ARHAM INSTITUTE CA AMIT BAFNA

UNIT 2 : CASH FLOW STATEMENT

INTRODUCTION :-

Information about the cash flows of an enterprise is useful in providing users of financial statementswith a
basis to assess the ability of the enterprise to generate cash and cash equivalents and the needs of the
enterprise to utilise those cash flows. The economic decisions that are taken by users require an evaluation of
the ability of an enterprise to generate cash and cash equivalents and the timing and certainty of their
generation. The Standard deals with the provision of information about the historical changes in cash and cash
equivalents of an enterprise by means of a cash flow statement which classifies cash flows during the period
from operating, investing and financing activities.This statement provides relevant information in assessing a
company’s liquidity, quality of earnings and solvency.

CASH RECEIPT

CASH FLOW
STATEMENT IS
CASH PAYMENT

CLASSIFICATION OF CASH FLOW ACTIVITIES :-

AS 3 provides explanation for changes in cash position of the business entity. As per Accounting Standard 3,
cash flows during the period are classified as Operating; Investing and Financing activities.

Cash Flow Activities

Inflow of Activities Outflow of Activities

Cash increase Cash decrease

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Classification of Cash Flow Activities

Investing activities Financing activities

Operating activities (acquisition and (changes in the size
(principle revenue disposal of long-term and composition of
generating) assets and other the owner’s capital and
investments) borrowings)

Operating Activities:-
1. Definition: These are the principal revenue generating activities of the enterprise.
2. Net Impact: Net impact of operating activities on flow of cash is reported as ‘Cash flows from operating activities’
or ‘cash from operations’.
3. Key Indicator: The amount of cash flows from operating activities is a key indicator of the extent to which the
operations of the enterprises have generated sufficient cash flows to:
(a) Maintain the operating capability of the enterprise;
(b) Pay dividends, repay loans; and
(c) Make new investments without recourse to external sources of financing.
4. Information Provided: It provides useful information about financing through working capital.
5. Benefits: Information about the specific components of historical operating cash flows is useful, in conjunction
with other information, in forecasting future operating cash flows.

Cash flows arising from operating activities

Example

(a) Cash receipts from the sale of goods

Key indicator of the extent to which the and the rendering of services
operations of the entity have (b) Cash receipts from royalties, fees,
generated sufficient cash flows to:- commissions, and other revenue
(c) Cash payments to suppliers for
• repay loans goods and services
• maintain the operating capability of (d) Cash payments to and on behalf of
the entity employees
• pay dividends (e) Cash receipts and cash payments of
• make new investments without an insurance entity for premiums
recourse to external sources of and claims, annuities, and other
financing policy benefits
(f) Cash payments or refunds of income
taxes unless they can be specifically
identified with financing and investing
activities.

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(g) cash receipts and payments relating
Primarily derived from the principal to futures contracts, forward
revenue-producing activities of the contracts, option contracts and swap
entity. contracts when the contracts are
held for dealing or trading purposes.
(h) Cash flows arising from the purchase
and sale of dealing or trading
Generally, result from the securities
transactions and other events that (i) Cash advances and loans made by
have role in the determination of net financial institutions since they relate
profit or loss. to their main revenue-producing
activity.

Investing activities:-

1. Definition: These are the acquisition and disposal of long-term assets and other investments not included in cash
equivalents.
2. Separate Disclosure: Separate disclosure of cash flows arising from investing activities is important because the cash flows
represent the extent to which the expenditures have been made for resources intended to generate future incomes and cash
flows.

Cash flows arising from investing activities

Represent the extent to which Example

expenditures have been made for
resources intended to generate future
income and cash flows (a) cash payments to acquire fixed assets
(including intangibles). These payments
include those relating to capitalised research
and development costs and self-constructed
fixed assets;
(b) cash receipts from sales of property, plant
and equipment, intangibles and other long-
term assets;
(c) cash payments to acquire equity or debt
instruments of other entities and interests in
joint ventures (other than payments for those
instruments considered to be cash
equivalents or those held for dealing or
trading purposes);
(d) cash receipts from sales of equity or debt
instruments of other entities and interests in
joint ventures (other than receipts for those
instruments considered to be cash
equivalents and those held for dealing or
trading purposes);
(e) cash advances and loans made to other
parties (other than advances and loans
made by a financial institution);
(f) cash receipts from the repayment of
advances and loans made to other parties
(other than advances and loans of a financial
institution);
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(g) cash payments for futures contracts, forward

contracts, option contracts and swap
contracts except when the contracts are held
for dealing or trading purposes, or the
payments are classified as financing
activities; and
(h) cash receipts from futures contracts, forward
contracts, option contracts and swap
contracts except when the contracts are held
for dealing or trading purposes, or the
receipts are classified as financing activities.

Financing activities:-

1. Definition: These are the activities that result in changes in the size and composition of the owner’s capital (including
preference share capital) and borrowings of the enterprise.
2. Separate Disclosure: The separate disclosure of cash flows arising from financing activities is important because it is useful
in predicting claims on future cash flows by providers of funds (both capital and borrowings) to the enterprise.

Cash flows arising from financing activities

Represent the extent to which Example

expenditures have been made for
resources intended to generate future
income and cash flows
(a) cash proceeds from issuing shares or other
equity instruments;
(b) cash payments to owners to acquire or
redeem the entity’s shares;
(c) cash proceeds from issuing debentures,
loans, notes, bonds, mortgages and other
short-term or long-term borrowings;
(d) cash repayments of amounts borrowed; and

(e) cash payments by a lessee for the reduction

of the outstanding liability relating to a
finance lease.

Que.1 :
From the following information, calculate Cash Flow from Investing Activities:

Particulars Closing Opening

Balances (₹) Balance (₹)
Machinery (At cost) 4,20,000 4,00,000
Accumulated Depreciation 1,10,000 1,00,000
Patents 1,60,000 2,80,000

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Additional Information:
(i) During the year, a machine costing 40,000 with its accumulated depreciation of 24,000 was sold for 20,000.
(ii) Patents written off were 40,000 and some patents were sold at a profit of 20,000.

Solution:-
CASH FLOW FROM INVESTING ACTIVITIES
Particulars (₹)
Proceeds from Sale of Machinery 20,000
Payment for Purchase of Machinery (WN 1) (60,000)
Proceeds from Sale of Patents (WN 3) 1,00,000
Cash Flow from Investing Activities 60,000

Working Notes:

1. Dr. MACHINERY ACCOUNT Cr.

Particulars (₹) Particulars (₹)

To Balance b/d 4,00,000 By Bank A/c (Sale of Machinery) 20,000
To Gain (Profit) on sale of By Accumulated Depreciation A/c 24,000
machinery A/c* 4,000 (Depreciation on Machinery Sold)
(Statement of Profit & Loss) By Balance c/d 4,20,000
To Bank A/c (Purchase) 60,000
(Balancing Figure)
4,64,000 4,64,000

*Gain (Profit) on Sale = Sale Price - Book Value of Machinery

= ₹ 20,000 - ₹ 16,000 (i.e.,₹ 40,000 - ₹24,000) = ₹4,000.

2. Dr. ACCUMULATED DEPRECIATION ACCOUNT Cr.

Particulars (₹) Particulars (₹)

To Machinery A/c (Depreciation on 24,000 By Balance b/d 1,00,000
Machinery Sold) (Transfer) By Depreciation A/c (Statement of Profit & 34,000
To Balance c/d 1,10,000 Loss) (Balancing Figure)
1,34,000 1,34,000

3. Dr. PATENTS ACCOUNT Cr.

Particulars (₹) Particulars (₹)

To Balance b/d 2,80,000 By Bank A/t (Sale) (Balancing Figure) 1,00,000
To Gain (profit) on sale of Patents A/c 20,000 By Amortisation A/c (Statement of Profit & 40,000
(Given) (Statement of Profit & Loss) 1,60,000
Loss) By Balance c/d
3,00,000 3,00,000

Determining Missing Values [e.g., Purchase, Sale and Gain (Profit) or Loss on Sale] of Investments.

Missing Figures (e.g., Purchase/Sale or Gain (Profit)/Loss on Sale) of Investments is determined by preparing Investments
Account as follows:

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Dr. INVESTMENTS ACCOUNT Cr.

Particulars (₹) Particulars (₹)

To Balance b/d - By Bank A/c (Sale) -
To Bank A/c (Purchase) - By Loss on Sale of Investments A/c -
To Gain (Profit) on Sale of - (Statement of Profit & Loss)
Investments A/c (Statement of By Balance c/d -
Profit & Loss)
- -

Que.2 :

From the following information, determine Cash Flow from Investing Activities of Jupiter Ltd.

Particulars 31 st March 31 st March

2023 (₹) 2022 (₹)
1. 10% Investments 5,00,000 2,50,000
2. Fixed Assets 11,90,0000 8,75,000

Additional Information:-
(i) Half of the investments held in the beginning of the year were sold at 10% gain (profit).
(ii) Depreciation on Fixed Assets was 1,00,000 for the year.
(iii) Interest received on investments 35,000,
(iv) Dividend received on investments 25,000.

Solution:-
CASH FLOW FROM INVESTING ACTIVITIES

Particulars (₹)
Proceeds from Sale of Investments 1,37,000
Purchase of Investments (WN 1) (3,75,000)
Purchase of Fixed Assets (WN 2) (4,15,000)
Interest Received 35,000
Dividend Received 25,000
Cash Used in Investing Activities (5,92,500)

Working Notes:

1. Dr. INVESTMENTS ACCOUNT Cr.

Particulars (₹) Particulars (₹)

To Balance b/d (Opening) 250000 By Bank A/c (Sale Proceeds)* 137500
To Gain (Profit) on Sale of By Balance c/d 500000
Investments A/c 12500
(Statement of Profit & Loss)
To Bank A/c (Balancing Figure) 375000
(Purchase)
637500 637500

*Sale Proceeds of Investments = 50% of ₹2,50,000 + 10% of ₹ 1,25,000 =₹1,25,000 +₹12,500 - ₹1,37,50.

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2. Dr. FIXED ASSETS ACCOUNT Cr.

Particulars (₹) Particulars (₹)

To Balance b/d (Opening) 8,75,000 By Depreciation A/c 1,00,000
To Bank A/c (Balancing Figure) 4,15,000 By Balance c/d 11,90,000
(Purchase)
12,90,000 12,90,000

Que.3 :

From the following particulars, determine Cash Flow from Investing Activities:

Particulars Purchases (₹) Sales (₹)

Investments 1,80,000 1,00,000
Goodwill 2,00,000 ….
Machinery 4,40,000 1,50,000
Patents …… 1,00,000
Interest received on Debentures held as an investment ₹16,000.
Dividend received on Shares held as an investment ₹ 20,000.
To A plot of land was out of surplus funds for investment purposes and was let out for commercial use. Rent received was
₹80,000.

Solution:-
CASH FLOW FROM INVESTING ACTIVITIES

Particulars (₹)
Purchase of Investments (1,80,000)
Proceeds from Sale of Investments 1,00,000
Goodwill Purchased (2,00,000)
Machinery Purchased (4,40,000)
Proceeds from Sale of Machinery 1,50,000
Proceeds from of Patents 1,00,000
Interest Received 16,000
Dividend Received 20,000
Rent Received 80,000
Cash Used in Investing Activities (3,54,000)

Que.4 :

From the following information of Nova Ltd., calculate the Cash Flow from Investing Activities:-

Particulars 31 st March 31 st March

2022 (₹) 2023 (₹)
Machinery (At cost) 5,00,000 3,00,000
Accumulated Depreciation on Machinery 1,00,000 80,000
Goodwill 1,50,000 1,00,000
Land 70,000 1,00,000

Additional Information:
(i) During the year, a machine costing 50,000 on which the accumulated depreciation was 35,000, was sold for 12,000.
(ii) Profit of Jass Ltd. for the year ended 31st March, 2023 after appropriation was 2,50,000.

Additional Information:

Particulars (₹)
Goodwill written off 9,000

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Loss on Sale of Furniture 2,000
Transfer to General Reserve 22,500

Following was the position of its Current Assets and Current Liabilities as at 31st March, 2022 and 2023:

Particulars 31 st March 31 st March

2022 (₹) 2023 (₹)
Income Received in Advance 8,000 …..
Inventory 12,000 8,000
Calculate the Cash Flow from Operating Activities.

Solution:- i)
CALCULATION OF CASH FLOW FROM INVESTING ACTIVITIES

Particulars (₹)
Purchase of Machinery (WN) (2,50,000)
Purchase of Goodwill (50,000)
Sale of Machinery 12,000
Sale of Land 30,000
Cash Used in Investing Activities (2,58,000)

Working Notes:

Dr. MACHINERY ACCOUNT Cr.

Particulars (₹) Particulars (₹)

To Balance b/d 3,00,000 By Bank A/c (Sale) 12,000
To Bank A/c (Purchase)-Balancing 2,50,000 By Accumulated Depreciation A/c 35,000
Figure By Statement of Profit & Loss (Loss on
Sale) 3,000
By Balance c/d 5,00,000
5,50,000 5,50,000

Dr. ACCUMULATED DEPRECIATION ACCOUNT Cr.

Particulars (₹) Particulars (₹)

To Machinery A/c (On Machinery 35,000 By Balance b/d 80,000
Sold) By Depreciation A/c (For the Year) 55,000
To Balance c/d 1,00,000 (Bal. Fig)
1,35,000 1,35,000

ii) CALCULATION OF CASH FLOW FROM OPERATING ACTIVITIES

Particulars (₹)
Net Profit before Tax and Extraordinary Items:
Net Profit (Given) 2,50,000
Add: Transfer to General Reserve 22,500 2,72,500
Adjustment for Non-cash and Non-operating items:
Add: Depreciation 55,000
Goodwill written off 9,000
Loss on Sale of Furniture 2,000
Operating Profit before Working Capital Changes 3,38,500
Add: Decrease in Inventory 4,000
Less: Decrease in Advance Income (8000) (4000)
Cash Flow from Operating Activities 3,34,500

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Que.5 :

From the following information, calculate Cash Flow from Operating Activities and Investing Activities:

Particulars 31 st March 31 st March

2023 (₹) 2022 (₹)
Surplus, i.e., Balance in Statement of Profit & Loss 4,00,000 (1,00,000)
Provision for Tax 30,000 30,000
Trade payables 1,50,000 40,000
Property, Plant and Equipment and Intangible Assets: Fixed Assets (Net) 12,40,000 10,20,000
Non-current Investments 1,60,000 60,000
Current Assets (Inventories and Trade Receivables) 5,20,000 4,60,000
Additional Information:
(i) During the year, a machine costing 1,40,000 (Depreciation provided thereon 60,000) was sold for 50,000.
(ii) Depreciation charged was 1,40,000.
(iii) Tax paid was 30,000.
(iv) At the end of the year, investment costing * 80,000 was sold at a profit of 25%.

Solution:-

CALCULATION OF CASH FLOW FROM OPERATING ACTIVITIES AND INVESTING ACTIVITIES

Particulars (₹) (₹)

A. Cash Flow from Operating Activities
Net Profit before Tax and Extra Ordinary Items (WN 1) 5,30,000
Adjustment for Non-cash and Non-operating Items:
Depreciation 1,40,000
Loss on Sale of Machinery (WN 2) 30,000
Gain (Profit) on Sale of Investments (WN 3) (20,000) 1,50,000
Operating Profit before Working Capital Changes 6,80,000
Adjustments for Change in Current Assets and Current Liabilities:
Increase in Current Assets (60,000)
Increase in Trade Payables 1,10,000 50,000
Cash Generated from Operating Activities before Tax 7,30,000
Less: Tax Paid 30,000
Cash Flow from Operating Activities after Tax 7,00,000
B. Cash Flow from Investing Activities
Proceeds from Sale of Machinery 50,000
Purchase of Fixed Assets (4,40,000)
Purchase of Investments (1,80,000)
Proceeds from Sale of Investments (WN 3) 1,00,000
Cash Used in Investing Activities (4,70,000)

Working Notes: 1

Calculation of Net Profit before Tax and Extra-ordinary Items: (₹)

Closing Balance of Surplus, ie, Balance in Statement of Profit & Loss 4,00,000
Add: Opening Debit Balance of Surplus, i.e., Balance in Statement of Profit & Loss 1,00,000
Provision for Tax during the year 30,000
Net Profit before Tax and Extra-ordinary Items 5,30,000

2. Dr. PROPERTY, PLANT & EQUIPMENT ACCOUNT: FIXED ASSETS ACCOUNT Cr.

Particulars (₹) Particulars (₹)

To Balance b/d 10,20,000 By Bank A/c (Sale) 50,000
To Bank A/c (Purchases) -Balancing 4,40,000 By Statement of Profit & Loss (Loss on
Figure Sale) 30,000
By Depreciation A/c 1,40,000

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By Balance c/d 12,40,000
14,60,000 14,60,000

3.Dr. NON-CURRENT INVESTMENT ACCOUNT Cr.

Particulars (₹) Particulars (₹)

To Balance b/d 60,000 By Bank A/c (Sale) ( 80,000+20,000) 1,00,000
To Statement of Profit & Loss (Profit By Balance c/d 1,60,000
on Sale) 20,000
To Bank A/c (Purchases)-Balancing
Figure 1,80,000
2,60,000 2,60,000

Que.6 :

From the following information, determine Cash Flow from Financing Activities:

Particulars 31 st March 31 st March

2023 (₹) 2022 (₹)
Equity Share Capital 5,00,000 4,00,000
Long-term Borrowings-10% Debentures 1,00,000 1,00,000
Short-term Borrowings-10% Debentures …. 50,000
Securities Premium 50,000 40,000
Bank Overdraft 2,00,000 1,50,000

Additional Information:
Interest paid on debentures 10,000; Interest on Bank Overdraft 15,000 and previous year 10,000

Solution:-
CALCULATION CASH FLOW FROM FINANCING ACTIVITIES

Particulars (₹)
Cash Proceeds from the Issue of Shares 1,00,000
Securities Premium Received 10,000
Increase in Bank Overdraft 50,000
Interest paid on Debentures (10,000)
Interest on Bank Overdraft (15,000)
Redemption of 10% Debentures 05 (50,000)
Cash Flow from Financing Activities 85,000

Que.7 :

Rayan Ltd. provides the following information. Determine Cash Flow from Financing Activities:

Particulars 31 st March 31 st March

2023 (₹) 2022 (₹)
Equity Share Capital 15,00,000 10,00,000
10% Debentures ……. 1,00,000
8% Debentures 2,00,000 …….
Additional Information:
(i) Interest paid on Debentures 10,000.
(ii) Dividend paid 50,000.
(iii) During the year 2022-23, Rayan Ltd. issued bonus shares in the ratio of 2 : 1.

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Solution:-
CASH FLOW FROM FINANCING ACTIVITIES

Particulars (₹)
Proceeds from the Issue of 8% Debentures 2,00,000
Redemption of 10% Debentures (1,00,000)
Interest Paid on Debentures (10,000)
Dividend Paid (50,000)
Cash Flow from Financing Activities 40,000

Notes:
1. Bonus shares are not shown in Cash Flow Statement because cash is not transacted.
2. In the absence of information, it is assumed that 10% Debentures have been redeemed and new 8% Debenture have been issued
on 31st March, 2023,

Que.8 :

Following information is taken from the Balance Sheet as at 31st March, 2023 of a company:

Particulars 31 st March 31 st March

2023 (₹) 2022 (₹)
Equity Share Capital 9,00,000 7,00,000
12% Preference Share Capital 3,00,000 5,00,000
Securities Premium Reserve 1,40,000 1,00,000
12% Debentures 4,00,000 3,00,000

Additional Information:
(i) Interim dividend on Equity Shares at the end of current year was paid @ 15%.
(ii) Dividend on Preference Shares was paid.
(iii) Preference Shares were redeemed at a premium of 5% on 31st March, 2023.
(iv) New shares and debentures were issued on the last date of current year.
Determine Cash Flow from Financing Activities.

Solution:-
CASH FLOW FROM FINANCING ACTIVITIES

Particulars (₹)
Proceeds from Issue of Equity Shares [2,00,000+40,000 (Securities Premium Reserve)] 2,40,000
Redemption of 12% Preference Shares (2,00,000+10,000) (2,10,000)
Proceeds from Issue of 12% Debentures 1,00,000
Interest Paid on 12% Debentures 36,000
Interim Dividend Paid on Equity Shares 1,05,000
Dividend Paid on 12% Preference Shares (60,000)
Cash Used in Financing Activities (71,000)

Notes: If information for Proposed Dividend on Equity Shares is not given, it means final dividend is not paid on Equity shares.

Que.9 :

Prepare Cash Flow Statement (as per AS-3 (Revised)) for the year ended 31st March, 2012 from the following Balance Sheet as at
31st March, 2023:

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Super India Ltd.
BALANCE SHEET as at 31st March, 2023

Particulars Note No. 31 st March 31 st March

2023 (₹) 2022 (₹)
I. EQUITY AND LIABILITIES
1.Shareholders' Funds
(a) Share Capital (Equity Share Capital) 6,00,000 4,00,000
(b) Reserves and Surplus (Statement of Profit & Loss) 2,00,000 1,00,000
2. Non-Current Liabilities
Long-term Borrowings 1,00,000 1,00,000
3. Current Liabilities
(a) Short-term Borrowings 1 ….. 1,10,000
(b) Trade Payables (Creditors) 45,000 60,000
(c) Short-term Provisions 2 70,000 40,000
Total 10,15,000 8,10,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets:
(i) Property, Plant and Equipment 6,00,000 6,00,000
(ii) Intangible (Patents) 45,000 50,000
(b) Non-Current Investments 75,000 …..
2. Current Assets
(a) Inventories 15,000 10,000
(b) Trade Receivables (Debtors) 1,95,000 1,20,000
(c) Cash and Cash Equivalents (Cash) 85,000 30,000
Total 10,15,000 8,10,000

Notes to Accounts

Particulars 31 st March 31 st March

2023 (₹) 2022 (₹)
1. Short-term Borrowings
Current Maturities of Long-term Debts …. 1,00,000
Bank Loan …. 10,000
…. 1,10,000
2. Short-term Provisions
Provision for Tax 70,000 40,000

Note: Dividend proposed for the years ended 31st March, 2022 and 2023 are ₹ 60,000 and ₹ 80,000 respectively.
Additional Information:
During the year 2022-23:
(i) Building was purchased for 75,000.
(ii) An old building, book value of which was 63,000, was sold at a loss of ₹ 5,000.
(iii) Tax provided during the year was 80,000.

Solution:-
Super India Ltd.
CASH FLOW STATEMENT for the year ended 31st March, 2023
Particulars (₹) (₹)
I. Cash Flow from Operating Activities
Net Profit before Tax and Extraordinary Items:
Closing Balance of Surplus, (e, Balance in Statement of Profit & Loss 2,00,000
Less: Opening Balance of Surplus, (e, Balance in Statement of Profit &
Loss 1,00,000
1,00,000
Add: Provision for Tax 80,000

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Dividend Paid (Proposed Dividend of previous year) 60,000 1,40,000
Net Profit before Tax and Extraordinary Items 2,40,000
Add: Non-Cash and Non-Operating Expenses:
Depreciation (WN 2) 12,000
Amortisation of Patents 5,000
Loss on Sale of Building 5,000 22,000
Operating Profit before Working Capital Changes 2,62,000
Less: Increase in Current Assets and Decrease in Current Liabilities:
Inventories 5,000
Trade Receivables 75,000
Trade Payables 15,000 95,000
Cash Generated from Operating Activities 1,67,000
Less: Tax Paid (WN 1) 50,000
Cash Flow from Operating Activities 1,17,000
II. Cash Flow from Investing Activities
Proceeds from Sale of Building 58,000
Payment for Purchase of Building (75,000)
Payment for Purchase of Non-current Investments (75,000)
Cash Used in Investing Activities (92,000)
III.Cash Flow from Financing Activities
Proceeds from Issue of Shares 2,00,000
Repayment of Long-term Borrowings (1,00,000)
Repayment of Short-term Borrowings (10,000)
Payment of Dividend (Previous Year's Proposed Dividend) (60,000)
Cash Flow from Financing Activities 30,000
IV. Net Increase in Cash and Cash Equivalents (I+II+III) 55,000
Add: Opening Cash and Cash Equivalents 30,000
V. Closing Cash and Cash Equivalents 85,000

Working Notes:-
1. Dr. PROVISION FOR TAX ACCOUNT Cr.

Particulars (₹) Particulars (₹)

To Bank A/c (Tax Paid) (Balancing By Balance b/d 40,000
Figure) 50,000 By Statement of Profit & Loss (Tax
To Balance c/d 70,000 provided) 80,000
1,20,000 1,20,000

2. Dr. BUILDING ACCOUNT Cr.

Particulars (₹) Particulars (₹)
To Balance b/d 6,00,000 By Bank A/c (Sale) 58,000
To Bank A/c (Purchase) 75,000 By Loss on Sale of Building A/c 5,000
(Statement of Profit & Loss)
By Depreciation A/c (Balancing Figure) 12,000
By Balance c/d 6,00,000
6,75,000 6,75,000

Que.10. :
Following is the Balance Sheet of R.S. Ltd. as at 31st March, 2023:
R.S. Ltd.
BALANCE SHEET
as at 31st March, 2023
Particulars Note No. 31 st March 31 st March
2023 (₹) 2022 (₹)
I. EQUITY AND LIABILITIES
1. Shareholders' Funds
(a) Share Capital 9,00,000 7,00,000
(b) Reserves and Surplus 1 2,50,000 1,00,000

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2. Non-Current Liabilities
Long-term Borrowings 2 4,50,000 3,50,000
3. Current Liabilities
(a) Short-term Borrowings 3 1,50,000 75,000
(b) Short-term Provisions 4 2,00,000 1,25,000
Total 19,50,000 13,50,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment and intangible Assets:
(i) Property, Plant and Equipment 5 14,65,000 9,15,000
(ii) Intangible 6 1,00,000 1,50,000
(b) Non-Current Investments 1,50,000 1,00,000
2. Current Assets
(a) Current Investments 40,000 70,000
(b) Inventories 7 1,22,000 72,000
(c) Cash and Cash Equivalents 73,000 43,000
Total 19,50,000 13,50,000

Notes to Accounts
Particulars 31 st March 31 st March
2023 (₹) 2022 (₹)
1. Reserves and Surplus
Surplus, i.e., Balance in Statement of Profit & Loss 2,50,000 1,00,000

2. Long-term Borrowings
12% Debentures 4,50,000 3,50,000

3 . Short-term Borrowings
Bank Overdraft 1,50,000 75,000

4. Short-term Provisions
Provision for Tax 2,00,000 1,25,000

5. Property, Plant and Equipment

Machinery 16,75,000 10,55,000
Accumulated Depreciation (2,10,000) (1,40,000)
14,65,000 9,15,000

6. Intangible Assets
Goodwill 1,00,000 1,50,000

7. Inventories
Stock-in-Trade 1,22,000 72,000

Additional Information:
(i) 1,00,000, 12% Debentures were issued on 31st March, 2023.
(ii) During the year a piece of machinery costing₹80,000, on which accumulated depreciation was 40,000, was sold at a loss of
10,000.

Solution:-
R.S. Ltd.
CASH FLOW STATEMENT for the year ended 31st March, 2023
Particulars (₹) (₹)
I. Cash Flow from Operating Activities
Net Profit before Tax and Extraordinary Items (WN 1) 3,50,000
Add: Non-cash and Non-operating Charges:
Goodwill amortised 50,000
Depreciation on Machinery (WN 3) 1,10,000

14
ARHAM INSTITUTE CA AMIT BAFNA
Interest on Debentures (₹ 3,50,000 × 12/100) 42,000
Loss on Sale of Machinery 10,000
Operating Profit before Working Capital Changes 5,62,000
Less: Increase in Current Assets:
Inventories 50,000
Cash Generated from Operations 5,12,000
Less: Income Tax Paid 1,25,000
Cash Flow from Operating Activities 3,87,000
II. Cash Flow from Investing Activities
Purchase of Machinery (WN 2) (7,00,000)
Sale of Machinery 30,000
Purchase of Non-current Investments (50,000)
Cash Used in Investing Activities (7,20,000)
III. Cash Flow from Financing Activities
Proceeds from Issue of Shares 2,00,000
Proceeds from Issue of 12% Debentures 1,00,000
Interest on Debentures Paid (42,000)
Bank overdraft (Raised) 75,000
Cash Flow from Financing Activities 3,33,000
IV. Net Increase in Cash and Cash Equivalents (I + II + III) Nil
Add: Opening Balance of Cash and Cash Equivalents:
Current Investments 70,000
Cash and Cash Equivalents 43,000 1,13,000
V. Closing Cash and Cash Equivalents
Current Investments 40,000
Cash and Cash Equivalents 73,000 1,13,000

Working Notes: 1

Calculation of Net Profit before Tax and Extra-ordinary Items: (₹)

Closing Balance of Surplus, i.e, Balance in Statement of Profit & Loss 2,50,000
Less: Opening Balance of Surplus, i.e., Balance in Statement of Profit & Loss 1,00,000
1,50,000
Add: Provision for Tax 2,00,000
Net Profit before Tax and Extra-ordinary Items 3,50,000

2. Dr. MACHINERY ACCOUNT Cr.

Particulars (₹) Particulars (₹)

To Balance b/d 10,55,000 By Bank A/c 30,000
To Bank A/c (Purchase)-Balancing By Loss on Sale of Machinery A/c 10,000
Figure 7,00,000 (Statement of Profit & Loss)
By Accumulated Depreciation A/c 40,000
By Balance c/d 16,75,000
17,55,000 17,55,000

3. Dr. ACCUMULATED DEPRECIATION ACCOUNT Cr.

Particulars (₹) Particulars (₹)

To Machinery A/c 40,000 By Balance b/d 1,40,000
To Balance c/d 2,10,000 By Depreciation A/c (Statement of Profit 1,10,000
& Loss) - Balancing figure
2,50,000 2,50,000

Que.11. :

From the following Balance Sheet of DCX Ltd. and the additional information as at 31st March, 2018, prepare a Cash Flow
Statement:

15
ARHAM INSTITUTE CA AMIT BAFNA
BALANCE SHEET OF DCX LTD. as at 31st March, 2018

Particulars Note No. 31 st March 31 st March

2018 (₹) 2017 (₹)
I. EQUITY AND LIABILITIES
1. Shareholders' Funds
(a) Share Capital 30,00,000 21,00,000
(b) Reserves and Surplus 1 4,00,000 5,00,000
2. Non-Current Liabilities
Long-term Borrowings 2 8,00,000 5,00,000
3. Current Liabilities
(a) Trade Payables 1,50,000 1,00,000
(b) Short-term Provisions 3 76,000 56,000
Total 44,26,000 32,56,000
II. ASSETS
1. Non-Current Assets
Property, Plant and Equipment and Intangible Assets:
(i) Property, Plant and Equipment 4 27,00,000 20,00,000
(ii) Intangible Assets 8,00,000 7,00,000
2. Current Assets
(a) Current Investments 89,000 78,000
(b) Inventories 8,00,000 4,00,000
(c) Cash and Cash Equivalents 37,000 78,000
Total 44,26,000 32,56,000

Notes to Accounts
Particulars 31 st March 31 st March
2018 (₹) 2017 (₹)
1. Reserves and Surplus
Surplus, i.e., Balance in Statement of Profit & Loss 4,00,000 5,00,000
4,00,000 5,00,000
2. Long-term Borrowings
8% Debentures 8,00,000 5,00,000
8,00,000 5,00,000
3. Short-term Provisions
Provision for Tax 76,000 56,000
76,000 56,000
4. Property, Plant and Equipment
Machinery 33,00,000 25,00,000
Less: Accumulated Depreciation (6,00,000) (5,00,000)
27,00,000 20,00,000
Additional Information:
(i) During the year a machinery costing 8,00,000 on which accumulated depreciation was 3,20,000 was sold for 6,40,000.
( ii) Debentures were issued on 1st April, 2017.

Solution:-
CASH FLOW STATEMENT OF DCX LTD. for the year ended 31st March, 2018

Particulars (₹) (₹)

I. Cash Flow from Operating Activities
Net Profit before Tax and Extraordinary Items (WN 1) (24,000)
Add: Depreciation on Machinery (WN 3) 4,20,000
Interest on Debentures 64,000
Less: Gain on Sale of Machinery (1,60,000)
Operating Profit before Working Capital Changes 3,00,000
Add: Increase in Current Liabilities: Trade Payables 50,000
Less: Increase in Current Assets: Inventories (4,00,000)
Cash Generated from Operations (50,000)
Less: Tax Paid (56,000)

16
ARHAM INSTITUTE CA AMIT BAFNA
Cash Used in Operating Activities (1,06,000)
II. Cash Flow from Investing Activities
Purchase of Machinery (16,00,000)
Purchase of Intangible Assets (1,10,000)
Proceeds from Sale of Machinery 6,40,000
Cash Flow from Investing Activities (10,60,000)
III. Cash Flow from Financing Activities
Proceeds from Issue of Shares 9,00,000
Proceeds from Issue of Debentures 3,00,000
Interest paid on Debentures (64,000)
Cash Flow from Financing Activities 11,36,000
IV. Net Decrease in Cash and Cash Equivalents (I+II+III) (30,000)
Add: Opening Balance of Cash and Cash Equivalents:
Current Investments 78,000
Cash and Cash Equivalents 78,000 1,56,000
V. Closing Balance of Cash and Cash Equivalents
Current Investments 89,000
Cash and Cash Equivalents 37,000 1,26,000

Working Notes: 1

Calculation of Net Profit before Tax and Extra-ordinary Items: (₹)

Closing Balance of Surplus, i.e, Balance in Statement of Profit & Loss 4,00,000
Less: Opening Balance of Surplus, i.e., Balance in Statement of Profit & Loss 5,00,000
(1,00,000)
Add: Provision for Tax 76,000
Net Profit before Tax and Extra-ordinary Items (24,000)

2. Dr. MACHINERY ACCOUNT Cr.

Particulars (₹) Particulars (₹)

To Balance b/d 25,00,000 By Accumulated Depreciation A/c 3,20,000
To Gain on Sale of Machinery A/c 1,60,000 By Bank A/c (Sale) 6,40,000
(Statement of Profit & Loss) By Balance c/d 33,00,000
To Bank A/c (Balancing Figure)- 16,00,000
Purchase
42,60,000 42,60,000

3. Dr. ACCUMULATED DEPRECIATION ACCOUNT Cr.

Particulars (₹) Particulars (₹)

To Machinery A/c 3,20,000 By Balance b/d 5,00,000
To Balance c/d 6,00,000 By Depreciation A/c (Statement of Profit 4,20,000
& Loss) (Bal. Fig.)
9,20,000 9,20,000

Que.12. :

Classify the following activities as (a) Operating activities (b) Investing activities (c) Financing activities (d) Cash
equivalents with reference to AS 3 (Revised).
(a) Brokerage paid on purchase of investments
(b) Underwriting commission paid
(c) Trading commission received
(d) Proceeds from sale of investment
(e) Purchase of goodwill
(f) Redemption of preference shares

17
ARHAM INSTITUTE CA AMIT BAFNA
(g) Rent received from property held as investment
(h) Interest paid on long-term borrowings
(i) Marketable securities (having risk of change in value)
(j) Refund of income tax received

Solution:-
Classification of activities with reference to AS 3
a. Brokerage paid on purchased of investments Investing Activities
b. Underwriting Commission paid Financing Activities
c. Trading Commission received Operating Activities
d. Proceeds from sale of investment Investing Activities
e. Purchase of goodwill Investing Activities
f. Redemption of Preference shares Financing Activities
g. Rent received from property held as investment Investing Activities
h. Interest paid on long term borrowings Financing Activities
i. Marketable securities Not a Cash equivalent
j. Refund of Income tax received Operating activities

Que.13. :

How will you disclose following items while preparing Cash Flow Statement of Gagan Ltd. as per AS-3 for the
year ended 31st March, 20X2?
(i) 10% Debentures issued:
As on 01-04-20X1 ₹1,10,000
As on 31-03-20X2 ₹77,000
(ii) Debentures were redeemed at 5% premium at the end of the year. Premium was charged to the Profit &
Loss Account for the year.
(iii) Unpaid Interest on Debentures:
As on 01-04-20X1 ₹275
As on 31-03-20X2 ₹1,175
(iv) Debtors of ` ₹36,000 were written off against the Provision for Doubtful Debts A/c during the year.
(v) 10% Bonds (Investments):
As on 01-04-20X1 ₹3,50,000
As on 31-03-20X2 ₹3,50,000
(vi) Accrued Interest on Investments:
As on 31-03-20X2 ` ₹10,500
Solution:-

Cash Flow Statement of M/s Gagan Ltd.

for the year ended March 31, 20X2
A. Cash Flow from Operating Activities

Net Profit as per Profit & Loss A/c xxxx

Add: Premium on Redemption of Debentures 1,650

Add: Interest on 10% Debentures 11,000

Less: Interest on 10% Investments (35,000)

B. Cash Flow from Investing Activities

Interest on Investments [35,000-10,500] 24,000

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ARHAM INSTITUTE CA AMIT BAFNA
C. Cash Flow from Financing Activities

Interest on Debentures paid [11,000 - (1,175-275)]- outflow (10,100)

Redemption of Debentures [(1,10,000 77,000) at 5% premium] - outflow (34,650)

Note: Debtors written off against provision for doubtful debts does not require any further
adjustment in Cash Flow Statement.

Que.14. :

From the following Balance sheet of Grow More Ltd., prepare Cash Flow Statement for the year ended 31st March, 20X1 :
st st
Particulars Notes 31 March, 31 March,
20X1 20X0
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 1,00,000 70,000
(provision for tax)
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
st st
No. Particulars 31 March, 20X1 31 March, 20X0
1. Reserves and Surplus
General 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 -

3 Other current liabilities

Dividend payable - 1,00,000

4 Property, plant equipment and

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.

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ARHAM INSTITUTE CA AMIT BAFNA
(iv) Construction of the building got completed on 31.03.20X1 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, 20X1
Cash Flow from Operating Activities
₹
Increase in balance of Profit and Loss Account (1,00,000-60,000) 40,000

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 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

20
ARHAM INSTITUTE CA AMIT BAFNA
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 (profit on sale By Cash (sale of machine) 35,000
of machine) 15,000 By Balance c/d 7,00,000
To Cash (Balancing figure) 3,45,000
8,60,000 8,60,000

Que.15. :

From the following Balance Sheets and information, prepare Cash Flow Statement of Ryan Ltd. by Indirect method for the year
ended 31st March, 20X1:
st st
Particulars Notes 31 March, 31 March,
20X1 20X0
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

Notes to accounts
st st
No. Particulars 31 March, 20X1 31 March, 20X0
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

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ARHAM INSTITUTE CA AMIT BAFNA
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, 20X0 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.

Solution:-
Cash Flow Statement of Ryan Limited
For the year ended 31st March, 20X1
₹ ₹
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 (6,00,000 - 5,00,000) 1,00,000
Proceeds from issue of debentures (2,00,000 - 1,00,000) 1,00,000
Redemption of preference shares (2,00,000)

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ARHAM INSTITUTE CA AMIT BAFNA
Dividends paid (1,50,000)
Interest paid on debentures (18,000)
Net cash used in financing activities (1,68,000)
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

Significant Non-cash Items:

Debentures amounting to 1,00,000 have been issued as part consideration for acquisition of plant of 4,50,000.

Working Notes:

1. ₹
Net profit before taxation

Retained profit 1,00,000

Less: Balance as on 31.3.20X0 (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 (Profit on sale) 30,000 By Balance c/d 1,50,000
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 account loss 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
Particulars (₹) Particulars (₹)
To Balance b/d 80,000 By Cash (Sale) 70,000
To Profit and loss 20,000 By Dividend ( Pre-acquisition) 5,000
To Bank account (Balancing figure) 25,000 By Balance c/d 50,000
1,25,000 1,25,000

5. Capital Reserve Account

Particulars (₹) Particulars (₹)
To Balance c/d 70,000 By Profit on revaluation of land 70,000
70,000 70,000

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ARHAM INSTITUTE CA AMIT BAFNA
6. General Reserve Account
Particulars (₹) Particulars (₹)
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

Particulars (₹) Particulars (₹)
To Bank (Balancing figure) 1,50,000 By Balance b/d 60,000
To Balance c/d - By Profit and Loss account 90,000
1,50,000 1,50,000

8. Provision for Taxation Account

Particulars (₹) Particulars (₹)
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

Particulars (₹) Particulars (₹)
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

Que.16. :

The Balance Sheet of New Light Ltd. as at 31st March, 20X1 and 20X0 (for the years ended) are as follows:

st st
Particulars Notes 31 March, 31 March,
20X0 20X1
Equity and Liabilities
1 Shareholders' funds
A Share capital 1 16,00,000 18,80,000
B Reserves and Surplus 2 8,40,000 11,00,000
2 Non-current liabilities
Long term borrowings 3 4,00,000 2,80,000
3 Current liabilities
A Other current liabilities 4 6,00,000 5,20,000
B Short term provision
(provision for tax) 3,60,000 3,40,000
Total 38,00,000 41,20,000
Assets
1 Non-current assets
A Property, plant and Equipment 5 22,80,000 26,40,000
B Non-Current Investments 4,00,000 3,20,000
2 Current assets
A Cash and Cash equivalents 10,000 10,000
B Other Current assets 11,10,000 11,50,000
Total 38,00,000 41,20,000

Notes to accounts
st st
No. Particulars 31 March, 20X0 31 March, 20X1
1 Share capital
Equity share capital 12,00,000 16,00,000
10% Preference share capital 4,00,000 2,80,000
Total 16,00,000 18,80,000
2 Reserves and Surplus

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ARHAM INSTITUTE CA AMIT BAFNA
General reserve 6,00,000 7,60,000
Profit and Loss account 2,40,000 3,40,000
Total 8,40,000 11,00,000
3 Long term borrowings
9% Debentures 4,00,000 2,80,000
Total 4,00,000 2,80,000
4 Other current liabilities
Dividend payable 1,20,000 -
Current Liabilities 4,80,000 5,20,000
Total 6,00,000 5,20,000
5 Property, plant and Equipment
Property, plant and equipment 32,00,000 38,00,000
Less: Depreciation (9,20,000) (11,60,000)
Net carrying value 22,80,000 26,40,000

Additional information:
(i) The company sold one property, plant and equipment for 1,00,000, the cost of which was 2,00,000 and the depreciation
provided on it was 80,000.
(ii) The company also decided to write off another item of property, plant and equipment costing 56,000 on which depreciation
amounting to40,000 has been provided.
(iii) Depreciation on property, plant and equipment provided 3,60,000.
(iv) Company sold some investment at a profit of 40,000.
(v) Debentures and preference share capital redeemed at 5% premium. Debentures were redeemed at the year end.
(vi) Company decided to value inventory at cost, whereas previously the practice was to value inventory at cost less 10%. The
inventory according to books on 31.3.20X0 was 2,16,000. The inventory on 31.3.20X1 was correctly valued at 3,00,000.

Prepare Cash Flow Statement as per revised Accounting Standard 3 by indirect method.

Solution:-

New Light Ltd.

Cash Flow Statement for the year ended 31st March, 20X1
A. Cash Flow from operating activities (₹) (₹)
Profit after appropriation

Increase in profit and loss A/c after inventory adjustment

[₹3,40,000 - (2,40,000 + 24,000)] 76,000

Transfer to general reserve 1,60,000

Provision for tax 3,40,000

Net profit before taxation and extraordinary item 5,76,000

Adjustments for:-

Depreciation 3,60,000

Loss on sale of property, plant and equipment 20,000

Decrease in value of property, plant and equipment 16,000

Profit on sale of investment (40,000)

Premium on redemption of preference share capital 6,000

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ARHAM INSTITUTE CA AMIT BAFNA
Interest on debentures 36,000

Premium on redemption of debentures 6,000

Operating profit before working capital changes 9,80,000

Increase in current liabilities (₹5,20,000-₹4,80,000) 40,000

Increase in other current assets

[₹11,50,000-(₹11,10,000 + 24,000)] (16,000)

Cash generated from operations 10,04,000

Income taxes paid (3,60,000)

Net Cash generated from operating activities 6,44,000

B. Cash Flow from investing activities
Purchase of property, plant and equipment (W.N.3) (8,56,000)

Proceeds from sale of property, plant and equipment (W.N.3) 1,00,000

Proceeds from sale of investments (W.N.2) 1,20,000

Net Cash used in investing activities (6,36,000)

C. Cash Flow from financing activities
Proceeds from issuance of share capital 4,00,000

Redemption of preference share capital (1,20,000 + 6,000) (1,26,000)

Redemption of debentures(1,20,000+ 6,000) (1,26,000)

Dividend paid (1,20,000)

Interest on debentures (36,000)

Net Cash generated from financing activities (8,000)

Net increase/decrease in cash and cash equivalent during the year Nil

Cash and cash equivalent at the beginning of the year 10,000

Cash and cash equivalent at the end of the year 10,000

Working Notes:
1. Revaluation of inventory will increase opening inventory by 24,000.
2,16,000/90 x 10 = 24,000
Therefore, opening balance of other current assets would be as follows:
11,10,000 + 24,000 = 11,34,000
Due to under valuation of inventory, the opening balance of profit and loss account be increased by 24,000.
The opening balance of profit and loss account after revaluation of inventory will be 2,40,000 + 24,000 = 2,64,000

2. Investments Account
Particulars (₹) Particulars (₹)
To Balance b/d 4,00,000 By Balance A/c (Balancing figure
To Profit and Loss A/c 40,000 being Investment sold) 1,20,000
(Profit on sale of investment) By Balance c/d 3,20,000
4,40,000 4,40,000

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3. Property, Plant and Equipment Account
Particulars (₹) Particulars (₹) (₹)
To Balance b/d 32,00,000 By Bank A/c 1,00,000
To Bank A/c(balancing figure being (sale of assets)
assets purchased) 8,56,000 By Accumulated depreciation A/c 80,000
By Profit and loss A/c 20,000 2,00,000
(loss on sale of assets)
By Accumulated depreciation A/c 40,000
By Profit and loss A/c 16,000 56,000
(assets written off)
By Balance c/d 38,00,000
40,56,000 40,56,000

4. Accumulated Depreciation Account

Particulars (₹) Particulars (₹)
To Property, plant and equipment A/c 80,000 By Balance b/d 9,20,000
To Property, plant and equipment A/c 40,000 By Profit and loss A/c (depreciation
To Balance c/d 11,60,000 for the year) 3,60,000
12,80,000 12,80,000

Que.17. :

ABC Ltd. gives you the Balance sheets as at 31st March 20X0 and 31st March 20X1. You are required to prepare Cash Flow
Statement by using indirect method as per AS 3 for the year ended 31st March 20X1:
st st
Particulars Notes 31 March, 31 March,
20X0 20X1
Equity and Liabilities
1 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
Non-current assets
1 A Property, plant and Equipment 3 21,20,000 32,80,000
Current assets
2 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

st st
No. Particulars 31 March, 20X1 31 March, 20X0
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

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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 31st March, 20X1, 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 31.3.20X1

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 (₹4,20,000-₹1,50,000) 2,70,000

Operating Profit Before Working Capital Changes 14,90,000

Add: Decrease in Inventories 90,000

(₹20,10,000-₹19,20,000)
15,80,000
Less: Increase in Current Assets

Trade Receivables
(₹30,60,000 - ₹23,90,000) 6,70,000

Prepaid Expenses (₹,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 (13,40,000)

(₹40,70,000 -₹ 27,30,000)
(16,60,000)
Net Cash Used in Investing Activities

Cash Flows from Financing Activities

Bank Loan Raised (₹3,00,000-₹1,50,000) 1,50,000

Issue of Debentures 9,00,000

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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 1.4.20X0 15,20,000

Cash and Cash Equivalents as on 31.3.20X1 15,20,000

Notes:-
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 31.3.20X1. 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
2. asappearing in the balance sheet on 31.3.20X1.

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.

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