capital Assets / Fixed Assets is Investing Activity
and as capital contribution is Financial Activity.

Question 1
From the following Summary Cash Account of X Ltd. prepare Cash Flow Statement for
the year ended 31st March, 2011 in accordance with AS 3 (Revised) using the direct
method. The company does not have any cash equivalents.
Summary Cash Account for the year ended 31.3.2011
₹ 000 ₹ 000
Balance on 1.4.2010 50 Payment to Suppliers 2,000
Issue of Equity Shares 300 Purchase of Fixed Asset 200
Receipts from Customers 2,800 Overhead expense 200
Sale of Fixed Assets 100 Wages and Salaries 100
Taxation 250
Dividend 50
Repayment of Bank Loan 300
Balance on 31.3.2011 150
3,250 3,250

Solution
Cash Flow Statement of X Ltd. for the year ended 31st March, 2011
₹ 000 ₹ 000
Cash flows from operating activities
Cash receipts from customers 2,800
Cash payments to suppliers (2,000)
Cash paid to employees (100)
Cash payments for overheads (200)
Cash generated from operations 500
Income tax paid (250)
Net cash generated from operating activities 250
Cash flows from investing activities

Cash Flow Statements CA Bishnu Kedia

 Payments for purchase of fixed assets (200)
Proceeds from sale of fixed assets 100
Net cash used in investing activities (100)
Cash flows from financing activities
Proceeds from issuance of equity shares 300
Bank loan repaid (300)
Dividend paid (50)
Net cash used in financing activities (50)
Net increase in cash 100
Cash at the beginning of the year 50
Cash at the end of the year 150

Question 2
Prepare cash flow statement of M/s MNT Ltd. for the year ended 31 st March, 2011
with the help of the following information:
(1) Company sold goods for cash only.
(2) Gross Profit Ratio was 30% for the year, gross profit amounts to ₹3,82,500.
(3) Opening inventory was lesser than closing inventory by ₹35,000.
(4) Wages paid during the year ₹4,92,500.
(5) Office and selling expenses paid during the year ₹75,000.
(6) Dividend paid during the year ₹30,000.
(7) Bank loan repaid during the year ₹2,15,000 (included interest ₹15,000).
(8) Trade payables on 31st March, 2010 exceed the balance on 31st March, 2011 by
₹25,000.
(9) Amount paid to trade payables during the year ₹4,60,000.
(10) Tax paid during the year amounts to ₹65,000 (Provision for taxation as on
31.03.2011 ₹45,000).
(11) Investments of ₹7,00,000 sold during the year at a profit of ₹20,000.
(12) Depreciation on fixed assets amounts to ₹85,000.
(13) Plant and machinery purchased on 15th November, 2010 for ₹2,50,000.
(14) Cash and Cash Equivalents on 31st March, 2010 ₹2,00,000.
(15) Cash and Cash Equivalents on 31st March, 2011 ₹6,07,500.

Cash Flow Statements CA Bishnu Kedia

Solution
M/s MNT Ltd.
Cash Flow Statement for the year ended 31st March, 2011
(Using direct method)
Particulars ₹ ₹
Cash flows from Operating Activities
Cash sales (₹ 3,82,500/.30) 12,75,000
Less: Cash payments for trade payables (4,60,000)
Wages Paid (4,92,500)
Office and selling expenses (75,000) (10,27,500)
Cash generated from operations before taxes 2,47,500
Income tax paid (65,000)
Net cash generated from operating activities (A) 1,82,500
Cash flows from investing activities
Sale of investments (7,00,000 + 20,000) 7,20,000
Payments for purchase of Plant & machinery (2,50,000)
Net cash used in investing activities (B) 4,70,000
Cash flows from financing activities
Bank loan repayment (including interest) (2,15,000)
Dividend paid (30,000)
Net cash used in financing activities (C) (2,45,000)
Net increase in cash (A+B+C) 4,07,500
Cash and cash equivalents at beginning of the
period 2,00,000
Cash and cash equivalents at end of the period 6,07,500

Question 3
On the basis of the following information prepare a Cash Flow Statement for the year
ended 31st March, 2021 (Using direct method):
(i) Total sales for the year were ₹ 597 crores out of which cash sales amounted to ₹393
crores.
(ii) Receipts from credit customers during the year, totalled ₹ 201 crores.
(iii) Purchases for the year amounted to ₹ 330 crores out of which credit purchases were
80%.
Balance in creditors as on
1.4.2020 ₹ 126 crores
31.3.2021 ₹ 138 crores
(iv) Suppliers of other consumables and services were paid ₹ 28.5 crores in cash.
(v) Employees of the enterprises were paid 30 crores in cash.
(vi) Fully paid preference shares of the face value of ₹ 48 crores were redeemed. Equity

Cash Flow Statements CA Bishnu Kedia

 shares of the face value of ₹ 30 crores were allotted as fully paid up at premium of
20%.
(vii) Debentures of ₹ 30 crores at a premium of 10% were redeemed. Debenture holders
were issued equity shares in lieu of their debentures.
(viii) ₹ 39 crores were paid by way of income tax.
(ix) A new machinery costing ₹ 15 was purchased.
(x) Investment costing ₹ 27 cores were sold at a loss of ₹ 3 crores.
(xi) Dividends totalling ₹ 22.5 crores was also paid.
(xii) Debenture interest amounting ₹ 3 crore was paid.
(xiii) On 31st March 2020, Balance with Bank and Cash on hand totalled ₹ 3 crores.

Solution :
Cash flow statement (using direct method) for the year ended 31st March, 2021
(₹ in crores) (₹ in crores)
Cash flow from operating activities
Cash sales 393
Cash collected from credit customers 201
Less: Cash paid to suppliers for goods & services and (376.5)
to employees (Refer Working Note)
Cash from operations 217.5
Less: Income tax paid (39)
Net cash generated from operating activities 178.5
Cash flow from investing activities
Payment for purchase of Machine (15)
Proceeds from sale of investments 24
Net cash used in investing activities 9
Cash flow from financing activities
Redemption of Preference shares (48)
Proceeds from issue of Equity shares 36
Debenture interest paid (3)
Dividend Paid (22.5)
Net cash used in financing activities (37.5)
Net increase in cash and cash equivalents 150
Add: Cash and cash equivalents as on 1.04.2020 3
Cash and cash equivalents as on 31.3.2021 153

Working Note:
Calculation of cash paid to suppliers of goods and services and to employees
(₹ in crores)
Opening Balance in creditors Account 126

Cash Flow Statements CA Bishnu Kedia

 Add: Purchases (330x .8) 264
Total 390
Less: Closing balance in Creditors Account 138
Cash paid to suppliers of goods 252
Add: Cash purchases (330x .2) 66
Total cash paid for purchases to suppliers (a) 318
Add: Cash paid to suppliers of other consumables and services (b) 28.5
Add: Payment to employees (c) 30
Total cash paid to suppliers of goods & services and to employees 376.5
[(a)+ (b) + (c)]

Question 4
Prepare Cash flow for Gamma Ltd., for the year ending 31.3.2011 from the following
information:
(1) Sales for the year amounted to ₹135 crores out of which 60% was cash sales.
(2) Purchases for the year amounted to ₹55 crores out of which credit purchase was
80%.
(3) Administrative and selling expenses amounted to ₹ 18 crores and salary paid
amounted to ₹22 crores.
(4) The Company redeemed debentures of ₹ 20 crores at a premium of 10%.
Debenture holders were issued equity shares of ₹ 15 crores towards redemption
and the balance was paid in cash. Debenture interest paid during the year was ₹1.5
crores.
(5) Dividend paid during the year amounted to ₹11.7 crores.
(6) Investment costing ₹12 crores were sold at a profit of ₹2.4 crores.
(7) ₹ 8 crores was paid towards income tax during the year.
(8) A new plant costing ₹21 crores was purchased in part exchange of an old plant.
The book value of the old plant was ₹12 crores but the vendor took over the old
plant at a value of ₹10 crores only. The balance was paid in cash to the vendor.
(9) The following balances are also provided:
₹ in crores 1.4.2010 ₹ in crores 31.3.2011
Debtors 45 50
Creditors 21 23
Bank 6 18.2

Cash Flow Statements CA Bishnu Kedia

Solution
Gamma Ltd.
Cash Flow Statement for the year ended 31st March, 2011
(Using direct method)
Particulars ₹ in crores ₹ in crores
Cash flows from operating activities
Cash sales (60% of 135) 81
Cash receipts from Debtors 49
[45+ (135x40%) - 50]
Cash purchases (20% of 55) (11)
Cash payments to suppliers (42)
[21+ (55x80%) – 23]
Cash paid to employees (22)
Cash payments for overheads (Adm. and selling) (18)
Cash generated from operations 37
Income tax paid (8)
Net cash generated from operating activities 29
Cash flows from investing activities
Sale of investments (12+ 2.40) 14.4
Payments for purchase of fixed assets (21 – 10) (11)
Net cash generated from investing activities 3.4
Cash flows from financing activities
Redemption of debentures (22-15) (7)
Interest paid (1.5)
Dividend paid (11.7)
Net cash used in financing activities (20.2)
Net increase in cash 12.2
Cash at beginning of the period 6.0
Cash at end of the period 18.2

Question 5
The following information was provided by PQR Ltd. for the year ended 31st March,
2019 :
(1) Gross Profit Ratio was 25% for the year, which amounts to ₹ 3,75,000.
(2) Company sold goods for cash only.
(3) Opening inventory was lesser than closing inventory by ₹ 25,000.
(4) Wages paid during the year ₹ 5,55,000.
(5) Office expenses paid during the year ₹ 35,000.
(6) Selling expenses paid during the year ₹ 15,000.
(7) Dividend paid during the year ₹ 40,000 (including dividend distribution tax).

Cash Flow Statements CA Bishnu Kedia

(8) Bank Loan repaid during the year ₹ 2,05,000 (included interest ₹ 5,000)
(9) Trade Payables on 31st March, 2018 were ₹ 50,000 and on 31st March, 2019 were
₹ 35,000.
(10) Amount paid to Trade payables during the year ₹ 6,10,000
(11) Income Tax paid during the year amounts to ₹ 55,000
(Provision for taxation as on 31st March, 2019 ₹ 30,000)·
(12) Investments of ₹ 8,20,000 sold during the year at a profit of ₹ 20,000.
(13) Depreciation on furniture amounts to ₹ 40,000.
(14) Depreciation on other tangible assets amounts to ₹ 20,000.
(15) Plant and Machinery purchased on 15th November, 2018 for ₹ 3,50,000.
(16) On 31st March, 2019 ₹ 2,00,000, 7% Debentures were issued at face value in an
exchange for a plant.
(17) Cash and Cash equivalents on 31st March, 2018 ₹ 2,25,000.
Prepare cash flow statement for the year ended 31st March, 2019, using direct method
& Calculate cash flow from operating activities, using indirect method.

Solution :
Cash Flow Statement for the year ended 31st March, 2019 (Using direct method)
Particulars ₹ ₹
Cash flows from Operating Activities
Cash sales (₹ 3,75,000/25%) 15,00,000
Less: Cash payments for trade payables (6,10,000)
Wages Paid (5,55,000)
Office and selling expenses ₹ (35,000 + 15,000) (50,000) (12,15,000)
Cash generated from operations before taxes 2,85,000
Income tax paid (55,000)
Net cash generated from operating activities (A) 2,30,000
Cash flows from Investing activities
Sale of investments ₹ (8,20,000 + 20,000) 8,40,000
Payments for purchase of Plant & machinery (3,50,000)
Net cash used in investing activities (B) 4,90,000
Cash flows from financing activities
Bank loan repayment (including interest) (2,05,000)
Dividend paid (including dividend distribution tax) (40,000)
Net cash used in financing activities (C) (2,45,000)
Net increase in cash (A+B+C) 4,75,000
Cash and cash equivalents at beginning of the period 2,25,000
Cash and cash equivalents at end of the period 7,00,000

Cash Flow Statements CA Bishnu Kedia

‘Cash Flow from Operating Activities’ by indirect method
₹
Net Profit for the year before tax and extraordinary items 2,80,000
Add: Non-Cash and Non-Operating Expenses:
Depreciation 60,000
Interest Paid 5,000
Less: Non-Cash and Non-Operating Incomes:
Profit on Sale of Investments (20,000)
Net Profit after Adjustment for Non-Cash Items 3,25,000
Less: Decrease in trade payables
Increase in inventory 15,000 (40,000)
25,000
Cash generated from operations before taxes 2,85,000

Working Note: Calculation of net profit earned during the year

₹ ₹
Gross profit 3,75,000
Less: Office expenses, selling expenses 50,000
Depreciation 60,000
Interest paid 5,000 (1,15,000)
2,60,000
Add: Profit on sale of investments 20,000
Net profit before tax 2,80,000

Question 6
Given below are the relevant extracts of the Balance Sheet and the Statement of Profit
and Loss of ABC Ltd. along with additional information:
Extract of Balance Sheet
Particulars Notes 31.3.2011 31.3.2010
(₹ in lakhs) (₹ in lakhs)
Equity and Liabilities
1 Current liabilities
(a) Trade Payables 250 230
(b) Short term Provisions 1 200 180
(c) Other current liabilities 2 70 50
Assets
1 Current Assets
(a) Inventories 200 180
(b) Trade Receivables 400 250
(c) Other Current Assets 3 195 180

Cash Flow Statements CA Bishnu Kedia

 Statement of Profit and Loss of ABC Ltd.
for the year ended 31st March, 2011
Finance cost Particulars 5
Notes ₹ in lakhs 60
I Other expenses
Revenue from operations 200
4,150
IV Other
II TotalIncome
expenses 4 3,540
100
V
III Profit before tax
Total income (I + II) (III – IV) 710
4,250
VI Expenses:
Tax expense:
Current tax
Purchases of Stock-in-Trade 200
2,400
VII Change
Profit for the year of
in inventories from
finished goods 510
(20)
Continuing operations
Employee benefits expense 800
Finance costexpense
Depreciation 60 100
Finance Cost 60
Other expenses 200
IV Total expenses 3,540
V Profit before tax (III – IV) 710

VI Tax expense: Current Tax 200

VII Profit for the year from 510
continuing operations
Appropriations
Balance of Profit and Loss account brought forward 50
Transfer to general reserve 200
Dividend paid 330
Notes to accounts:
2011 2010
(₹ in lakhs) (₹ in lakhs)
1 Short-Term Provisions:
Provision for Tax 200 180
2 Other Current Liabilities:
Outstanding wages 50 40
Outstanding expenses Total 20 10
70 50
3 Other Current Assets:
Advance tax 195 180
4 Other Income:
Interest and dividend 100
5 Finance cost:
Interest 60
Compute cash flow from operating activities using both direct and indirect method.

Cash Flow Statements CA Bishnu Kedia

Solution
Cash Flows from Operating Activities
₹ in lakhs ₹ in lakhs
Using Direct Method
Cash Receipts:
Cash sales and collection from Trade receivables
Sales + Opening Trade receivables – Closing 4,150 + 250 - 400 4,000
Trade receivables (A)
Cash payments:
Cash purchases & payment to Trade payables
Purchases + Opening Trade payables – 2,400 + 230 - 250 2,380
Closing Trade payables
Wages and salaries paid 800 + 40 - 50 790
Cash expenses 200 + 10 – 20 190
Taxes paid – Advance tax 195
(B) 3,555
Cash flow from operating activities (A – B) 445
Using Indirect Method
Profit before tax 710
Add: Non-cash items : Depreciation 100
Add: Interest : Financing cash inflow 60
Less: Interest and Dividend : Investment cash (100)
Outflow
Less: Tax paid (195)
Working capital adjustments
Trade receivables 250 - 400 (150)
Inventories 180 - 200 (20)
Trade payables 250 - 230 20
Outstanding wages 50 - 40 10
Outstanding expenses 20 - 10 10 (130)
Cash flow from operating activities 445

Cash Flow Statements CA Bishnu Kedia

Question 7
Ryan Ltd provides you the following information at the year-end, March 31, 2011:
₹ ₹
Sales 6,98,000
Cost of Goods Sold (5,20,000)
1,78,000
Operating Expenses
(including Depreciation Expense of ₹37,000) (1,47,000)
31,000
Other Income / (Expenses):
Interest Expense paid (23,000)
Interest Income received 6,000
Gain on Sale of Investments 12,000
Loss on Sale of Plant (3,000)
(8,000)
23,000
Income tax (7,000)
16,000

Information available:
31st March 31st March
2011 (₹) 2010 (₹)
Plant 7,15,000 5,05,000
Less: Accumulated Depreciation (1,03,000) (68,000)
6,12,000 4,37,000
Investments (Long term) 1,15,000 1,27,000
Inventory 1,44,000 1,10,000
Trade receivables 47,000 55,000
Cash 46,000 15,000
Prepaid expenses 1,000 5,000
Share Capital 4,65,000 3,15,000
Reserves and surplus 1,40,000 1,32,000
Bonds 2,95,000 2,45,000
Trade payables 50,000 43,000
Outstanding liabilities 12,000 9,000
Income taxes payable 3,000 5,000

Analysis of selected accounts and transactions during 2010-11

1. Purchased investments for ₹78,000.
2. Sold investments for ₹1,02,000. These investments cost ₹90,000.

Cash Flow Statements CA Bishnu Kedia

3. Purchased plant assets for ₹1,20,000.
4. Sold plant assets that cost ₹10,000 with accumulated depreciation of ₹2,000 for
₹5,000.
5. Issued ₹1,00,000 of bonds at face value in an exchange for plant assets on 31st
March, 2011.
6. Repaid ₹50,000 of bonds at face value at maturity.
7. Issued 15,000 shares of ₹10 each.
8. Paid cash dividends ₹8,000.
Prepare Cash Flow Statement as per AS-3 (Revised), using indirect method.

Solution
Ryan Ltd.
Cash Flow Statement
for the year ending 31st March, 2011
₹ ₹
Cash flows from operating activities
Net profit before taxation 23,000
Adjustments for:
Depreciation 37,000
Gain on sale of investments (12,000)
Loss on sale of plant assets 3,000
Interest expense 23,000
Interest income (6,000)
Operating profit before working capital changes 68,000
Decrease in trade receivables 8,000
Increase in inventory (34,000)
Decrease in prepaid expenses 4,000
Increase in trade payables 7,000
Increase in outstanding liabilities 3,000
Cash generated from operations 56,000
Income taxes paid* (9,000)
Net cash generated from operating activities 47,000
Cash flows from investing activities
Purchase of plant (1,20,000)
Sale of plant 5,000
Purchase of investments (78,000)
Sale of investments 1,02,000
Interest received 6,000
Net cash used in investing activities (85,000)

Cash Flow Statements CA Bishnu Kedia

 Cash flows from financing activities
Proceeds from issuance of share capital 1,50,000
Repayment of bonds (50,000)
Interest paid (23,000)
Dividends paid (8,000)
Net cash from financing activities 69,000
Net increase in cash and cash equivalents 31,000
Cash and cash equivalents at the beginning of the 15,000
Period
Cash and cash equivalents at the end of the 46,000
Period

Working Note:
₹
Income taxes paid:
Income tax expense for the year 7,000
Add: Income tax liability at the beginning of the year 5,000
12,000
Less: Income tax liability at the end of the year (3,000)
9,000

Question 8
Ms. Jyoti of Star Oils Limited has collected the following information for the
preparation of cash flow statement for the year ended 31st March, 2011:
(₹ in lakhs)
Net Profit 25,000
Dividend paid 8,535
Provision for Income tax 5,000
Income tax paid during the year 4,248
Loss on sale of assets (net) 40
Book value of the assets sold 185
Depreciation charged to the Statement of Profit and Loss 20,000
Profit on sale of Investments 100
Carrying amount of Investment sold 27,765
Interest income received on investments 2,506
Interest expenses of the year 10,000
Interest paid during the year 10,520
Increase in Working Capital (excluding Cash & Bank Balance) 56,081

Cash Flow Statements CA Bishnu Kedia

 Purchase of Fixed assets 14,560
Investment in joint venture 3,850
Expenditure on construction work in progress 34,740
Proceeds from calls in arrear 2
Receipt of grant for capital projects 12
Proceeds from long-term borrowings 25,980
Proceeds from short-term borrowings 20,575
Opening cash and bank balance 5,003
Closing cash and bank balance 6,988
Prepare the Cash Flow Statement for the year ended 31 March 2011 in accordance
with AS 3. (Make necessary assumptions)

Solution
Star Oils Limited
Cash Flow Statement
for the year ended 31st March, 2011
(₹ in lakhs)
Cash flows from operating activities
Net profit before taxation (25,000 + 5,000) 30,000
Adjustments for :
Depreciation 20,000
Loss on sale of assets (Net) 40
Profit on sale of investments (100)
Interest income on investments (2,506)
Interest expenses 10,000
Operating profit before working capital changes 57,434
Changes in working capital (Excluding cash and bank (56,081)
balance)
Cash generated from operations 1,353
Income taxes paid (4,248)
Net cash used in operating activities (2,895)
Cash flows from investing activities
Sale of assets (W.N.1) 145
Sale of investments (27,765 + 100) 27,865
Receipt of grant for capital projects 12
Interest income on investments 2,506
Purchase of fixed assets (14,560)
Investment in joint venture (3,850)
Expenditure on construction work-in progress (34,740)

Cash Flow Statements CA Bishnu Kedia

 Net cash used in investing activities (22,622)
Cash flows from financing activities
Proceeds from calls in arrear 2
Proceeds from long-term borrowings 25,980
Proceed from short-term borrowings 20,575
Interest paid (10,520)
Dividend (including dividend tax) paid (8,535) 27,502
Net increase in cash and cash equivalents 1,985
Cash and cash equivalents at the beginning of the 5,003
period
Cash and cash equivalents at the end of the period 6,988

Working note:
1. Book value of the assets sold 185
Less : Loss on sale of assets (40)
Proceeds on sale 145

Question 9
The balance sheets of Sun Ltd. as at 31st March 2011 and 2010 were as:
Particulars Notes 2011 (₹) 2010 (₹)
Equity and Liabilities
1 Shareholder’s funds
(a) Share capital 1 60,000 50,000
(b) Reserve & surplus 2 5,000 4,000
2 Current liabilities
(a) Trade Payables 4,000 2,500
(b) Other current liabilities 3 - 1,000

(c) Short term provision (provision for tax)

Total 1,500 1,000
70,500 58,500

Assets
1 Non-current assets
(a) Property, Plant & Equipment 4 39,500 29,000

Cash Flow Statements CA Bishnu Kedia

2 Current assets
(a) Current investments 2,000 1,000
(b) Inventories 17,000 14,000
(c) Trade receivables 8,000 6,000
(d) Cash & cash equivalents 5 4,000 8,500
70,500 58,500

Notes to accounts
2011 (₹) 2010 (₹)
1 Share Capital
Equity Shares of ₹10 each 60,000 50,000
2 Reserve & surplus
Profit and Loss Account 5,000 4,000
3 Other current liabilities
Dividend Payable - 1,000
4 Property, plant and equipment (at WDV)
Building 10,000 10,000
Fixtures 17,000 11,000
Vehicles 12,500 8,000
Total 39,500 29,000
5 Cash and cash equivalents
Cash and Bank 4,000 8,500

The profit and loss statement for the year ended 31st March, 2011 disclosed:
Particulars ₹
Profit Before Tax 4,500
Tax Expense: Current tax (1,500)
Profit for the year 3,000
Declared Dividend (2,000)
Retained Profit 1,000

Further information is available:

Fixtures (₹) Vehicles (₹)
Depreciation for the year 1,000 2,500
Disposals:
Proceeds on disposal of vehicles — 1,700
Written down value — (1,000)
Profit on disposal 700

Prepare a Cash Flow Statement for the year ended 31st March, 2011.

Cash Flow Statements CA Bishnu Kedia

Solution
Sun Ltd.
Cash Flow Statement
for the year ended 31st March, 2011
₹ ₹
Cash flows from operating activities
Net Profit before taxation 4,500
Adjustments for:
Depreciation 3,500
Profit on sale of vehicles (1,700 – 1,000) (700)
Operating profit before working capital changes 7,300
Increase in Trade receivables (2,000)
Increase in inventories (3,000)
Increase in Trade payables 1,500
Cash generated from operations 3,800
Income taxes paid (W.N.1) (1,000)
Net cash generated from operating activities 2,800
Cash flows from investing activities
Sale of vehicles 1,700
Purchase of current investments (1,000)
Purchase of vehicles (W.N.3) (8,000)
Purchase of fixtures (W.N.3) (7,000)
Net cash used in investing activities (14,300)
Cash flows from financing activities
Issue of shares for cash 10,000
Dividends paid (W.N.2) (3,000)
Net cash generated from financing activities 7,000
Net decrease in cash and cash equivalents (4,500)
Cash and cash equivalents at beginning of period
(See Note) 8,500
Cash and cash equivalents at end of period
(See Note) 4,000
Note to the Cash Flow Statement
Cash and Cash Equivalents
31.3.2011 31.3.2010
Bank and Cash 4,000 8,500
Cash and cash equivalents 4,000 8,500

Working Notes:

Cash Flow Statements CA Bishnu Kedia

 ₹
1. Income taxes paid
Income tax expense for the year 1,500
Add: Income tax liability at the beginning of the year 1,000
2,500
Less: Income tax liability at the end of the year (1,500)
1,000
2. Dividend paid
Declared dividend for the year 2,000
Add: Amount payable at the beginning of the year 1,000
3,000
Less: Amount payable at the end of the year -
3,000
3. Property, plant and equipment acquisitions
Fixtures Vehicles
₹ ₹
W.D.V. at 31.3.2011 17,000 12,500
Add back:
Depreciation for the year 1,000 2,500
Disposals — 1,000
18,000 16,000
Less: W.D.V. at 31.12.2010 (11,000) (8,000)
Acquisitions during 2010-2011 7,000 8,000

Note: Current investments may not be readily convertible to a known amount of cash
and may not be subject to an insignificant risk of changes in value as per the
requirements of AS 3 and hence those have been considered as investing activities.

Cash Flow Statements CA Bishnu Kedia

Question 10
From the following Balance sheet of Grow More Ltd., prepare Cash Flow Statement
for the year ended 31st March, 2011 :
Particulars Notes 31st March, 31st March,
2011 2010
Equity and Liabilities
1 Shareholders’ funds
A Share Capital 10,00,000 8,00,000
B Reserves and Surplus 1 3,00,000 2,10,000
2 Non-current liabilities
Long Term Borrowings 2 2,00,000 -
3 Current liabilities
A Trade Payables 7,00,000 8,20,000
B Other Current Liabilities 3 - 1,00,000
C Short-Term Provision (provision for tax) 1,00,000 70,000
Total 23,00,000 20,00,000
Assets
1 Non-current assets
A Property, Plant and Equipment 4 13,00,000 9,00,000
B Non-Current Investments 1,00,000 -
2 Current assets
A Inventories 4,00,000 2,00,000
B Trade receivables 5,00,000 7,00,000
C Cash and Cash Equivalents - 2,00,000

Total 23,00,000 20,00,000

Notes to accounts
No. Particulars 31st March, 2011 31st March, 2010
1 Reserves and Surplus
Revenue Reserve 2,00,000 1,50,000
Profit and Loss Account 1,00,000 60,000
Total 3,00,000 2,10,000

2 Long term borrowings

Debentures (issued at end of year) 2,00,000 -

Cash Flow Statements CA Bishnu Kedia

 3. Other current liabilities
Dividend payable - 1,00,000

4 Property, Plant and Equipment

Plant and machinery 7,00,000 5,00,000
Land and building 6,00,000 4,00,000
Net carrying value 13,00,000 9,00,000

(i) Depreciation @ 25% was charged on the opening value of Plant and Machinery.
(ii) At the year end, one old machine costing ₹50,000 (WDV ₹20,000) was sold for
₹35,000. Purchase was also made at the year end.
(iii) ₹50,000 was paid towards Income tax during the year.
(iv) Construction of the building got completed on 31.03.2011 and hence no
depreciation may be charged on the same.
Prepare Cash flow Statement.

Solution
Cash Flow Statement of Grow More Ltd.
for the year ended 31st March, 2011
Cash Flow from Operating Activities
₹
Increase in balance of Profit and Loss Account 40,000
(1,00,000 – 60,000)
Provision for taxation (W.N.1) 80,000
Transfer to General Reserve (2,00,000 – 1,50,000) 50,000
Depreciation (W.N.2) 1,25,000
Profit on sale of Plant and Machinery (15,000)
Operating Profit before Working Capital changes 2,80,000
Increase in Inventories (2,00,000)
Decrease in Trade receivables 2,00,000
Decrease in Trade payables (1,20,000)
Cash generated from operations 1,60,000
Income tax paid (50,000)
Net Cash generated from operating activities 1,10,000

Cash Flow Statements CA Bishnu Kedia

Cash Flow from Investing Activities
Purchase of fixed assets (3,45,000)
Expenses on building (6,00,000 – 4,00,000) (2,00,000)
Increase in investments (1,00,000)
Sale of old machine 35,000
Net Cash used in investing activities (6,10,000)

Cash Flow from Financing activities

Proceeds from issue of shares (10,00,000 – 8,00,000) 2,00,000
Proceeds from issue of debentures 2,00,000
Dividend paid (1,00,000)
Net cash generated from financing activities 3,00,000
Net decrease in cash and cash equivalents (2,00,000)
Cash and Cash equivalents at the beginning of the year 2,00,000
Cash and Cash equivalents at the end of the year Nil

Working Notes:
1. Provision for taxation account
₹ ₹
To Cash (Paid) 50,000 By Balance b/d 70,000
To Balance c/d 1,00,000 By Profit and Loss A/c 80,000
(Balancing figure)
1,50,000 1,50,000

2. Plant and Machinery account

₹ ₹
To Balance b/d 5,00,000 By Depreciation 1,25,000
To Profit and Loss A/c 15000
(profit on sale of
machine)
To Cash (Balancing figure) 3,45,000 By Cash (sale of 35,000
machine)
By Balance c/d
7,00,000
8,60,000 8,60,000

Cash Flow Statements CA Bishnu Kedia

Question 11
The following figures have been extracted from the books of X Limited for the year
ended on 31.3.2019. You are required to prepare a cash flow statement as per AS 3
using indirect method.
(i) Net profit before taking into account income tax and income from law suits but after
taking into account the following items was ₹ 20 lakhs:
(a) Depreciation on Property, Plant & Equipment ₹ 5 lakhs.
(b) Discount on issue of Debentures written off ₹ 30,000.
(c) Interest on Debentures paid ₹ 3,50,000.
(d) Book value of investments ₹ 3 lakhs (Sale of Investments for ₹ 3,20,000).
(e) Interest received on investments ₹ 60,000.
(f) Compensation received ₹ 90,000 by the company in a suit filed.
(ii) Income tax paid during the year ₹ 10,50,000.
(iii) 15,000, 10% preference shares of ₹ 100 each were redeemed on 31.3.2019 at a
premium of 5%. Further the company issued 50,000 equity shares of ₹ 10 each at a
premium of 20% on 2.4.2018. Dividend on preference shares were paid at the time
of redemption.
(iv) Dividend paid for the year 2017-2018 ₹ 5 lakhs and interim dividend paid ₹ 3 lakhs
for the year 2018-2019.
(v) Land was purchased on 2.4.2018 for ₹ 2,40,000 for which the company issued
20,000
equity shares of ₹ 10 each at a premium of 20% to the land owner as consideration.
(vi) Current assets and current liabilities in the beginning and at the end of the years
were as detailed below:
As on 31.3.2018 As on 31.3.2019
₹ ₹
Inventory 12,00,000 13,18,000
Trade receivables 2,58,000 2,53100
Cash in hand 1,96,300 35,300
Trade payables 2,11,000 2,11,300
Outstanding expenses 75,000 81,800

Cash Flow Statements CA Bishnu Kedia

Solution :
X Ltd.
Cash Flow Statement
for the year ended 31st March, 2019
Cash flow from Operating Activities
Net profit before income tax and extraordinary items: 20,00,000
Adjustments for:
Depreciation on PPE 5,00,000
Discount on issue of debentures 30,000
Interest on debentures paid 3,50,000
Interest on investments received (60,000)
Profit on sale of investments (20,000) 8,00,000
Operating profit before working capital changes 28,00,000
Adjustments for:
Increase in inventory (1,18,000)
Decrease in trade receivable 4,900
Increase in trade payables 300
Increase in outstanding expenses 6,800 (1,06,000)
Cash generated from operations 26,94,000
Income tax paid (10,50,000)
16,44,000
Cash flow from extraordinary items:
Compensation received in a suit filed 90,000
Net cash flow from operating activities 17,34,000
Cash flow from Investing Activities
Sale proceeds of investments 3,20,000
Interest received on investments 60,000
Net cash flow from investing activities 3,80,000
Cash flow from Financing Activities
Proceeds by issue of equity shares at 20% premium 6,00,000
Redemption of preference shares at 5% premium (15,75,000)
Preference dividend paid (1,50,000)
Interest on debentures paid (3,50,000)
Dividend paid (5,00,000 + 3,00,000) (8,00,000)
Net cash used in financing activities (22,75,000)
Net decrease in cash and cash equivalents during the (1,61,000)
year
Add: Cash and cash equivalents as on 31.3.2018 1,96,300
Cash and cash equivalents as on 31.3.2019 35,300

Cash Flow Statements CA Bishnu Kedia

Note: Purchase of land in exchange of equity shares (issued at 20% premium) has not
been considered in the cash flow statement as it does not involve any cash transaction.

Question 12
From the following Balance Sheets and information, prepare Cash Flow Statement
of Ryan Ltd. by Indirect method for the year ended 31st March, 2011:
Particulars Notes 31st March 2011 31st March 2010
(₹) (₹)
Equity and Liabilities
1 Shareholders’ funds
A Share Capital 1 6,00,000 7,00,000
B Reserves and Surplus 2 4,20,000 3,00,000
2 Non-current liabilities
Long-Term Borrowings 3 2,00,000 -
3 Current liabilities
A Trade Payables 1,15,000 1,10,000
B Other Current Liabilities 4 30,000 80,000
C Short-Term Provision
(provision for tax) 95,000 60,000
Total 14,60,000 12,50,000
Assets
1 Non-current assets
A Property, plant and Equipment 5 9,15,000 7,00,000
B Non-Current Investments 50,000 80,000
2 Current assets
A Inventories 95,000 90,000
B Trade receivables 2,50,000 2,25,000
C Cash and Cash equivalents 50,000 90,000
D Other Current assets 1,00,000 65,000
Total 14,60,000 12,50,000

Cash Flow Statements CA Bishnu Kedia

Notes to accounts:
No. 31st March, 31st March,
2011 2010
1. Share capital
Equity share capital 6,00,000 5,00,000
10% Redeemable Preference share capital -- 2,00,000
Total 6,00,000 7,00,000
2 Reserves and Surplus
Capital redemption reserve 1,00,000 -
Capital reserve 70,000 -
General reserve 1,50,000 2,50,000
Profit and Loss account 1,00,000 50,000
Total 4,20,000 3,00,000
3 Long term borrowings
9% Debentures 2,00,000 -
4. Other current liabilities
Dividend payable - 60,000
Liabilities for expenses 30,000 20,000
Total 30,000 80,000
5 Property, plant and equipment
Plant and machinery 7,65,000 5,00,000
Land and building 1,50,000 2,00,000
Net carrying value 9,15,000 7,00,000

Additional Information:
(i) A piece of land has been sold out for ₹1,50,000 (Cost – ₹1,20,000) and the balance
land was revalued. Capital Reserve consisted of profit on revaluation of land.
(ii) On 1st April, 2010 a plant was sold for ₹90,000 (Original Cost – ₹70,000 and
W.D.V. – ₹50,000) and Debentures worth ₹1 lakh were issued at par as part
consideration for plant of ₹4.5 lakhs acquired.
(iii) Part of the investments (Cost– ₹50,000) was sold for ₹70,000.
(iv) Pre-acquisition dividend received ₹5,000 was adjusted against cost of investment.
(v) Interim dividend was declared and paid @ 15% during the current year.
(vi) Income-tax liability for the current year was estimated at ₹1,35,000.
(vii) Depreciation @ 15% has been charged on Plant and Machinery but no depreciation
has been charged on Building.

Cash Flow Statements CA Bishnu Kedia

Solution
Cash Flow Statement of Ryan Limited
For the year ended 31st March, 2011
₹ ₹
Cash flow from operating activities
Net Profit before taxation (W.N.1) 2,75,000
Adjustment for
Depreciation (W.N.3) 1,35,000
Profit on sale of land (30,000)
Profit on sale of plant (W.N.3) (40,000)
Profit on sale of investments (W.N.4) (20,000)
Interest on debentures (2,00,000 X 9%) 18,000
Operating profit before working capital changes 3,38,000
Increase in inventory (5,000)
Increase in trade receivables (25,000)
Increase in Other current assets (W.N.9) (35,000)
Increase in Trade payables 5,000
Increase in liabilities for expenses 10,000
Cash generated from operations 2,88,000
Income taxes paid (W.N.8) (1,00,000)
Net cash generated from operating activities 1,88,000
Cash flow from investing activities
Proceeds from sale of land (W.N.2) 1,50,000
Proceeds from sale of plant (W.N.3) 90,000
Proceeds from sale of investments (W.N.4) 70,000
Purchase of plant (W.N.3) (3,50,000)
Purchase of investments (W.N.4) (25,000)
Pre-acquisition dividend received (W.N.4) 5,000
Net cash used in investing activities (60,000)
Cash flow from financing activities
Proceeds from issue of equity shares 1,00,000
(6,00,000 – 5,00,000)
Proceeds from issue of debentures 1,00,000
(2,00,000 – 1,00,000)
Redemption of preference shares (2,00,000)
Dividends paid (1,50,000)
Interest paid on debentures (18,000)
Net cash used in financing activities (1,68,000)

Cash Flow Statements CA Bishnu Kedia

Net decrease in cash and cash equivalents (40,000)
Cash and cash equivalents at the beginning of the year 90,000
Cash and Cash equivalents at the end of the year 50,000

Working Notes:
1.
₹
Net profit before taxation
Retained profit 1,00,000
Less: Balance as on 31.3.2010 (50,000)
50,000
Provision for taxation 1,35,000
Dividend 90,000
2,75,000

2. Land and Building Account

₹ ₹
To Balance b/d 2,00,000 By Cash (Sale) 1,50,000
To Profit and Loss A/c 30,000 By Balance c/d 1,50,000
(Profit on sale)
To Capital reserve
(Revaluation profit) 70,000
3,00,000 3,00,000

3. Plant and Machinery Account

₹ ₹
To Balance b/d 5,00,000 By Cash (Sale) 90,000
To Profit and loss A/c 40,000 By Depreciation 1,35,000
To Debentures 1,00,000 By Balance c/d 7,65,000
To Bank 3,50,000
9,90,000 9,90,000

4. Investments Account
₹ ₹
To Balance b/d 80,000 By Cash (Sale) 70,000
To Profit and loss account 20,000 By Dividend (Pre-acquisition) 5,000
To Bank (Balancing figure) 25,000 By Balance c/d 50,000
1,25,000 1,25,000

Cash Flow Statements CA Bishnu Kedia

5. Capital Reserve Account
₹ ₹
To Balance c/d 70,000 By Profit on revaluation of land 70,000
70,000 70,000

6. General Reserve Account

₹ ₹
To Capital redemption reserve 1,00,000 By Balance b/d 2,50,000
To Balance c/d 1,50,000
2,50,000 2,50,000

7. Dividend Payable Account

₹ ₹
To Bank (Bal. figure) 1,50,000 By Balance b/d 60,000
To Balance c/d - By Profit and Loss A/c 90,000
1,50,000 1,50,000

8. Provision for Taxation Account

₹ ₹
To Bank (Balancing figure) 1,00,000 By Balance b/d 60,000
To Balance c/d 95,000 By Profit and loss account 1,35,000
1,95,000 1,95,000

9. Other Current Assets Account

₹ ₹
To Balance b/d 65,000 By Balance c/d 1,00,000
To Bank (Balancing figure) 35,000
1,00,000 1,00,000

Cash Flow Statements CA Bishnu Kedia

Question 13
ABC Ltd. gives you the Balance sheets as at 31 st March 2010 and 31st March 2011.
You are required to prepare Cash Flow Statement by using indirect method as per AS
3 for the year ended 31st March 2011:
Particulars Notes 31st March 31st March
2010 (₹) 2011 (₹)
1 Equity and Liabilities Shareholders’
Funds
A Share capital 50,00,000 50,00,000
B Reserves and Surplus 26,50,000 36,90,000
2 Non-current liabilities
Long term borrowings 1 - 9,00,000
3 Current liabilities
A Short-term borrowings (Bank loan) 1,50,000 3,00,000
B Trade payables 8,80,000 8,20,000
C Other current liabilities 2 4,80,000 2,70,000
Total 91,60,000 1,09,80,000
Assets
1 Non-current assets
A Property, Plant and Equipment 3 21,20,000 32,80,000
2 Current assets
A Current Investments 11,80,000 15,00,000
B Inventory 20,10,000 19,20,000
C Trade receivables 4 22,40,000 26,40,000
D Cash and Cash equivalents 15,20,000 15,20,000
E Other Current assets (Prepaid expenses) 90,000 1,20,000
Total 91,60,000 1,09,80,000
Notes to accounts
No. Particulars 2010 2011
1 Long term borrowings
9% Debentures (issued at the end of year) - 9,00,000
Total - 9,00,000
2. Other current liabilities
Dividend payable 1,50,000 -
Liabilities for expenses 3,30,000 2,70,000
Total 4,80,000 2,70,000

Cash Flow Statements CA Bishnu Kedia

 3 Property, Plant and Equipment
Plant and machinery 27,30,000 40,70,000
Less: Depreciation (6,10,000) (7,90,000)
Net carrying value 21,20,000 32,80,000
4 Trade receivables
Gross amount 23,90,000 28,30,000
Less: Provision for doubtful debts (1,50,000) (1,90,000)
Total 22,40,000 26,40,000

Additional Information:
(i) Net profit for the year ended 31 st March, 2011, after charging depreciation
₹1,80,000 is ₹10,40,000.
(ii) Trade receivables of ₹2,30,000 were determined to be worthless and were written
off against the provisions for doubtful debts account during the year.

Solution
Cash Flow Statement of ABC Ltd. for the year ended 31.3.2011
Cash flows from Operating Activities ₹ ₹
Net Profit 10,40,000
Add: Adjustment for Depreciation (₹7,90,000 – ₹6,10,000) 1,80,000
Add: Adjustment for Provision for Doubtful Debts 2,70,000
(₹ 4,20,000 – ₹1,50,000)
Operating Profit Before Working Capital Changes 14,90,000
Add: Decrease in Inventories (₹ 20,10,000 – ₹ 19,20,000) 90,000
15,80,000
Less: Increase in Current Assets
Trade Receivables (₹ 30,60,000 – ₹23,90,000) 6,70,000
Prepaid Expenses (₹ 1,20,000 – ₹ 90,000) 30,000
Decrease in Current Liabilities:
Trade Payables (₹ 8,80,000 – ₹ 8,20,000) 60,000
Expenses Outstanding (₹ 3,30,000 – ₹ 2,70,000) 60,000 (8,20,000)
Net Cash generated from Operating Activities 7,60,000
Cash Flows from Investing Activities
Investment in Current Investments (3,20,000)
Purchase of Plant & Machinery (₹40,70,000–₹ 27,30,000) (13,40,000)

Cash Flow Statements CA Bishnu Kedia

Net Cash Used in Investing Activities (16,60,000)
Cash Flows from Financing Activities
Bank Loan Raised (₹ 3,00,000 –₹ 1,50,000) 1,50,000
Issue of Debentures 9,00,000
Payment of Dividend (1,50,000)
Net Cash Used in Financing Activities 9,00,000
Net Increase in Cash During the Year -
Add: Cash and Cash Equivalents as on 1.4.2010 15,20,000
Cash and Cash Equivalents as on 31.3.2011 15,20,000

Note:
1. Bad debts amounting ₹ 2,30,000 were written off against provision for doubtful debts
account during the year. In the above solution, Bad debts have been added back in
the balances of provision for doubtful debts and trade receivables as on 31.3.2011.
Alternatively, the adjustment of writing off bad debts may be ignored and the solution
can be given on the basis of figures of trade receivables and provision for doubtful
debts as appearing in the balance sheet on 31.3.2011.
2. Current investments (i.e. Marketable securities) may not be readily convertible to a
known amount of cash and be subject to an insignificant risk of changes in value as
per the requirements of AS 3 and hence those have been considered as investing
activities.

Question 14
Prepare cash flow from investing activities as per AS 3 of M/s Subham Creative Limited
for year ended 31.3.2019.
Particulars Amount (Rs.)
Machinery acquired by issue of shares at face value 2,00,000
Claim received for loss of machinery in earthquake 55,000
Unsecured loans given to associates 5,00,000
Interest on loan received from associate company 70,000
Pre-acquisition dividend received on investment made 52,600
Debenture interest paid 1,45,200
Term loan repaid 4,50,000
Interest received on investment (TDS of Rs. 8,200 was deducted 73,800
on the above interest)
Book value of plant & machinery sold (loss incurred Rs. 9,600) 90,000

Cash Flow Statements CA Bishnu Kedia

Solution :
Cash Flow Statement from Investing Activities of Subham Creative Limited for year
ended 31-03-2019
Cash generated from investing activities Rs. Rs.
Interest on loan received 70,000
Pre-acquisition dividend received on investment made 52,600
Unsecured loans given to subsidiaries (5,00,000)
Interest received on investments (gross value) 82,000
TDS deducted on interest (8,200)
Sale of Plant & Machinery Rs. (90,000 – 9,600) 80,400
(2,23,200)
Cash used in investing activities (before extra-ordinary item) 55,000
Extraordinary claim received for loss of machinery
Net cash used in investing activities (after extra-ordinary (1,68,200)
item)

Note:
1. Debenture interest paid and Term Loan repaid are financing activities and therefore
not considered for preparing cash flow from investing activities.
2. Machinery acquired by issue of shares does not amount to cash outflow, hence also
not considered in the above cash flow statement.

Cash Flow Statements CA Bishnu Kedia