1.cash Flow Material--t S Grewal 01.12.2018 706wb

,UJI

Cash Flow Statement-Based on ing Standard-3 (Revised) (Only for Non-Financing Companies)

;

TEARNING OBIECTIVES The Study of thls Chapter would enable you to underctand:

. . .

Flow Statement

1. Cash Flow Statement It is the statement that shows flow of Cash and Cash Equivalents during the period under report.

Oblectives of Cash Flow Statement

2. Cash Flows

lmportance or Uses of Cash Flow

These are the inflows (receipts) and outflows (payments) of.Cash

Statement

and Cash Equivalents.

Meaning of Cash Flow and Casn

.

Limitations of Cash Flovr; Statement

.

lmportant Definitions as

.

MEANING OF KEY USED IN THE CHAPTER

pe'

ing Standard-3 (Revised) preparalion of cash Ftow

menr

state-

3. Cash lt compnsqs of Cash on Hand and demand deposits with banks.

t1"f".tl""tt

l:"-tl these are short_term, highly liquid investrirents that are readily .

convertible into known amount of casn and which are subject to an insignificant risk of change in value. An investment normally qualifies as cash equivalent only when it has short maturity period of, say, three months 0r less from the dare of acqulsition, Le., purcnase.

,l

As per the Guidelines of the Council, Short-term Investments, Marketable Securittes and tsank Overdraft/Cash Credit are to be taken as Cash and Cash Equivalents. Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. 5. Operating Activities These are the principal revenue producing activities of the enterprise and other actlvities that are not Investlng and Financing Activities. 6. Investing Activities These are activities of acquisition and disposal of long-term assets and other investmenls not included in cash equivalents. 7. Financing Activities These are the activities that result rn change in the size and composition of the owner's caprrar (including prelerence share capital in the case of a company) and bonowings of the enterprise.

J.,r-

Management ing (Section

B)_lSC XII

MEANING OF CASH FLOW AND CASH FLOW STATEMENT Cash Flow statement is a statement that shows inflow and outflow of Cash and Cash Equivalents-from operating, Investing and Financing activities during the period of report. Cash Flow statement is prepared according to Accoirnting standard-3 (Revised) issued by the Institute of Chartered ants of India (ICAI). Cash flow is movement of cash and Cash Equivarents, i.e., infrow and outflow of Cash a1d Equivalents. Transactions that lead to increase in Cash and Cash Equivalents are lasf classified, 1.e., shown as inflow and transactions that lead to its aec.eas" ai.ll*ror"a, i.r., shown as outflow. Cash and hand, balance with bank, marketable securities, and credit r bank overdraft . Thus, Cqs,h and rd + !212n." with Bank + Marketable Securities ance (Liability) in Cash Credit and ccount.

Cash bala Cash

1. Operating

Activitics;

w Statement, requires that cash flow shoulcl be ent under the following tirree activities:

2. Investing Activities;

and

3. Financing Activities.

OBJECTIVES OF CASH FLOW STATEMENT The objectives of preparing Cash FIow Statemeni are: o To show Cash a nd cash Equivarents geuernted, i.e,, inflow urder each activi ty (r e., operarrng/ Investing/F ina ncing Activity) by the enterprise, To show Cash and Cash Equivalent s use,r, i.e., outflow under each activity (i c, operahng/ Investing/Financing Activitv) by the enterprise. To shorv net chLtn c in Cash and cash Eqtiivarents, r.e., the differe'ce between inflow and outflow under rhe three activities between the two Balance sheet dates.

'

'

IMPORTANCE OR USES OF CASH FLOW STATEMENT 1. ShorFteri,n Planning: Cash FIow State and Cash Ec1-rivalents for a peri lnvesting and Financing Aitiv helps to plan investment, oper 2. Cash Flow Statement helps in understa ability of an enterprise to meet its liabilities like banks, prefer Cash Flow Statement to assess the capability of the enterprise ro pay its liabilities towards intercst and principal in time. 3. Efficient Cash Management: Cash Flow Statcment prr)vides inf,,rmation on surl .ls or deficit of casli. An e.terprise, therefore, is in a p.srtron to pran investment of the surplus and can arrange credit in case of deficit. 4 comparative study: A comparison of the cash FIow statement for the year with the budggl 5ho11'5 the exte^t to which cash generated and appried met the pran. lt is, -- '^ therefore, useful for the maragement to prepare the cash'n'"Jg.tr. 5' Reasons for Cash position: Cash Florv statement explains the reasons for lorver and higher cash balances with the enterprise. Sometimes, an e.terprise has lorver cash balance in spite,of higher profits or has higher cash barance in spite of rower profits, Reasons for such situatrons are known frJm Cash plow Statem"it. 6' Test for the Nlanagement D.ecisions: It is a general rr-rle that fixed assets are purchased .r'rt of long-term s.urces ancr repav rong-term dchts out of profits. cash Fkrw staterne.t r

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Cash Flow Statement-Based on Acccunting Stanilard-3 (Reztiseil)

J.J

shows whether cash inflow from operating Activities have been used for purchase of fixed assets or whether these assets have been purchased from cash inflows from Iong-term funds. Similarly, it also shows whether the debentures have been redeemed out of profits or not. Thus, Cash Flow Statement can be used to iest the credibility of the management decisions. 7. Preparation of Projected Cash Flow Statement: On the basis of the Cash Flow Statement for the current year, the enterprise can prepare a proiected Cash Flow Statement which is useful for decision-making. LIMITATIONS OF CASH FLOW STATEMENT Cash Flow Statement is a very useful tool of financial analysis but it has its own limitations. These limitations are: 1. Non-cash Transactions are not Reported: Cash Flow Statement shows only inflows and outflows of cash and cash equivalents. It does not show non-cash transactions such as purchase of building by the issue of shares or debentures to the vendors. 2. Not a substitute for Income statement but is an Additional statement: An Incorne Statement shows both cash and non-cash transactions leading b determination of profit or loss. Income statement shows net income of the firm whereas Cash Flow statcnent shows inflow or outflow of cash and cash equivalenis which is not net profir or loss of the enterprise. lt is a Statement prepared in addition to Income Statement. 3. Not a Substitute for Balance Sheet: It is not a substitute for Balance Sheet (position Statement) because it does not disclose the financial position (i.e, Total Equity, Non, Current Liabilities, Current LiabilitiAs, Non-Current Assets ancl Current AsseLs). 4. Historical in Nature: It rearranges the exrsting inftlrmation available in tht- Incomc Statement and the Balance Sheet. It will become more useful if it is accompaniecl bv the proiected Cash Flow Statement.

5. It ignores Fundamental ing Concept, i.e., accrual

concept.

IMPORTANT DEFINITIONS AS PER ING STANDARD.3 (REVISED) h

It S

v

1. Cash: Cash comprises of cash on hand and den-.and deposits with banks. 2. Cash Equivalents: Cash Equi','alents are short-term, highiy liquid investmerrts that are readily convertible into known amount of cash arl u'hich are subject to an insignificant risk of change in value. An investment normally oualifies as cash equivalent only, when it has a short maturity period of, say, three months or less from the date of acrluisition, r,e., purchase. Examples of cash equivalents are: (a) treasury bills, (b) commercial papey5, (c) money market funds and (d) investment in Preference Shares redeemable within three months if there is insignificant risk of change in its value.

5

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It should be noted that Marketable Securities are shown under'Current Investments, while preparing ,Balance Sheet as per Schedule Vl of the Companies Act, 1956 (Scheduie lll of the Companies Act, 2013). IMPORTANT

As per the Guidelines issued by the Council '1 . Short-term Investments and Marketable Securities are to be included in Cash and Cash Eouiva lents. 2. Bank Overdrafticash Credit are also to be taken as Cash and Cash Equivalents. It means if Barrk overdraft or Cash Credit has credit balance, l. e. . it is a Iiability of the company, it is to be deducted to determlne the amcunt of Cash and Cash 5ou ivalents.

----3.4

Management ing (section

Bl_lSC

nI

Crts

3. Cash !Flows r.,wD .rre urrruws inflows anct and outlows outflows ot of Cash Uash and Cash Cash Equivalents. 4. operating Activities: operating Activities are the principal .evenue

Solr 'I'rai

producing activities other acrivities that are not investing or financing acHvf;ie;. . :j-lT.::l.lP.,r.rland rnvesting Activities are the 5. acquisit"io;u;;;;il'"r'i"'.g_*.r" l:l^.,:,lLg,o:,:tties: assets and other investments not included in cash equivalents. 6. ocrivities are the activiti rs thar resutr in change in the :,:T::Ti^1.j11111.'.: f'.i?"..r owners' capital (including pr"f...n.. ,h;;; :::11."."":r-"^']:i:i_"{ case of a company) and th" borrowings oithe enterprisei Classif ication of Activities

(r

lllu

;;;;;:i; il;

;fi:Jl;,:,:fj:Tij,"

prepared to show cash rlow rrom business transactions durins

ri

(r

Soir I'.ryr

(ii)

a

lttitt

(r) operating Activities; (ri) Investing Activities; and (iir) Financing Activities. Let us discuss each of these activities in detail. (i) Operating Activities

ikt: hcld f rort I

operating Actiaities are the principnl reuenue producirtg nctiuitics of the enterprise and other actntities th0t Ire.n\t inapstitg or t'inmrciw nciruifles. Therefore, cish flow under the operatint acrivity r.rult, fioni ihe Ii-airsaci.io.s anci events that cietermine tire net profit o, roir. rnJ.i"*11n, ur., receipts from the sale of goods and rendering or servrces. receipts from royalties, feis, ,commission anci orher revenue. 1 !^.1 payments l., to suppliers of goocls and iervices. 4. Cash payments to and on behaF oi employees for sAlaries wages, etc_ 5 Cash payrnents cr.efunds.f income tax unless they can be and identified \,vith financing and investing activities 6 ' cash receipts of premiunrs and payments of claims, annuities and other poricy benefits (for an insurance Company).

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pRtNctpAL REVENUE pRoDUCtNG ACTTV|nES Principal Revenue producing Activities means business activities that are its operating Activities, r.e-, activities carried out by the enterprise to earn protit. For example. (i) For a computer manufacturing company, manufacturing and seling of computers is its principal revenue producing activity. (iil For trading company, purchase and sare of goods is its principar revenue .a producing activity. (iii) po, un insurance company, receipt of s and payment of claims, annuities, etc., is its principal revenue producing activity. (iv) For financiar enterprises, cash advances and roans made by them are crassified as operatrng activities since they rerate to the principar revenue- producing activity of r. -sgv.i:' qv('v'' that ente!'prise.

.

Salaries and Wages paid. (r,) I{epayment of loan, (i'z ) I)iviclend paid r

opera'ng as

paid for purchase of Stock_in_Trade. (ri) Pavment of interest on loan. (r,r) i'urchase of ivlachinc.r:y

(r'ili

) Salt'ot

Vt'h iclc.

iJ t, Ii Ilius lrt r t.:

(,) ( Ittr)i

(i'l

,

Solut

(i)

(

ii')

I

Illust rv

P,r

Illustration 1. Identify out of the following, transactions that are classifieci or shown Operating Activity; (r) Cash received fron sale of goods, (il) Cash

(ri)

(

ith

Solut

n:l

effe.ct of cash flow ,tnn,r. un cash FIow from (or Cash used in, if o'tflow is more than trre inflow of cash) Activities in Cash Flow Statement.

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II

ynr

f)Lliah

(iii) r F u

t,l tt

'['hLrs,

at)rl t( ft r rltt l

.II

Cssh FIow Statement-Based on ing Standard-3 (Reaisedl

3.5

Solution: Transactions that are classified as Operating Activity are: (l) Cash received from sale of goods. (ii) Cash paid for purchase of'stock-in Trade. (ili) Salaries and Wages paid.

Illustration 2. State a lransaction that is always classified as an operating Activity Solution: ..

Payments ol employees' salaries, provident funds, bonus, etc.

(iil lnvesting Activities lnuesting Actiaities are the ncquisition and disposnl of long-term t$sets antl other inoestments n1t in_cluded in cush equiualenfs. These activities include purchase and sale of long-term assets like machinery, land and building, long-term investments, etc. It means assets that are not held f-or the purpose of sale are shown und6r Investing Activitibs. Examples of Cash Flow from Investing Actjvities are: CS

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e

1. Payments for purchase of fixed assets (both tangibles and intangibles). 2. Receipts from disposal of fixed assets (both tangibles and intangibles). 3. Payments for purchase of shares, warrants or debt instruments of other enterprises,

'

etc.,

other than short-term investments and Marketable Securities. These are includeo rn Cash and Cash Equivalents.

4- Receipts from

t(t

sale of shares, warrants or debt instruments of other enterpnses, etc_, other than short-term inveshnents anC Marketable Securit^es. These are incluclecl in Cash and Cash Equivalents. 5. Loans and advances to third parties.

6. Receipts from repayments of loans and aclvances to third parties. , Illustration 3. Identify out of the fbllowing, transactions that are classified or shown

Investing Activity:

as

(i)

Cash proceeds from sale of fixed asset. (it Cash paid for purchase of Stock-in-Tracie. (rii) Repayment of loan taken. (,i,) Debentures purchr;ed. (zr) Loan advanced. -(ui) Purchase of Patents.

Solution:

(l)

Cash proceeds from sale of fixed asset.

(u) Loan advanced.

(itt) Debentures pu rchased. (ai) Purchase of Patents.

Illu;tration 4. state a transaction that is always classified with the reason for such classification.

as arr Investing Activity along

Solution: iS

g

l'ayment towards purchase of fixed asset, as it is not purchased for resale. Eramplcs are purchase of building, furniture for office use, goodwill, etc.

(iii)

Fi nancing

rs

Activities

Fimncing Actiuities

e

capitn Thus, and r from

are

the actiaities ithich result in change irt size attd conLpositiott the ozttners, rce sh,re upitar in case of a coipniry).nnd borroiuittgs of ihe enterprise. capital, redemption of prefeience Shares, incr.use in borrowi.g etc., are shown uncier financing acti,,,ity. Examples of Cash Flow es arc.

3.6

Management ing lSection

Bl-ISC Xll

1. Proceeds from issue of shares or other similar instrumenrs. 2. Proceeds from issue of debenfures, loan notes, bonds and other short-term borrowings. . 3. Repayments of the amounts borrowed including redemption of debentures. 4. Payments of dividend on equity and Prefeience Shares. 5. Buy-back of Equity Shares. 6. Pavment of interest on borrowings (debentures and loans). Illustration

Casl,

Cia""

Inflc

Identify out of the following, transactions that are shown as Financing Activity: (i) Repayment of Loan taken. (ir) proceeds from Issue of shares. (lil) Debentures subscribed by the company. (lu) Redemption of prefrirence shares. (zr) Interest paid. (zri) Dividend paid. 5.

Solution: (i) Repayment of Loan taken. (lzr) Redemption of Preference Shares. (ai) Dividend paid.

Illustration

(i

(,'

(ii) (u)

(

Proceeds from Issue of Shares. Interest paid.

6. State a transaction that is always classified as Financing

the reason for such classificatron

(

Activity along with

5olution: Payment of dividends is always classified as Financing Activity because relating to share capital, which is a Financing Activity.

it is a payment

Illustration 7. cive a transac ion, a part of which is shoryn as an Investing Activitv and another parl as a Financing Activity. Solution: Payment of iustalments of a Hire-purchase transaction. The instalment has two components, ,.r., principal antl interest. Principal is shown as an Investing Activity ancl inteiest as a

J'inancing Activitv.



1.

Net cash flow within an activity operating, investing or financing-may be positive or negattve. 2. sum of cash flows from all the activities taken together, together with the opening cash and cash Equivarents, equars the crosing cash and cash Equivarents. 3. A transaction is classified as an operating Activity or Investing Activity or Financing Activitv, 4. A single transaction may include cash flow under two different activities, for Instance, if a machinery is purchased on hire-purchase instalments, each instalment will include interest and a part of pnncipal. cash paid for interest is a Financing Activity whereas the cash payment for principal amount is an Investing Activity. 5. lssue of shares and debentures for consideration other than cash and also the conversion of debentures into shares or other types of securities are not shown in cash Flow statement. For exampre, purchase of a buirding by issuing shares to the vendor does not involve receipt and payment of cash. similarly, issue of bonus shares does not involve receipt or payment in cash. 6. An inflow or outflow between components of Cash and Cash Equivalents is nor considered while preparing the cash Flow statement. For example, cash deposited into bank. lt is not a part of cash Flow statement bur is management of catsh. For example, cash deposited into bank or cash withdrawn from bank for business are not cash f low.

Inr;'t,r

The amc

Actrvitii extent t' €nterpn whether to maint

enterpri: and.mal

helpfrtl

i

operatro

:il

Cash EIow Statement-Based on ing S.tandarit_3 (Reaiseitl

17

Classification of Business.Activities as per AS_g (Revised), showing Inflow and Outflow of Cash I

Operating Activities

(i) Cash Sales ( ) Cash received from Debtors (l/) Cash received towards Commission (iv) Royalty received (v) Income Tax Refund

Cash Outflow (j) Cash Purchases

(ii) Payment to Creditors (iiil Cash paid for Operating Expenses (ivl Payment of Salaries and Wages

and Fees

(v) Income Tax paid

lnvesting A(tivities

th Cash lnflow

Cash Outflow (r) Purchase of Fixed Assets

(i) Sale of Fixed Assets (ti) Sale of Investments

nt

(ii) Purchase of Investments (other than

(iii) Interest received

Marketable Securities)

liv I Dividend received

lo

(iii) Cash paid for Interest (iv) Purchase of Securities (other than

(v) Cash received for Interest and

Dividends

(vi)

marketable Securities) (v) Incorne Tax paid, if related

Sale of Securities

to Investing

Activities a

Financing Activities

Cash lnflow (i

)

(il) (ti)

Cosh Outflow

lssue of Shares in Cash lssue of Debentures in Cash

(i)

Repayment of Loans

(ll)

Redemption of preference Snares (,ji) Redemption of Debentures

Proceeds from Long-term gorrowrngs

(iv) Buy-back of Equity Shares (y) Payment of Dividend (vi ) Payment of Interest

Importance of separate disclosu re of cash flow under each activrry. Operuting Activitiet The

amountofcash flow from Operating

Activities is a key indicator cf the extent to which the operations of the enterprise have generated cash,, ie., whetherthe cash generation

is

adequate

Finoncing Activities Separate disclosure of cash flows

arising from investing activities is important because the cash flows

represent the extent

to

which

expenditure has been incurred on

to mainta;n operating capability of the

resources intended

enterprise, pay dividends, repay loans

future income and cash flows.

and make new investments. tt is also helpful in foreca5ting cash flow from operatr0ns.

to generate

Separate disclosure of cash flows arising from Financing Activities is useful in assessing claims on future cash flows by providers

enterpflse.

offunds to the

Management iflS lsection Bl

3.8

- ISC Xll

Ca

Illustration 8. Identify which of the follo-"ving transactions are (i) OPerating Activities, (ll) Investing Activities, (rii) Financing Activities and (lu) Cash and Cash Equivalents:

1. Cash

2. Cash Purchase;

Sales;

3. Rent paid;

4. Cash Balance;

5. Income Tax paid; 7. Bank Balance;

6. Office

8.

Expenses;

Sale of Machinery;

10. Dividend paid;

9. Issue of Debentures; 11. Cash paid to Creditors;

12. Purchase of Machinery;

13. Income Tax Refund received;

14. Short-term Investments.

'

Solr

Op,

Solution: Operating

Actiaities

:

Cash Sales, Cash Purchase, Rent paid, Income Tax paid, Office Expenses, Cash paid to Creditors, Income Tax

Inue

Refund received.

of Machinery

Innpclirro Artinitipc

Sale

Financing Actiaities

Issue of Debentures, Dividend paid.

Cnsh antl Cnsh Equiaalents

Cash Balance, Bank Balance, Short-term Investments.

of

lr_,lachincr.y, Purchase

F

Cas/r

Illustration 9. Identify r,vhich of the following transactions are (i) Operating Activities, (li) Investing Activities, (iil) Financing Activities and (irr) Cash and Cash Equivalents: 2. Sale of Patents; 1. Issue of Share Capital; 3. Marketing Expenses;

4. Purchase of Goodwili;

5. Short-term Deposits in Banks; 7. Cash received from Debbrs;

6.

1i.

Purchase of Investments;

13. Investments in Marketable Securities;

1

2. 3.

-5.,

(i. 7.

t )

B1

10. Commission received;

Selling and Distribution Expenses;

Illu:

4.

8. Buy-back of Equity Shares;

9. Repayment of a Long-term Loan;

irrn

12. Redemption of Debentures;

Cive

14. Bank Overdraft.

Solul

ll

Solution:

s

Marketing Expenses, Cash received from Debtors, Commission

Opernting Actittities

Sale

Inttestirtg Actioities

of

Patents, Purchase

of Goodwill,

I

2t.

received, Selling and Distribution Expenses.

(

Purchase of

Investments. F

inttncing Actiaities

:

Issue of Share Capital, Buy-back of Equity Shares, Repayment of a. Long-term Loan, Redempiion of Debentures.

Cash und Cash Equiunlents

: Shorlterrn

Deposits in Banks, Investments in Marketable

When Cash l of Cas

(1/

Securities, Bank Overdraft.

Illustration 10. Identifi' rvliich of the foliowing. transactions are (i) Operating Activities, (il) Investing Activitics, (ili) Financing Activities and (iu,) Cash ancl Cash Eq'-rii'alents:

:

I

{

.(ri)

i t

Cash Flow Statement _Baseil on ing Stawlatd_J (Reaiseit) 3.9

1. Sale of Investments;

Business is a Real Estate Business; Business is Manufacturing; Loans;

8. Proceeds from Shares issued. Solution: Operating Actiaities id, 'ax

Inuesting Actiaities

Rent_received by a Company whose main Business is a Real Estate Business.

Financing Actiuities Cash

atd

Cnsh Equiztalents

Marketable Securities. s out of thd tbllowing transactions: S;

rities;

Give reason for the answer. Solution:

1' )n

Diuidend pnid to the sharehordus:.It is a financing actruty as dividend is paid on the share Capital of the corhpany. shrr" c";li;J;, .' ,"" o. ,n"." as Financing per AS-3, Cash Flow Statement. Activity as

shown as Financing Activity as per AS_3, borrowings, therefore, ii will;ho;; sh;rvn

e

of

rf le

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When does the Flow of Cash Arise? Cash Flow arises when the . net effect of a transaction eithet of Cash a nd cash Equi varen rs. Thus, f (i) it affects a Current (other than Cash and Cash Equivalent) on one hand and Equivatenr, on the other tuna. fo. rxample, cash received from

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::ffiTtril:llT#

aaffkli.a-^

(ri) it affects a Non-Curre^t on one hand and Casrr and cash Equivalents the other l.rand. For exar ple, purchase of machinery.

<,rn

Management ing (Section Bl

3.10

Illustration

12.

-

ISC

XII

Identify which of the following would result in inflowf outllow of Cash and

Cash Eouivalents:

(i) Sile of fixed asset (Book Value t 50,000) at a loss of { (ii) Purchases of Stock-in-Trade for cash; (iii) Purchase of fixed assets by issue of shares;

(iz) (o) (ul) (uii) (oiii)

(ir) (r) (xi)

(rii)

5,000;

t

Cash received from debtors 10,000; Cash deposited into bank; Cash withdrawn from bank; Issue of fully paid bonus shares; Sale of marketable securities for cash at par; Declaration of final dividend; Writing off Bad Debts against Provision for Doubtful Debts; Declaration of Interim Dividend T 25,000 and Sale of Current Investments.

Soiution: STATEMENT SHOWING THE EFFEO OF TRANSACTION ON CASH AND CASH EQUIVALENIS

Effect en Cash cnd Ccsh Equiv1lents

{

(')

Cash is increased by

(ii1

Cash is decreased bv the amount of Stock-in-Trade.

(tiiJ

Cash is not affected as it is not a cash transaction.

{

45,000.

*

;+

10,000.

(tv

Cash is increased by

lv)

Cash and bank both are the parts of cash and cash

[ix Pr,

equivalents Cash and bank

{vi)

both are the parts of cash and (ash Ca lr

equivalents.

C+^r

Cash is not affected. lt is capitalisation of profits. {vllr

)

No effect

Cash and cash equivalents which includes marketable securities also is not affected

Ux)

No effect

Cash is not affected because final divid€nd declared

willbe paid in the following (x)

No effect

year.

Cash is not affected.

Cash is decreased by

{

25,000. Interim dividend

is

paid within the year. Current Investments are part ofCash and Cash Equivalents.

(xii)

Transactions not Considered as Cash Flow Trnnsnctiorrs thnt are mouement betuteeu itents of Cash nnd Cnsh Equiualents nre not corrsidered ns Cnsh Flott,. These components are part of the cash management of an enterprise and not

part of its Operating, Investing or Financing Activities. Examples: (l) Cash deposited rnto bank, (ii) Cash withdrawn from bank. PREPARATION OF CASH FLOW STATEMENT

Cash Flow Statement is prepared showing: ' 1. Cash Flow f rom Operating Activities; 2. Cash Flow from Investing Activities; and 3. Cash Flow from Financins Activities.

Step

CXII

Cash FIow Statement _Bnsed on ing Statidard_3 (Reaisedl 3.11

ano

r

1. CASH FLOW FROM OPERATING ACTIVITIES

bv 'tl l;L Jilffi oo':1"* o"'ll:',:1'-+.+;.jiF (ii)

using

Indirect Method.

Direct Method

C;trd"d

f

rom the

ei

rher:

syilaous.-rri[]f,[1f,1ffi

Indirect Method of Calcu Under this method, Cash

Fl

Activities is calculated from the information

",,,.. llows:

sh:

;i Ti.;

r,lff 1fiJ:j?Jfr:l,T;

the.starting point for calculating Cash Flow ated as follows:

between

{

serves and Surplus

ny

v'

alReserveJ .

profit and

Loss_*

Calculation statement. etable

Step

2:

.

f..f

nd not in the Cash Flow

Adjust Net credited kr

',{

mean expenses and losses debitecl to involve payment of cash. E*u^pf .l o.J rovision for doubtful debts, etc.. l profit to Net before Tnx becnuse s.

it

does

alents.

dered

I not rnto

tled

to

titrity

Net

a1y

profit before Tux

Finnncitrg

A

ctiuity.

because

nI

Ca:

Non-operating Incomes and Gains: Non-operating Incomes and Gains are those incomes and gains that are not earned from the operating activities by the enterprise. Examples are: profit on sale of lixed assets and investments, interest, rent or dividend

Illu

Management ing (Sectiott

3.t2

B)-ISC

,ryceived, etc. ff ,,-2, t Non-operating incotnes flfld gains are deducted from Net Profit before Tat because t)" | 'these are shown either under lnaesting Actioity or Financing Actiztity. The amount nt'ter the abooe adjustments is Opertrting Step

3:

Prcfit

t:-

I

rartl

I

I

Oper CIosl Tran:

)

bet'ore Working

Capital Changes. Adjust Operating Profit before Working Capital Changes for chahges in Working

prop

.

Inter. provl

Capital.

,

lncor

Changes in Working Capital means changes in current assets and current liabilities except Cash and Cash Equivalents.

Current Assets include trade receivables (debtors, bills receivables), prepaid expenses, inventory, etc., but does not include cnsft nnd cnsh equiunlents because opening Cash and Cash Equivalents is added to the net cash flow from all the activities to reach the closing Cash and Cash Ecluivalents. It should be kept ur mind th.at Ctrrett lnuesfutents r;nd Msrkettltle Securit* are included. in Cash a.nd

r! -;sg 1,." Net f \< 6,7

Cash Equivalents.

Add:

Current Liabilities include trade palables (creditors, bills payable), outstanding expenses but does not include ltnnk ttuerdrnlt ttntl cnsh credif hthnce because it is part oi Cash and Cash Equivalents. Dccrease in cr-trrent assets (excluding Cash and Cash Equivalents) ancl increase in current liabilities (excluding bank overclraft and cash credit) zire adc.led to Operating Profit before Working Capital changes.'fhey are added because they increase Cash Inflow from Operating Activities. Iir other words, decrease in inventories or trade receivables c'r prepaid expcllses will increase Cash Inflow from Operating Activities. Similarly, an incrr-ase in trade payables or outstanding expenses will effect;vely increase cash available b Lhe enterprise.

Step

4:

leJJl

v lllus P;ftirr

Increase in current assets (except Cash and Cash Equivalents) and decrease in current Iiabilities (except bar k overdraft and cash credit, it being shown as Cash and Cash

i,penir

E"uivalents) are deducted because they decrease Cash Inflow froin Operating

Closinr

Achvities. In other words, an increase in inventories or debtors or prepaid expenses will decrease the Cash Inflorv from Operating Achvities. Similarly, decrease in trade payables reduce cash.

Propo: rr

tlertn

Transfe

The amount after above adjustment is Cnsh Cenerated from Operaliotrs, if inflow of cash is more Liran its outfloiv and is Cash Used in Operations, if outflow of cash

Provisi

is more than its inflow.

Solul

Deduct or add Income Tax paid (net of refund of income tax) from Cash Generated from Operations.

Particui

It should be kept in mind that if Income Tax relates to lnvesting Activity

or

Financing Activity, it is not dedr,rctccl to reach Cash Flow from Operating Activity. It is deducted from the related activitv, i.e , Investing Activity or Financing Aciivitl'.

Net Pr

/t

5,40

Ptll:

The amount after nboae adjustment is Ctsh FIou t'rom or Crch l in Operating

Actittitll.

Piease note that adjustments relating Hence, they are not discussed.

to

Extraordinary items are not

in

Syllabus.

Net Pr(

Cash

xlt

Flou Statement-Based on ing Stanilard-J lReaised)

Illustratio

ose ise.

3.13

From the following information, calculate Net profit before Tax:

Particulars

:nd Opening Surplus,

use

ie,

Balance in Statement of profit and Loss

Transfer to Debenture Redemption Reserve

fl8

2,00,000

Closing 5urplus, r.e., Balance in statement of profit and Loss

!

'-

6,72,000

..

2,00,000

Proposed Dividend for the Current Year

1,80,000

Interim Dividend paid during the year

lng

Provision for Tax made during the Cunent Year

1,44,000

-

_-

2,00,000

Income Tax Paid CS

2,16,000

Refund of Tax

-

aid

Solution: Calculation of Net Profit before Tax

use

Particulars

the

tln rnd

6,000

Net Profit as per Surplus, i.e., Balance in Statement of profit and Loss

(I

6,72,0A0

Add:

-{

4,72,000

2,00,000)

Transfer to Debenture Rede;i.rption Reserve

2,00,000

rng

Proposed Dividend for the Current year

i,80,000

tls

Interim Dividend piid during the year

r,44,000

Provision for Tax made during the Current yeOr

2,00,000

ase

1

ilO

Less:

hey

Net Pfofit before Tax

IIn ow ln8

7

,24,000

1,96,000

Refund of Tax

Illustraiion

14. From the

6,000 r 1,90,000

following information, calculate Net profit betbre Tax:

Particulars

'ent ash

i.g

0pening Surplus, ie., Balance in Statement of profit and

Loss

(2,00,000).

Closing Surplus, ie., Balance in Statement of profit and Loss

tSes

Proposed Dividend for the Current Year

ade

Interim Dividend paid during the year

5,40,000 2,10,000 1,60,000

Transfer to Workmen Compensation Reserve

r'of

r,50,000

Provision for Tax made during the Cunent year

2,30,000

asn

Solution: Calculation of Net Profit before Tax rte-d

Paniculars

'or

Net Profit as per Surplus, i.e., Balance in Statement of profit and [oj5

ity 'ity ting

({

5,40,000 +

Add:

I t

7,40,000

2,00.000)

Proposed Dividend for the Current year

2r 0,000

Interm Dividend paid during the year

1,60,000

Transfer to Workmen Compensation Reserve

1,50,000

Provision for Iax rnade during the Current year

2,30,000

Net Profit before Tax

7,50,000

I4,90,000

3.t4

Management ing (Section

Bl -ISC

Xll Cs

Efl Particulars

Note No.

3l st March,

20r5 (t)

I.

2014

l. 2.

for the

Shareholders'Funds Share Capiral

I

8,00,000

8,00,000

Reserves and Surplus

2

6,95,000

5,20,000

3.

5,00,000

5,00,000

Current Liabilities

(a)

be'(-

3

Total

60,000

s0000

1,00,000

75,000

3,10,000

1,80,000

24,65,000

21,2s,000

ASsETs

Eff,

No ult ( thc:

Non-Current Assets

{d) {b)

Thr Cur.

Trade Payables

(b) 0ther Current Iiabilities (c) Shortterm Provisions

l.

No b,I,

Non-CunentLiabilities Long-term Bonowings

Act

Fixed Assets

18,40000

Non-Current Investments

15,5s,0c0

Nor

3,C0,0G0

2,

CurrentAisets Total

3,25,0C0

24,65,000

lz0,0s0_ 21,25,M

Notesto s Particulars

l.

Nc

(t)

EQUITYANDLIAEITITIES

(o) (b)

il.

3l st March,

llst

March,

31st March,

Equity Share Capital

tror Act

Illu ._- |

201s ({)

20r 4 {{)

5,00,000

5,00,000

Ner

3,00,000

3,00,000

Depft

8,00,000

8,00,000

ShareCapital Preference Share Capital

ot1

*|i( P

|)ter€ Share

Reserves and Surplus

Good

General Reserve

.2,75,000

2,10,000

Workmen Compensation Reserve

2,50,000

2,00,000

1,70,000

1,10,000

6,95,000

5,20,000

1,60,000

80,000

1,50,000

1,00,000

3,10,000

r,80,000

Surplus, ie., Balance in Stateme"t of profit and Loss

Loss

<

lntere Profit

Short-term Provisions Proposed Dividend Provision forTax

Solution: Calculation of Net profit before Tax

I

Transfer to General Reserve (t 2,i5,000 - { 2,10,000) Transfer to Workmen Compensation Reserve ({ 2,50,000 Proposed Dividend (Cunent year) Provison for Tax (Current year)

l,rt! Net P Add:

Net Profit for the year (Drfference between crosing and opening surprus, i.e., Barance in statement of Profit and Loss) ({ 1,70,000 - 1,10,000)

Add:

Solu

60,000 6s,000

-{

2,00,000)

50,000 1,60,000

Less:

1,50,00c

Net Profit before Tax Opera

:w sof .lt c

Cash FIow Statement-Based on Accouniing Standard-3 (Reaisedl

Non-cash expenses such as bad.debts, provision for doubtful debts, provision for expenses, etc., are added 1?r::iariof, to amount of Net profiriefore Tax. They are added because "^" these expenses do not result in outflow

;a;i.

)0 t0

r0

r0

3.15

Effect cr Non-Cash Expenses and tncomes

"'

Non-cash incomes such as riab'ities written dff, excess -pr"rr, provision for expenses written back' etc' are deducted from the amount of rv.a before Tax. They are deducted because these incomes do not resurt in inflow of.uri^t.o* operating Activities. at after above adjustmenrs is 'operating profir before working Il;;T:il[:l-ed

Effect of Non-operating Expenses and Incomes

r0 r0

=: r0 r0

0

:-U

:::::

:h, )

Illustration 1d' From the fo'owing i.formation, -.i-'""'carculate \-'PrrdtrlrB operating profit rrollt before Detore worL;-^ Wort
r0

Net Profit before Tax

l0

Depreciation

r0

lnterest on Debentures

70,000

Share lssue Expenses

14,000

3,72,500

l//o

Goodwill A"-rortised

0 i0 r0

5,500

Loss on Sale of Machinery

15,000

hterest an-: Dividend received on lnvestments Profit on Sale of Investments

23,000

15,000

0

10,000

,0

Solution: Calculation of Operating profii before Working Capital Changes

0

Particulars

0

N^t Profit before Tax (Given)

-

Add:

3,72,s00

Non-cash ond Non-opercting Expenses:

Depreciation

',000 ,000 ,000 ,000 ,000

@

Interest on Debentures

70,000

Share lssue Expenses tUlo

14,000

Goodwill Amortised toss on Sale of Machinery

5,500 15,000

15,000

Less: Ncn-operctinglncones:

1,19,500

4,92,000

Interest and Dividend received on Investments Profit on Sale of Investments

0perating Profit before [Jorking Capital Chances

33,000

4,59,000

3.15

Managiment ing (Sectian B _ ) ISC

XIl

Particulars 3l st March,

I.

2014

EQUflYANDLIABILITIES

1.

Shareholders,Funds

(d) (b)

2.

Share Capital .

Reserves and Surplus

Current Liebilities

(a)

7,50,000

5,00,000

8,30,000

7,20,000

Trade payables

(b) 0rtrcr

60,000

(r)

2s,090

Current Liabilties Short-term provisions

50,000 15,000

r,85,000

Total

[.

1

5,000

.

Non-Cuftent Assets Fixed

2.

,7

1460,000

ASSETS

l.

(t)

Asets-Tangible I 1,60,000

CurfentAssets

3,00,000

Total Notes to s

No

Particulars

Par

Jlst March, 201s (t)

t.

31sr March,

20r4({)

Reservesand Surplus

1.

GeneralReserve Surplus,

ie,

Balance in Statement

ofprofit and

6,50,000 Loss

8,30,000

OtherCurrent Liabilities

6,o0ooo

1,80,000

1,20,000

'

7,20,000

0utstanding Expenses 25,000

5hort-term Provisions

_uIa

I

Proposed Dividend Provision for fax

/5,000

75,000

1,10,000

3. (

1,00,000

(

1,85,000

i,75,000

4.5

Additionnl Infonnatiott: Depreciation for the year ended 31st March, 2015 Was

Solution: Calculation of Operating profit before Working Capital Changes

t 1,10,000.

Particulars

F

.; tltltl I

{

Profit before Tax (Notel

:

Add: Non-cash Expenses_Depreciation

2,95,000

3.

Operating Profit before Working Capital Changes

1,10,000

Sol

r

4,05,000

Note:

Partic

Profit before Tax

Net I losing and Opening Surplus, r.e., galance in 1,20,000)

00 _ Provrsion fnr Tax (Curient year)

-. Net Profit before

Tax

t

6,00,000)

Add:

{ 60,000 50,000

/5.000

leJJ:

1,10,000

2,95,000

0per

:ilI the ,ded

Cash Flow Statement-Based on ing Standard-3 (Reoised)

3.17

Illushation 18. Calculate operating profit before working Capitai Chan$es from the following information and Balance Sheets as at 31st Marcfu 20f5 ind 3tst March,2014: Particulars'

Note No.

3lst March, 2015

'.la

(t)

3l st March, 20r 4

(i)

EQUITY AND LIABITITIES

1.

Shareholders'Funds

(o) (b)

t0-

2.

)0

Share Capital

)0

Total

)0

7.00,000

2,50,000

1,20,000

95,000

70,000

Current Iiabilities

(o) Trade Payrbles (b) Other Current Liabilities (c) Shon-term Provisions

)0

i0,50,000

Reserves and Surplus

2 3

30,000

15,000

4

1,50,000

1,00,000

15,/5,000

r0,05,000

ASSETS

l.

)0

===

Fixed Assets-Tangible Assets

2. )0

:

CurrentAssets

Total

)0 )0

l'lon-CurrentAssets

1005,000

st March,

Workmen Compensation Reserve

)0 )0

2.

Bills Payable

3. 4,

(t)

2,00,000

1,

t0,000

s0,000

10,000

2,50,000

1,20,000

80,000

60,000

15,000

|

95,000

70,000

0,000

OtherCurrentLiabilities Outstanding Expenses

)0

2014

Trade Payables Trade Creditors

!_

3l st March,

ReservesandSurplus. Surplus, ie., Balance in Statement of profit and Loss

:=

15,75,000

201s ({)

1.

)0

2,75,000

ll

'ch,

)0

7,30,000

3,75,000

Notes to Ac(ounts Partkulars

)0

12,00,000

30,000

Short-termProvisions Provision forTax

1,50,000

r,00,000

100.

Ad.ditionnl lnt'ormation:

',000

4q ;,000

1. Depreciation on tangible fixed assets for the year 2074_15 lvas { 70,000. 2. Bad Debts written off were { 10,000. 3. Income included liability written back of { 5,000. solution: calculation of operating profit before working Capital Changes Particulars

Net Profit before Tax (Note)

Add:

t ),000

2,80,000

Non-coshExpenses:

(d) Depreciation (b) Bad Debts

70,000 10,000

),000 ;,000

Ndn-cosh lncome:

),000

Liabilrty wntten back

,,!q

80,000 1,60,000

- IywP,

Operating Profit before Working Capital Changes

(5,000)

3,55.000

3.18

Management ing (Section Bl

-

ISC

ilI

Cas

Note:

Adt

Calculation of Net Profit before Tax

1.

Net Profit for the year (Difference between Closing and Opening Surplus, r.e., Balance in Statement of Profit and Loss)

({

2,00,000

-

{

2.

1,10,000)

Add: Transfer to Workmen Compensation Reserve ({ 50,000

90,000

-t

10,000)

Provision for Tax (Current Year)

2,80,000

Illustration 19. Calculate operating Profit before working Capital Changes from the following information and Balance sheets as at 31st March, 2015 and 31st March. 2014 of Grand Marketing Ltd.: Note No.

3l st March,

(0

2014

(l) Less

Share Capital

I

20,00,000

Reserves and Surplus

2

4,90,000

1

1,50,000 2,05,000

Trade Payables

(b) 0ther Current Liabiliries (c) Shouerm Provisions Total

1,20,000

't,10,000

l

'

15,000

20,000

Net

4

4,00,000

2,95,000

t\et

30,25,000

17,80,000

Bal

Not

ASSETS

l.

Add

Non-Current Assets

(d) Fixed Assets-Tangible (b) Non-Current Investments

2.

CurrentAssetJ

Total

19,00,000

9,80,000

5,00,000

5,00.000

6,25,000

3,00,000

30,25,000

l7

Particulars

3l st Marcl,

Ilh

3.

2Ci4 ({)

*

Equity Share Caoital

10,00,000

7,s0000

t.l

Preference Share Capital

10,00,000

400,000

20,00,000

I1.50,000

General Reserve

1,50,000

75,000

Investments Fluctuation Reserve

r,00,000

40,000

5urplus, ie., Balance in Statement ofProfit and Loss

2,40,000

90,000

4,90,000

2,05,000

r5,000

20,000

Proposed Dividend

1,50,000

95,000

Provision for Tax

2,50,000

2,00,000

4,00,000

2,95,W0

Share Capital

Reserves and 5urplus

Other Cunent Liabilities Outstanding Expenses

4,

.1ts 3l st March,

(0

2015

2.

Net

'foll

Notes to s

l.

less.

op"

Cunent Iiabilities

la)

il.

Net

Shareholders'Funds

{d) (b)

2.

Parti

3lst March,

EQUITYANDTIABITITIES

1.

Soi-

'Add:

20i s

I.

4.

1,50,000

Net Profit before Tax

Particulars

J.

40,000

5hort-term Provisions

llr

-

,NI Cash FIow Statement-Based on ing Standard4 r,Reaised)

3.19

Additional lnt'or ma tion: 7 ,000 ,000 ,000

gry the

of

l..Depreciation for the year was T 1,10,000. 2. Bad Debts written off amounted to t 15,000. 3. Income included excess provision written back 4. Dividend received on investments was { 5.000.

{

5,C00.

Solution: Calculation of Operating Profit before Working Capital Changes Particulars

l{et Profit before Tax (Note)

Add:

6,85,000

Non-cashExpenses:

(d) Depreciation (b) Bad Debts

15,000

Non-cosh lncome: Excess Provision

written back

(5,000)

8,05,000

Non-operating Income(Dividend)

(5,000)

Operating Profit before Working Capital Changes

8,00,000

Note: Net Profit before Tax Net Profit for the year (Difference between Clcising and Opening Surplus, ie., Balance in Statement of Profit and Lo,t (t 2,40,000 - t 90,000)

Add:

1,25,000

8,10,000

Less:

teJJi

1,10,000

t 1,50,000

t

Transfer to General Reserve (t 1,50,000 - 25,000) Investments Fluctuation Reserve ({ j,00,000 - t 40,000) Proposed Dividend (Currrent year) Provision for Tax (Current Year)

75,000

60,000 1,50,000 2,50,000

Net Profit before Tax

6,85,000

Illustration 20. Calculate operating frofit before working Capital changes from the following information of Everon Ltd. and Balance sheets as at 31st Marih, 2015 and 31st March,2014: Particulars

I.

Note No-

3l st March,

20r s {{)

20r4 (t)

EQUITYANDTIAEILITIES

l.

Shareholders'Funds

(o) (b)

2.

Share Capital

l1,00,000

7,50,000

Reserves and Surplus

i6,50,000

13,10,000

Current Iiabilities

(a) (b)

Trade Payables

1,00,000

80,000

Other Current Liabiliries

2

60,000

50,000

{c)

Short-term Provisions

3

6,20,000

4,50,000

35,30,000

26,40,000

20,20,000

12,30,000

7,00,000

10,00,000

9,10,000

4,10,000

35,30,000

26,40,000

Total

il.

l'lst March,

ASSETS

1.

Non-Curent Assetr

(o) (b)

2.

Fixed

Asers-Tangible

Non-Current Investments

Current Assets

Total

4

Management ing (Section

3.20

Bl-lSC

ill At

Notes to s Particulars

3l st March,

31fi March,

20ls {t) 1.

2014

(t)

s(pr

Pro Let

Reservesand Surplus GeneralReserve 5urplus, i.ei, Balance in Statement of Profit and Loss

10,00,000

8,00,000

6,50,000

5,r 0,000

16,50,000

r

(

3,10,000

Other Current Liabilities 60,000 '

0utstanding Expenses Short-term Provisions Proposed Dividend

2,20,000

r,50,000

Provision for Tax

1,00,000

3,00,000

6,20,000

4,s0000

Fixed Assets-Tangible (Cost)

25,00,000

less: Provision for Depreciation

4,80,000 20,20,000

Add

itional

I

r

5,00,000 2,70,000

r

2,30,000

nfu r nat iot t:

1. Bad Debts written off amounted

2. Income includes 3. Income includes

t t

bt

10,000.

1.00,000 receiveci as dividend.

profit on sale of investments. Solution: Calculation of Operating Profit before Working Capital Changes 50,000 being

Crr

l!nt Net Profit before Tax lNote)

Add:

9,60,000

| )l

Non-coshExpenses:

(d) Depreciation (l 4,80,000 {b)

t

2,70,000)

2,10,000

Bad Debts written off

10,000

1r,80,000

,,1i

siir

Less: Non-operutinglncomes: (1,00,000)

(b) Profit on

Sale

of Investments

(s0,000)

Operating Profit before Working Capital Changes

(1,s0,000)

l-t'.

r0,30,000

Note:

Net Profit before Tax Net Profit for the year (Difference between Closing and Opening Surplus, Ealance in Statement of Profrt and Loss) ({ 6,50,000 - t 5,10,000) Add: fransfer to General Reserve {{ 10,00,000 - { 8,00,000) Proposed Dividend (Currrent Year) Provision for Tax (Current Year) Net Profit before Tax

i.e.,

,{ 1,40.000 2,00,000 2,20,000

4,00,000

Effect of Change in Current Assets Curtent Assets: lrtcrensc irt current nssets :lt'nns nore cnsh is ttsed or itntestcd in utrrent nssets nnd. therefore, is an outJlottt of Cnsh md Cosh Equiunlents. On the other hnnd, decrense in urrent csscfs rrrearrs cash is genernted by reducing tlre current nssets nnd, theret'ore, is an inflou of Cash ntd Cnsh Etlu ionletts. frotn erating Prliit btjive Working Cnpitnl Chatrycs. On thc othcr hnnd, Cnsh inflott, is nddetl to Opernting Profit btfnre Working Cnpital Chnngts. Caslt outfloru is deducted

(

9,60,000

't

t I

2

l +

}XII

Cash Flow Statement-Based on ing Standard-3 (Retlisedl

At the time of preparing rch,

t)

3.27

flow t'rom operntittg actiaities, each item of current assets is shttwn separately, i.e., increase or decreuse in each item of current assets is deducted or arlded to Operdtittg Profit bet'ore Working Capital Changes. cash

Let us discuss some itnportant items of cirrent assets: 00

(i)

Inuentory (Sfock); Change in inventory or stock means either decrease or increase in stock. Decrease in inventory or stock increases Cash from Operating Activities because inventory as a result of sale is converted into Cash and Cash Equivalents. On the other hand, an increase in inventory or stock decreases Cash from Operating Activities because Cash and Cash Equivalents are used for purchasing inventory.

(ii)

and Bills Receivable, like inventory, may decrease or increase. Decrease in debtors or bills receivable increases Cash from Operating Activities because debtors and bills receivable as a result of realisation are converted into Cash and Cash Equivalents. On the other hand, incrcase in debtors or bills receivable decreases Cash from Operating Activities because Cash and Cash Equivalents are used in increasing debtors and bills receivable.

(iii)

Prepaid Expenses: Decrease in prepaid expenses like stock and debtors, increascs .Jash

00 00 00

00 00

00 00 00 00

Trnde Receiaables (i.e., Debtors and Bills Receiaable): Debtors

from Operating Activities because less cash is used. On the other hand, an increase in the prepaid expenses decreases Cash from Operating Activities because more cash is used.

Crrrent Liabilities: n nnn

c,000 c,000 c.000

lncrease

iri ctLrrentiiabilities tLeans inllotu of cash

nrld t]ecrease itt current

littlrilities neans cnsh used in current liabilities.'I'hus, incrense in current tiahilities ts ntldet! to Operating Prot'it bet'ore Working Cnpital Chonges. On the other hand, decrense itr current litbilitits is tleductetl from Opernting Prot'it before Working Capitnl Changes

At the tinre of preparing

cash flozo t'rom opernting actiaities, ench itettr oJ current linbilitits is shown separately, i.e., increase or decrease in each item of current Iiabilities is odded to or deducted

iron

Operating Profit bet'ore Working Capital Chunges.

Lt:t tLs discttss some important items of uLrrent Iinbilities: ,000)

t,000

t r,000

(i)

Trade Paynbles (Creditors and Bills Pnyalile): Decrease

in creditors and bills

payable

means more cash is used for payment of creditors and bills payable. Thus, it is an outflow of cash. On the other hand, increase in creditorsiand bills payab)e increases cash available to the enterprise as less cash is paid to creditors and on bills pavable.

(ii)

Outstnnding Expenses: Decrease in outstanding expenses like salary pa)'able and Rent

r,000

Payable, etc., means more outflow of cash. On the other hand, increase in outstanding

r,000

expenses increases cash inflow.

r,000 r,000

jsels

rettt )nsh

iher

(iii)

in Adaance: It is a current liability and is treatcd in the same manner as Trade Payables, i.e., credltors and bills payable. Irrconrc Receited

The general rules that develop from the above are:

1. Increase in current

assets leads

to decrease in Cash and Cash Equivalents.

2. Decrease in current assets leads to increase in Cash and Cash Equivalents. 3. Increase in culrent liabilities leads to increase in Cash and Cash Equivalenis. 4. Decrcase in current liabilrties leads to decrease in Cash ancl Cash Equivalenls.

3.22

Mafiagement ing lsection B)_ISC

Illustration

21. Calculate Cash

Flow from

XII

Activities from the followine information:

Particulars

Cas,

Not( '1. N

3l st March,

c

20r4 (t)

t,

Trade Receivobles:

N

Debtors

40,000

Bills Receivable

s0000 t0,000

12,500

Trode Payobles:

Creditors Bills Payable

0utstanding Expenses lccrued Income Surplus, ie., Balance in Statement

Solution:

of profit and Loss

a

Illg

20,000

25,000

25,000

40,000

r,000

800

7,000

6,000

r,80,000

50,000

SurpTrad Prov

t

0uts

CASH FLOW,FROM OPERATING ACTIVITIES

Particulars

(

Profit before Tax for the year ended 31st [4arch, 2015 (Note) Add: lncreoie in Current Liabilities ondDecrease in Current Assets:

1,30,000

Parti-

Prep Goor Inve

0utstanding Expenses

200

Debtors

10,000

Less: lnueose in Cutrcnt Assets ond Decrcase in Cwrcnt Liobilities: Bills Receivable

10,200

S"l

1,40,200

:---:

Add:

1,000

Creditors

5,000

Bills Payable

'

15,000

from Operating Activities

(23,500)

1,16,700

Note: Calculation of Profit before Tax Closing Surplus, ie., Ealance in Statement of profit and Loss lerir Opening Surplus, i.e., Balance in Statement of profit and

Prbf Add.

7 1,80,000 Loss

liqg00

Activities from the

Parliculars

L€55

50,000

Net Profit for the year ended 3lst March, 2015

Illustration 22. Compute Cash Flow from

Partl

t;

2,500

Atcrued Income

Cash Flow

2.t

information: 31st March, 201s (t)

Surplus, ie., Ealance in Statement of profit and Loss Trade Receivables (Debtors)

3l n March, 2014 ({) r

2,00,000 6,20,000

0utstanding Rent Goodwill Prepaid Insurance

42,000

Ilh

76,000

(,

4,000

Trade Payables (Creditors)

3,80,000

Paii DeF

Solution:

Am,

CASH FLOW FROM OPERA]ING ACTIVITIES

Trar

Particulars

Prol

Net Loss for the year ended 31st March,20l5 before Tax (Note Add: Detreose in Current Assets:

t)

{r,00,000)

Trade Receivables (Debtors)

lt P-,

Less: Increose in Current Assets and Deoe1se in Curent Licbitities: Prepaid Insurance

Outstanding Rent Trade Payables (Creditors) Cash Used in

Operating Activities

Irar

4,000 18,000 1,20,000

(r,42,000) (1,22.000)

Tra Pre

ilI

Cash Flow Statement-BaseL on ing Stanilard-3 (Reaisedl

on:

Notes:

:h,

0 0 0 0

cl l

1. Net Profit (Loss) for the year ended 31st March, 2015: Closing Surplus, i.e., Balance in Statement of Profit and Loss less: Opening Surplus, i.e., Ealance in Statement of Profit and Net Loss for the Year 2.

{

't

1,00,000 12,00,000

Loss

(r,00,000)

t

4,000 have been paid for purchase of a fixed asset, i.e., goodwill. lt is not an Operating Activity. lt an Investing Activity, therefore, it does not affect Cash Flow from Operating Activities.

is

Illustration 23. Calculate Cash Flow from Operating Activities from the following information: 31st March, 2o1s (t)

Particulars

Surplus, r.e,, Balance in Statement of Profit and Loss Trade Receivables (Bills Receivable) Provision for Depreciation

3,00,000

0utstanding Bent Prepaid Insurance

m0

3.23

3l st March, 20r 4 ({) 2,00,000

1,80,000

1,40,000

3,20,000 40,000

3,00,000 i 6,000

12,000

14,000

Goodwill

1,60,000

2,00,000

Inventories (Stock)

1,80,000

1,40,000

100

Solution:

t00

Particulars

CASH FLOW FROI\4 OPERATING ACTIVITIES

Profit for the year ended 31st March,2015 (Note) Non-coshExpenses:

Add: )0)

g

Provision for Depreciation Goodwill Amortised

Profit before Working Capital Changes Add: lncreose in Cuntent Lilbilities ond Decrc7se n Current Assets: Outstanding Rent Prepaid lnsurance

)0 )0

p :l:

Less: lncreose in Cuftent Assets: Trade Receivables (8ills Receivable) lnventories (5tock)

{80,000)

Cash Flow from Operating Activities

Note:

1,06,000

t

Profit for the year ended 3lst March, 2015: Closing Surplus, i,e., Balance in Statement of Profit and Lois Leiij Opening Surplus, i.e., Balance in Statement of Profit and Loss

3,00,000 2,00,000

Profit for the year

r,00,000

Illustration 24. Calculate Cash Flow from Operating Activities from tlie following: (i) Profit earned during the year is { 2,50,000 after consl the following items: Partlculars

Depreciation on Fixed Assets. Amortisation of Goodwill Transfer to General Reserve

10,000 5,000 7,000

Profit on Sale of.Land r)

l)

(li) Following is the position of current Particulars

3,000

assets and

current liabilities: Opening Balances

.J

Trade Receivables:

Debtors Eills Receivable Trade Payables (Creditors) Prepaid Fxpenses

12,000 10,000

r5,000 6,000

(l)

Management inS (Section B)

- 3.24

Crr s

Notr

CASH FLOW FROM OPERATING ACTIVITIES

Solution:

t

{

Particulars

Calc Clos

2,57,000

Net Profit before Tax (Note)

Add:

-ISC XII

I

Less;

Non-cashExpenses:

r0,000

Depreciation on Fixed Assets Amortisation of Goodwill

Add: 15,000

5,000

2,72,000

Less: Non-opentinglncome: Profit on Sale ofLand

(1,000)

Net'

2,69,000

Illu

.

Opercting Profit before Working Capital Changes Add: Decrease in Cwrcnt Assets:

I

Bills Receivable

2,000

Prepaid Expenses

2,000

.

4,000

2,73,000

Less: Decreose in Cuttent Liobilities ond lncreose in Curcnt Assets: Creditors

3,000

Cash Flow from Operrting

25. From the

(8,000)

7

Tax:

2,50,000

Profit for the year (Given) Add: Transfer to General Reserve Net Profit before Tax

Illustration

t.E

2,65,000

Adivities

Note: Net Profit before

t* 1.

s,000

Debtors

lol

7,000

2,57,000

Activities:

following informatiory calculate Cash Flow frorn

I

A 1.

31st March,

Particulars

2014 (t)

Surplus, i.e., Balance in Statement of Profit and Loss

65,000

60,000

40,000

87,000

L

Trcde Receivables: Debtors Bills Receivable

General Reserve

Debenture Redemption Reserve Salary Outstanding Wages Prepaid

Goodwill

1,03,000

62,000

2,37,000

2,02,000

1,00,000

78,000

12,000

30,000

7,000

5,000

70,000

80,000

T _ ___i

Note: Partic

CASH FLOW FROM OPERATING ACTIVITIES

Solution:

1.s

Pariiculars

-E

62,000

Net Profit before Tax (Note)

1

Adiustments

Add:

I0,000

Non-cosh.Expenses: Goodwill Amortised

72,000

Opercting Ptofit bef ore Wotking Clpltol Changes Add: Decreose in Cwrent Astets:

5

r,19,000

lncrease in Bills Receivable

41,000

Increase in Prepaid Wages.

2,000

Cash Flow

from Operaiing Activities

3,7 C

Less: Increose in Current Assets ond Decreose in Cutrent Liobilities:

0utstanding

G

47,000

Decrease in Debtors

Sala'ries

2.R

18,000

B

(61,000)

4.0 c

:Xil

Cash FIow gtatement-Based on ing Siandard_j (Reaiseil)

3.25

Note: Calculation of Net profit for the year: Closing Surplus, r.e., Balance in Statement of profit and Loss tess; Opening Surplus, r.e., Balance in Statement of profit and Loss

rB*

;,000

!,000

,000

Poo

65,000 60,000 5,000

Add: Appropriotions: General Reserve

r,000

000)

T

(t 2,37,000, t

Debenture Redemption Reserve

2,02,000)

(t

1,00,000 _

Net Profit before Tax

Illustration Flow from

t

35,000 73,000)

22,000 62,000

2d .

From the following Balance Sheets of Bhushan Steel Ltd., .ul.ulrt.turh-_:rating Activities:

Particulars

3lst March,

I.

2014

1.

Shareholderi,Funds

{a) (b)

100)

000

2.

Share Caoital

9,00,000

Reserves and Surolus

1,40,000

Current Liabilities

{r}

Trade payables r, r 0,000

{b) 0ther Current Liabilities (c) Short-term Provisions

100

)00

40,000 1,64,000

Tbtal

4q

(0

EQUITYANDLIAEITITIES

13,54,000 ASSETS

l.

es:

Non-Current Asset5

fixed

(l) {ll

2.

}

Assets:

TangibleAssets 5,60,000

Intangible Assets

2,30,000

CurrentAssetj

{d)

Current Investment

-Marketable Securities

(b) Inventories (c) Trade Recetvables (d) Cash and Cash Equivalents

30,000

|,94,C10 3,20,000 20,000

Total Notes to s Particulars

1.

3'lst March, 20ls ({) Share Capital Equity Share tapital

00

l2% Preference Share Capital

l0 )0

2.

20l4 (t)

8,00,000

6,00,000

2,00,000

3,00,000

r0,00,c00

9

GeneralReserve 5urplus, ie., Balance in Statement of profit and Loss

,! )0

Reservesand Surplus

31st March,

3.

Trade Payables

1,40,000

80,000

96,000

60,000

2,36,000

1,40,000

1,00,000

80,000

66,000 1,66,000

30,000 't,10,000

32,000

40,000

Creditors Bills Payable

4. 4. Other Current l_iabilities '

Outstanding Expenses

3.26

5.

Management irrg (Section B)

-ISC

ilI

Cas

Short-termProvisions Proposed Dividend

(r

84,000

Provision for Tax

80,000 1,64,000

Tangible Assets Land and Euilding

4,00,000

Plant

I 5,60,000

Intangible AssetsGoodwill

2,30,000

Solution:

CASH FLOW FROM OPERATING ACTVITIES

Trei

Particulars

Net

Net Profit before Tax (Note

Add:

t)

asse

Non-coshExpenses:

fixe,

Depreciation on Land and Building ({ 4,00,000 - { 3,40,000) 6oodwill amortised Operating Profi t before Working Capital Changes

Add:

Decreose in Current Assets ond lncreose in

orL Purt paid

Cu ent Liobilities:

Increase in Creditors inciease iii Eills Payable

Loss

belbr

Decrease in lnventories

Illur Less: Increase in Cwrent Assets ond Deueose in Cuftent Liobilities: Increase in Trade Receivables

infor

:-l Partlc

Decrease in Outstanding Expenses Cash Generated from

0perating Activities

90,000

[ess: IncomeTax paid (Note 2) Cash Flow from Operating A(tivities

2,10,000

t

Notes:

1.

Profit for the year (( 96,000 - { 60,000) Addr Transfer to General Reserve Proposed dividend during the year (On Equity and preference Shares)

36,000 60,000 1,00,000 1,00,000

Provision for Tax (Note 3) Net Profit before Tax

2-

3

2,96,000

'Provision for Tax' appearing on the Iiabilities side of the previous year's Balance Sheet is presumeo to have been paid during the year. Hence, it is deducted while calculating the Cash Flow from Operating

Activities. 'Provision for Tax' appearing on the liabilities side of the current year's Ealance Sheet is added to current year's profit to calculate'profit before Tax'.

Treatment of Depreciation Profit or loss for the period is tletermined after debiting dreciation to Statement of Profit and Loss. It does not involve cash but is an allocation of cost of fixed assets over its useful life. It is, therefore, an entry not involving cash. Therefore, depreciation is addetl to net prllit before tax to calcultrte Cnsh Flou on Operating Actittities. Determining Depreciation by Preparing Fixed Asset (i) Fixed Asset (on Written Down Vslue Basis): When Balance Sheet does nor have an item of Provision for Depreciation or Accumulated Depreciatiory it means that the fixeti assets are shown in the Balance Sheet at their book value, i.e., cost

ler^s

Provis

0utst; Goodi Trade

Apu cJurir

Solu Particr Net Pr( A0d:

Less: l I

0perat

Add:

I

I

depreciation

and hence Fixed Assets is prepared on written down value basii. in this case, the amount of current year's depreciation is credited to the Asset . Note: For Fixed A:sct (At written down value)-f?efer to paqe 3.35.

t;'ot, Gener

le;s: I ( Cash Fl

xll

Cnsh Fiow Statement_Baseil

on ing Statdard_3

(Reoised)

j.Z7

0 0 0

c

l l

t*"'

l

;il.:'::orlT!.l;:"'"t

(At cost) and Accumulated Depreciation -Refer ro

Tfeatment of profit or Loss on Sale of Fixed Asset

000 000

000 000

)00)

Operating Activities from the following Paniculars Closing Ealance

000

t

)00)

000

t00 )00 100

Surplus, Le., Ealance in Statement of protit and Loss General Reserve

3,00,000

3,50,000

Provision for Depreciation on plant

1,00,000

i,50,000

0utstanding Expenses

3,00,000

3,50,000

Goodwill Trade Receivables (Sundry Debtors)

50,000

30,000

2,00,000

1,00,000

4,00,000

)00

4 to Ing

Solution:

CASH FLOW FROM OPERATING ACTIVITIES

Particulars

t0 Net Profit before Tax {Note Add: Non-cash Expenses:

l)

Depreciatjon on plant (Note 3) Goodwill Amortised

fit ul

,fit Less: Non-operottng lncomes: . Profit on Sale of plant (Note

ot at

2)

Operating profit before Working Capital Changes

Add:

Decrcose in

Cwrcnt

2,10,000 3,10,000

Assets:

{40,000)

2,70,000

Trade Recervables (Sundry Debtors)

)n ,lS

1,10,000 1,00,000

50,000

Less: Decre1se in Cuftent Liobilities:

3,20,000

0utstanding Expenses Cash Flow

from Operating Activities

(20,000)

3,00,000

G Management ing (Section

3.28

Bl-lSC

ill

Notes:

Sol

1. Calculotion of Net Profit belore Tax: 3,s0,000

Closing Surplus, i.e., Balance in Statement of Profit and Loss less: Opening Surplus, i.e., Balance in Statement of Profit and Loss

Net Profit for the year Add: Iransfer

Cas

rt

3,00,000

Net:

50,000

Adjr

. 50,000

to General Reserve

Pa

Add

1,00,000

Net Profit before Tax

UTE.

2.Dr.

PLANT

Particulars

t

o o

Balance

2,00,000

b/d

Statement of Profit and Loss (Profit on Sale)

40,000

Cr'

t

Particulars

By By

Bank

r,80,000

A/c-Sale

Provision for Depletiation A/c (Note 4)

60,000

leJt

(Depreciation on Plant Sold, ie.,

(8a1. Fig.)

Add:

{2,00,000-{1,40,000) 2,40,000

2,40,000

Casl Les,r

Casi

t

Particulars

To To

Cr.

PROVISION FOR DEPRECIAiION ON PLANI

3.0r.

{

Particulars

Not Calt Cios

60,000

Plant A/c (Note 4)

3,50,000

Balance c/d

By By

Balance

3,00,000

bld

Statement of Profit and Loss (Depreciation

provided during the year) {Bal. Fig.) qJ 0p00

4,10,000

Lesl

1,10,000

Add

Net

4. Accumulated depreciation on the pla nt sold is adjusted by debiting to Provision for Depreciation and trediting it to Plant .

'fa'

following information, calculate Cash FIow from Operating Activities:

c\,r

Illustration

28. From the

Del

()Fl Particulars

Shc

Surplus, Le., Balance in Statement of Profit and Loss on 1n April, 2014

3,50,000

['rc

Surplus, i.e., Ealance in Statement of Profit and Loss on 31st March, 2015

9,00,000

Cl'Cr

1,25,000

deL

Depreciation

80,000

Amortisation of Goodwill Loss on 5ale of Machine

2,00,000

Provision for Tax

1,50,000

Transfer to General Reserve

3,00,000

Decrease in Debtors (Trade Receivables)

2,28,000

Decrease in Eills Payable (Trade Payables)

47,000

Outstanding Expenses on lst April,2014

50,000

out!;tandrng Expenses on 3lst March,2015

65,000

Prepaid Expenses on

ln

anli Dt.

Pa( To To

40,000

APril,20l4

Prepaid Expenses on 3'lst March, 201

Llei

Sla

20,000

5

Adtlitional Itfornntion: hrcome Tax ireid r-iurirlg the year was

{

2,50,000'

Let

Evi \ l.r Iiitr

:xil

Cnsh Flow

St

ement -Bnsed on ing Stendnrd-3 (ileaisedl

Soluiion:

CASH FLOW FROM OPERATING ACTIVITIES

),000

Particulars

),000

Net Profit before Tax (Note)

),000

Adjustments for Non-cash and Non-operating ltems

),000

Cr.

r0,00,000

Add: Deoreciation

1,25,000

Amortisation of Goodwill

80,000 2,00,000

Loss on 5ale of Machine

400

3.29

4,05,000

0perating Profit before Working Capital Changes Add: Decreose in Cuftent Assets \nd lncreose in Cutrent Liabilities:

r4,05,000

Decrease in Debtors

2,28,000

Decrease in Prepaidtxpenses ({40,000

-

-t

20,000

20,000)

Increase in outstanding Expenses ({ 65,000 - { 50,000)

15,000

2,63,000

0,000 0,000

16,68,000

Less: Decreose in Current Liobilities: (47,000)

Decrease in Bills Payable

0p00

Cash Generated from Ooeratinq Activities before Tax

16,21,000

less;

(2.s0,000)

Tax Paid

Cash Flor,', Cr.

13,7r.000

from Operating Activities

Note: Calculation of Net Profit before fox:

,t

Closing Surplus, i.e., Balance in Statement of Profit and Loss 0,000

9,00,000

less: Opening Surplus, i.e., Balance in Statemen{ of Profit and

3,50,000

Loss

),000

5,50,000

Add: Transfer to General Reserve c,099

3,00,000

Provision for Tax

1,50,000

Net Profit before Tax rtio n

ties:

1,000 1,000 5,000

t,000 1,000

r

0,00,000

Determining Tax Paid by Preparing Provision for Tax Tai paid during the ing year may have to be computed from the amounts given. For example, amount for provision made is given in the Statement of Profit and Loss and the opening and clclsing balances of Provision for Tax are giverr either in the Balance Sheet or as additional information. In such a case, tax paid is determined by preparing Provision for Tax . Opening balance of Provision for Tax is placed on the credit side of the by writing'By Balance bld' and closing balance is placed on the debit side by writing'To Balance c/d'. Provision for Tax made during the year, i.e., amount debited in the Statement of Profit and Loss is placed on the credit side by writing'By Statement of. Profit and Loss'. The is balanced and the balancing amour-rt is the amount o[ tax paid. The Prclvision for Tax will appear as follows:

1,000 1,000 1,000

/,000 1,000

Dr

PROVISION FOR TAX

t

Partrculars

o o

Bank Aic (Tax Paid) (Balancing Figure) Balance

r/d

Particulars By

Cr.

t

Ealance b/d

8y Statement of Profit and Loss (Provision made)

;,000 ),000 ),000

Let us take an erample for better rrnderstanding.

Evian Ltd. has balance in Provision for Tax of { 50,000 and t 75,000 as on 31st iV{arch, 2014 and 2015 respectively. It madc a provision for' tax rluring thc vear of { 65,000. Frnd orL[ the arnount of tax paicl dunng the vear.

--FI:

Management Accouflting (Section Bl

3.30

-

ISC

XII

Cas

Solution:

Sol

By preparing Provision for Tax , tax paid can be determined as follows:

Parti Net f

Dt.

LI

PROVISION FOR TAX

Particulars

{

Particulars

To

Eank A/c (Tax Paid) (Ealancing Figure)

To

Ealance c/d

40,000

By

Ealance

75,000

8y

Statement of Profit and Loss

b/d

50,000

Add:

6oeJ

Add:

65,000

{Provision made)

r,r5,000

r,15,000 less;

Illustration 29 (Calculation of Tax paid by Prepnring Prouision t'or Tat ). From the following information, calculate Cash Flow from Operating Activities: STATEMENT OF PROFIT AND LOSS Cash

for the yeor ended 3lst Morch,20l5

teJJl Particulars

l.

Casl

ln(ome Revenue from Operations/Net Sales

ll.

1

1,00,0c0

Not,

Expenses Cost of Materials Consumed

6,00,000

Entployees 8enefit Expenses

1,50,000

Depreciation and Amortisation Expenses

1,00,000

0ther Expenses

90,000

Total

2Dr

9,40,000

,Parti

lll.

Net Profit

(l- ll)

1,60,000 To

Note to s

l.

To

t

Other Expenses General Expenses

.

Provision for Tax

40,000 50,000

Pr

90,000

dt Additional lnt'ormation:

Illu

Particulars

1st April, 2014

Trade Receivobles:

Debtors Eills Receivable Trade Payables (Creditors) Inventories (Stock)

2t)1

ut) 1,50,000

1,25,000

30,000

40,000

75,000

85,000

(b)

(c)

r,35,000

1,10,000

(,1)

Salaries 0utstanding

15,000

10,000

(r)

Prepaid Insurance

21

,500

25,000

Provision for Tax

10,000

r

5,000

]XII

Cash Flow Statement-Based on ing Standard-3 (Reaised)

Solution:

3.31

CASH FLOW FROM OPERATING ACTIVITIES

Particulars Net Profit before Tax (Note

Lf.

Add:

l)

2,10,000

Non-cosh ltem:

Depreciation and Amortisation Expenses

1,00,000

0perating Profit before Working Capital Changes ),000

Add:

;,0J0

r,10,000

Decrease in Cwrent Assets and Inuease in Current Liabilities: Decrease in Bills Receivable (Trade Receivables)

10,000

Increase in outstanding Salaries

5,000

15,000

;,000 3,25,000

Less: Incrcose in Currcnt

Assets

and Decrease in Current Liabilities:

Increase in Sundry Debtoru (Irede Receivablet

the

25,000

Increase in Inventories (Stock)

25,000

Increase in Prepaid Insurance

2,500

Decrease in Sundry Creditors {Trade payables)

r0,000

Cash Generated from Operations before Tax

less:

2,62,500

Income Tax Paid (Note 2l

(55,000)

Cash Flow fiom Operating Activities

000

(62,500)

2,07

Notes:

1. 000

Net Profit after Tax

1,60,000

Add: Provision for Tax (provided)

000

50,000

Net Profit before Tax

000

2,10,000

000 2. Dr.

PROVISION FOR TAX

000

t

Particulars

t00 To 0

Bank A/c ffax Paid) (Bal. Fig.)

55,000

Ealance c/d

I0,000

{

,Particulars

8y Balance b/d

15,000

8y Statement of Profit and Loss (provision made)

50,000

65,000

lf

Cr

65,000

the amount of tax paid is not given,

it can be calculated by preparing the Provision for Tax . This gives information about the tax paid during the. cu(ent year as well as provision for tax made for the current year. 4

Illustration 30. Arthur Ltd. reported a profit of 2072, after considering the following:

t

90,000 for the year ended

3ist March, (

(a) Tax provided during the year (b) Amortisation of goodwill

(c) Profit on sale of larid (d) Writing off prcliminary

3,000 12,000 5,000

expenses

(e) Machinery costing { 40,000 (accumulated depreciation thereon being t 18,000) r.vas sold during the year at a loss of { i7,000.

2,000

r-3.32

Management itrg (Section

BI-ISC XII

Extracts of its Balance Sheets in the

and at the end of the

ven below:

Cas,

3. Di

3l st March,

Particulars

Parti(

2012 ({)

s Rec€ivable

16,000

20,000

Stock

15,000

12,000

Cash at Bank

10,000

8,000

I t,000

9,000

s Payable Expenses Payable Provision for Taxation Investments (Short-term) Plant and Machinery (Net value) Proposed Dividend

5,000

6,000

6,000

4,000

2,000

5,000

r,30,000

94,000

10,000

12,000

ToB ToE

You are required to calculate Cash Flow from Operating Activities as per ing (tsc 20t31 Standard-3 (Show your workings clearly).

lttut

Arthur Ltd.

tof

Solution:

CASH FLOW FROM OPERATING ACTIVITIES for the yeor ended 3lst Motch' 2012

ittt,t loar

Act

Particulars 1,05,000

Net Profit before Tax (Note l) Add: Non-cash ond Non-operoting Expenses: Loss on Sale ofMachiriery (Note 2)

17,000 2,000

Preliminary Expenses Written off Goodwill Amortised

12,000

Depreciation (Note 2)

t4

Cn:" /o r r,r

1,50,000

Tre

Less: Non-operutinglncome: Profit on Sale of Land 1,45,000

Openting Ptofit before Working Copitol Chonges Add: Deqdase in Cunent Assets lnd In(eose in Cuftent Liabilities: Declease in Invenlories Increase in Expenses PaYable

t. 4,000 1,49,000

Less: lncreose in Current

Assets

4,000

Decrease in s Pavable

2,000

i,43,000 1,38,000

fron 1perating Activities

Notes:

1.

Net Profit before Tox:

90,000 3,000 'I 2,000

t

Particulars

t.

.

5,000

By Bank A/c (Sale)*

on Sale of Machinery Depreciation A/c (Ealancing Figure) By Ealance c/d

r

By Loss By

t

18,000 =

{

22,000

t

17,000

t

'

7,000

'14,000 94,000 1,30,000

r,30,000

le

Cal

t

Particulars

r,30,000

e b/d

Sa

l

Cr.

PLANT AND MACHINERY

*Book value of Machinery { 40,000 = of MachinerY on Sale Loss L4s5j

I

r,05,000

Net Profit before Tax Dr.

LI t.

Pr'1i

{

Net Profit for the year Add: Tax Provided (for the Year) Proposed Dividend

2.

11

(s,000)

Tax Paid {Note 3)

Cosh Flow

(

ond Decrease in Cuftent Liobilities:

lncrease in s Receivable Cash Flowfrom Operating Adivities beforeTax

lerr:

:

s,000

t.

il t: Li

ilI )lV:

Cash

3.

flow Statement-Based

on ing Standard-3 (Reaisedl

Dr,

PROViSION FOR TAX

Particulars To Bank

J.JJ

A/r-Tax

Poid

{

Particulars

5,000

By

{Ealancing Figure)

Ealance

t b/d

6,000

By Statement of Profit and Loss (provision)

To Balance cld

3,000

4,000

9,000

9,000

2. CASH FLOW FROM INVESTING ACTIVITIES ng

00

lnuesting Actiaities 0f an enterprise are acquisiti,, and disposar of rong-term assets and other inoestments not included in cas.h equiuarenfs. Accordingry, cash infrow and outfrow relating to fixed assets, shares and debentures, etc., of other interests in t ventures, "ni".p.is"s, loans and advances to third parties and also their repayments are shown under Investing Activities in Cash Flow Statement. Please Note

tha/Cunenr

ff

short-tern

;!nuuatrantruffi

Cnsh Flow

4 l0

E

from Inaesting Actittities is nscertnineti by annlysitLg the chnnges in Iong-term inaestmerts irt the begirmitry trrtd nt thc entl of'the yenr.

Treatment

1.

Sale of Fixed Assets or Non-Current Investments

Cash Inflow from lnvesting Activiries

{Non-Current/Long-rerm)

r0

2.

Rent from Property or Interest or Oividend from Investment Purcha.e of Fixed Assets/Long-term Investment

rl

lncrease in Accrued lnterest

0

Cash Inflow from Investing Activities

Cash

0udlow in Investing Activities

Subtract from total interest to get net amount of interest recetved.

t1

I

ttssets and

Treatment of Important Items while Computing Cash Flow from Investing Activities

)0

0

fixetl

Calculalion of Cash Flow from Inv

Activities

Particulars

l.

Cash Inflow from Investing A(tivities Proceeds from Sale of Tangible Fixed Assets (e.9., Machinery) Proceeds from Sale of Intangii_rle Fixed Assers re.9., goodw;ilj Proceeds from Sale of Non-Cunent/Long term Invesiments

lncome from Investment Dividend/lnteresr/Rent received

ll,

Cash Used in Investing Activities: Payment for Purchase of Iangible Fiied As)er\ {e.q., Machinervl Payment lor Purchase of lnrangible Assers {e.9.. Goodwilli parents) Haymenl tor pur(hase ol Non-Current/Long term Investments

Cash Inflow (if |

>

) from or Used

(if ll > l) in Investing Activities

Please Note that as per Guidelines issued by ISC Council, Current lnvestnrenis are to be included in Cash and Cash Equ iva lents.

3.34 Illushation

Management ing (Section B)_ISC 31. From the

ru

following particulars, calculate Cash Flow from Investing Activities:

:

Css

lloi Dr.

Purchases

Investments

1,80,000

Goodwill

2,00,000

Machinery

4,40,000

(l)

Patents

Sales

(t)

Parti

1,00,000 To

to

1,50,000' 1,00,000

Interest received on Debentures held as an investment

t

16,000.

Dividend received on Shares held as investment { 20,000. A plot of land was purchased for investment purposes and was let out for commercial use and rent received was t 80,000. Solution:

I

(Pr Fix of

Particulars Prcceeds from 5a!e cf !nvestments

1,00,000

Proceeds from Sale of Machinery

1,50,000

from Sale of Patents

De

clp ot

r,00,000 't6,000

Interest Received Divrdend Received

20,000

Rent Received

80,000

1\Ci 4,66,000

less: Purchase

tr,

Ine

As, CASH FLOW FROM INVESTING ACTIVITIEs

Proceeds

;

of Investments

dnt

r'l\ i.

(1,80,000)

Goodwill Purchased

(2,00,000)

Machineri Purchased

(4,40.000)

Cash Used in Investing Activities

Note: Amounts in brackets

2 (8,20,000) (3,54,000)

show outflow of cash,

1.e.,

Let 1.

amounts that are to be dbducted.

Illustration 32. A company had the following balances: Dr.

Particulars

-?a rt

Investments in rhe beginning ofthe period -

34,000

Investments at the end ofthe period

28,000

During the ygar, the company sold 40% of its investments held in the beginning of the period at a profit of t 8,400. Calcdlate Cash Flow from Investing Activities.

To To To

Solution: CASH FLOW FROM INVESTING ACTIVITIES

Not

l

Particulars

).

Inflow from Sole of lnvestments: Cost of Investments sold (40% of

t

j4,000)

Add: Profit on Sale 0utflow on Purchase of Invenments (WN) Cash Flow

from Investing A(tivities

22,000 (7,600) 14,400

3

:XII

Cash Flow Statement-Based on ing Standard-3 (Reoised)

ties:

Working Note: Dr.

J.J5

INVESTMENTS

t

Particulars

To To

Balance

Statement of Profit and Loss (Profit on Sale of Investments)

8,400

To

Bank A/c (Purchases) (Bal. Fig.)

7,600

b/d

34,000

Cr.

{

Particulars

By

Eank A"/c

By

22,000

(Sale

of Investments) (( 13,600 +

(40%

oft

34,000 =

t

t

8,400)

13,600)

Balance c/d

50,000

28,000 50,000

A use

better way to calculate the amount of Cash FIow under Cnsh Flou t'rom Inaesting Actiaities is to prepare Ledger tttith auailqble int'ormation. The required amlunts will be known from the Ledger .

Ascertaining Missing Amounts Regarding Fixed Asset [e.g., Sale, purchase, Gain (Profit)/Loss on Sale or Depreciationl by Preparing Fixed Asset Fixed Asset shows purchase and sale of fixed asset, gain(profit) or loss on sale of fixed asset and depreciation charged during the year.

000

)00)

!q

Depreciation and Loss on salc of fixed asseis is added io-compute Cash Flow from operating Activities being non-cash and non-operating items while gain (profit) on sale of fixed assets is deducted. sale of fixed assets is shown as Cash Flow from Investins Activities at the amount received against sale. Purchase of fixed asset is shown at the amount paid for it. Fixed Asset mav be prepared when: 1. Fixed asset is shown at Written Down Value; and 2. Fixed asset is shown at original crrst and accumulated depreciation or Provision for Depreciation is separately maintained. Let us discuss them in detail. 1. when Fixed Asset is shown at written Down value: Fixed Asset appears as follows when they are shown at Written Down Value: FIXED A55ET ACCOUNI

(At Written Down Value), ie.; after Depreciation

Dr.

I

Particulars

t

Particulars

00 r00

To To To

'd

Cr.

Ealance b/d

By

Bank A/c (5ale of Fixed Asset)

Bank fuc {Purchases)

By

Statement of Profit and Loss

Statement of Profit and Loss (Proflt on Sale ol Eixed Asset)

By

Depreciation A/c

By

Ealance

(Loss on 5ale of Fixed Asset)

r/d

Notes:

1.

Purchasb of a fixed asset is the balancing amount on the debit side of the and der-,reciation or sale of a fixed asset on the credit side of the . 2. lnformation regarding depreciation is generally given in the question. Students are required to find out only the sole or pwchose of osset. 3. lf both sale and depreciation are not given. then assume rt is either sale or depreciation and give your assumption.

.-W}-

In the case of land' it should be treated as sale because depreciation is not charged on land. In the case of patents, goodwiil and trademarks, it should be assumed that the amount is written off.

Manegemenl ing (Section

3.36

Bl-lSC XII

Illustration 33. Sky Ltd. has Plant and Machinery, the written down value of which on 1st April, 2014 was { 8,60,000 and on 31st March, 2015 was t 9,50,000. Depreciation for' the year was t 40,000. In the beginning of the year, a piece of plant was sold for t 25,000 which had a written down value of T 20,000.

---

Cssl Accl Dr.

;

Partir

Calculate Cash Flow from Investing Activities.

To

t(

Solution:

CASH FLOW FRoM INVESTING ACIlVlTlES

Tol

Cash Payment to acquire Plant and l\4achinery {WN)

Notr

Cash Receipts from Sale of Plant and Machinery

Cash Used in Investing Activities

Illu

Wo*ing Note:

Act Cr.

PLANT AND MACHINERY ACCOUNI

Dr.

Date

{

Particulars

Date

Particulars

{

,

2014

2014

April April April

1

I

1

Io

Balance

To

Statement of Profit and Loss

To

lGain (Profit) on Sale of Plantl Eank A/c (Purchase) {8al.Fig.)

b/d

5,000

1,50,000

Mac

1 1

By

Bank A/c (lnflow)

25,000

AtCt pate

March

31

8y

Depreciation A/c

40,000

i,,11

March

31

By

Ealance c/d

April

8,60,000

Parti

lu

t5 9,50,000

L

r0,r 5,000

10,1 5,000

1

2. When the Fixed Assets are shown at Original Cost and Accumul"ted Depreciation (provision for depreciation) is separately maintained: Whut this nethod is follou,ed, deprecintiott is not delttted to the Asse.t Accouttt. The depreciation for the period is debited to Depreciation (transferred to Statement of Profit and Loss) and credited to AcuLnulated Depreciation Accourrt or Prottision t'or Depreciotion . In the Balance Sheet, asset appears at its original cost and the Accumulated Depreciation or Prouisiott for Depreciation Accotutt rs shorvn eithcr by deducting it from Fixed Assel (shown at cost) or is sholvn on the liabilities side of Balance Sheel. In such. cases, separate s for fixed asset and accumulated depreciation or ;ror,'ision for deprecration is maintained. Depreciation for the year can be ascertained from Provisior. for Depreciation . Thus, in additioh to Fixed Asset , Accumulated Depreciation or Provision for Depreciation is also prepared to determine purchase or sale of fixed asset. Fixetl Asset appears as follows:

Dr. o Balance b/d o Statement of Profit and Loss o

lGarn (Profit) on Sale of Plantl Bank A/c (Purchase of Fixed Asset)

t

11

Pror

0ut lnflt

* t.D Par

fo To

Cr.

t

Particulars

By Eank Aic (5ale ofFixed Asset) By Accumulated Depreciation A/c (Accumulated Dep. on Fixed Asset Sold)

8y

Pa

.ic

FIXED ASSET (At Cost)

Particulars

5ol

Statement of Profit and Loss

)L l,l

(Loss cn Sale of Fixed Asset)

By

Note:

Ealance

r/d

Purchase of fixed asset is thp balancing amount on the debit side of the and the sale of

fixed asset on the credit side of the .

I-c

.C

Yil

Cash Flow

Statenent-Bnsed on ing Standard-3 (Rez.tisedl

J.J /

on

br 00

Accumulated Depreciation or prcvision for Depreciation appears as follows:

Dr.

ACCUMULATTD DEPREC|AT|ON

t

Particulars

To

Fixed Asset A/c

q

Ct.

Particulars

{

By Balance b/d By Depreciation A/c

(Acc. Dep: on Fixed Asset Sold)

To



Balance c/d

(Depreciation for the year)

Note: Accumurated depreciation on the fixed asset sord or depreciation charged for the current tng year may not be given, which shall be the balan;inq amount.

r0)

Illustration 34. From the following information, calculate Cash Flow from Investrng

Activities: Paniculars

Closing (t)

Machinery (At cost)

4,ooooo

Accumulated Depreciation Patents

0' 0

ndd

ii

iou

4,20,000

1,00,000

1,10,000

2,80,000

j,60,000

al Iuiorma t ion :

I

1. During.the year, a machine costing { 40,000 with its _accumulated depreciation of t 24,000 was sold for t 20,000. 2. Patents were written off to the extent of T 40,000 and sonre patc'nts were solc{ at a profit of { 20,000. Solution: CASH FLOW FROI/ INVESIING ACTIVITIES

I

Particulars

c

I

L

I

Proceeds from Sale of Machinery Outflow on Pur(hase of Machinery {WN Inflow from Sale of patents (WN 3)

Cash Flow fiom Investing

20,000 I)

(60,000)

r,00,000

Adivities

60,000

Working Notes: 1. Dt.

fulAL:lINERY

Particulars

{

To.

Balance b/d

To

Statement ofProfit and Loss

.

4,00c

{Gain (Profit) on Sale of Machinery) Bank A/c (Purchase) (Bal. Fig.)

To

4,00,000

60,000

Cl

Particulars

{

8y Bank A/c (lnflow-Sale of Machinery) 8y Accumulated Depreciation A/c (Depreciation on Machinery Sold) By Balance c/d

4,64,000 2. Dt.

20,000 24,000 4,20,000 4,64,000

ACCUMULATED DEPRECIAIION

I

Particulars

To

Machinery A/c

To

(Depreciation on Machinery 5old) Eaiance c/d

24,000 1,10,000

Particulars

By Balance b/d By Depreciation

{ 1,00,000

A/c (Bal. Fig

=t20,000*t

Eook

Va

)

34,000

(Depreciation for the year)

1,34,000

*Gain (Profi0 on Sale = Sale Price

Cr

lue of Machinery

r6,000 (T 40,000 _ { 24,000) = { a,s93.

1,34p00

3.38

Management ing (Section

3. Dr.

ISC

XII

Cus

PATENTS

Particulars

To To

Bl-

(

Balance b/d

Statement of profit and Los (profi0

2,80,000

20.000

(Given)

By

Eank A/c

(lnflow-Sale) (Bal. Fiq.)

Salance

Pa(i

r,00,000

8y Statement of Profit and Los (Viritten off) By

Sol

t

Particulars

Proc

40,000

/d

Purc

1,60,000

3,00,000

Purc

3,00,000

lnter

Illustration 35. From the following information, calculate Cash Flow from Investrng Activities:

UIV(

Liabilities

Casl

3l st March, 3'lst March,

Provision for Depreciation

on Furniture

20rs (t)

2014(t)

30,000

t0,000

Assets

Goodwill

I Patents I Land

31st March,

2015 ({)

2014 (t)

1,00,000

1,20,000

r,20,000

r,00;000

r,80,000

2,00,000

Plant and Machinery (Net)

3,20,000

3,60,000

Furniture (Gross)

2,55,000

25,000

1,80,000

2,00,000

10% Investments Acci'ued inierest on 1096 investments]

Solution:

3tn March,

10,000

Rent

Wol 1.Dr

:Part' To

Io To

CASH FLOW FROM INVESTING ACTIVITIES

Paniculars

(20,000) 20,000 (2,30,000)

20,000 10,000

)Dt

:Pa rt

ioI()

(2,00,000I

Notes:

t j;":';:r*

thar the sare of rand was at book varue and as a resurt there is neirher gain (profit) nor

ross

2. lt

3 4

is assumed that investments have been sold at the end of current ing year. lncrease/Decrease in Accrued Interest on lnvestments affects Cash Flow from Investing Activities and Non-operating Activities.

lt is assumed that decrease in plant and Machinery is because of depreciation. Depreciation, berng part of operatrng Activities, does not affect cash iro* frorn inuerting Activities,

iln,r#:"lrrr:.rlj:*

,n. following information, calculate

Cash Flow from rnvesring

lllr 3ls I:io -

lra

t.

Partrculars

3lst March,2015

{ 1. Investments 2. Fixed Assets

@ 1 0Zo

5,00,000 I 1,90,000

4dtli t ionol

Int'ortntion: 1. Half of the investments held in ,h._g.gi11,lq of the year were sold at 10% profit. 2. Depreciation on Flxed Assets was t 1,00,000 7or the year. l. lnterest recetved on investments_{ 35,000. L Divitlend received on investments_( 'l5.000. r. Rent rccciveri -t 10,000.

.

rt

ruI

Cash FIow

Statenent-Based on ing Standard-3 (Reaisedl

Solution:

3.39

CASH FLOW FROM INVTSTING ACTIVITIES

Particulars 100

Proceeds from 5ale of Investments

100

Purchase of Investments (WN

)00

Interest Received

= 10 '4,

Dividend Received

t_ c0

l0

35,000 15,000 10,000

Cash Used in Investing Activities

(s,92,s00)

Working Notes: 1.Dr.

INVESTMENTS

Particulars

)0

To To To

r0

(4,r 5,000)

Rent Received

t0 )0

(3,75,000)

Purchase of Fixed Assets (WN 2)

)00

t

1,37,500

l)

t

Ealanceb/d(0pening)

2,50,000

Statement of Profit and Loss (Gain on sale) Eank A/c (Purchase oflnvestmentt (Bal. Fig,)

t

Paniculars

By

Eank A/c (Sale)

(t2,50,000x

12,500

(Profit l0% 3,75,000

Cr

By

1,37,500

%=

oft

t

t,25,000)

1,25,000 =

(

12,500)

Eal.jnce c/d

5,00,000

6,37,500

2. Dr.

FIXED ASSETS

Particulars 0

To

6,37,500

{

Balance b/d (Opening)

8,75,000

Eank A/c (Purchases) (Bal. Fig.)

Cr

t

Parr':ulars

8y 8y

Depreciation A/c

1,00,000

Balance c/d

11,90,000

4,15,000 12,90,000

Illustration 37. From the follcwing

12,r0p00

;f G & S Ltd. for the years ended 31st March, 2015 and 31st March, 20i4 and the additional information, calculate Cash Flow from Investing Activitres: Particulars

Balance Sheets

Note No.

I lst March, 20r s

(t)

31st March, 2014

(t)

EQUITY AND tIAEILiTIES

l.

Shareholderc'Funds

(o) (b)

2,

Share Capital Reserves and Surplus

5,00,000

8,50,000

7,00,000

4,10,000

3,55,000

r8,60,000

15,55,000

5,00,000

13,00,000

1,00,000

50,000

2,00,000

1,80,000

60,000

25,000

18,60,000

r5,55,000

Current Liabilities

Total

6,00,000

ASSETS

1,

2.

Non-Current Assets

(r)

Fixed

(b)

Non-Cunent Investments

Assets-langible Assets

r

CurentAssets

(o) Trade Receivables (b) Cash and Cash Equivalents Total

3.40

Management Accout ting $ection Note to s

B)_rcC Xn

Casl

Particulars

Add 3lst March,

l.

2014

Fixed Assets-Iangible Assets

Divi

(t)

year

Plantand Machinery(Ne0 Land and Euilding (Net)

600,000

Solt

7,m,w

Parttc

13,00,000

Additional lnt'ormation:

During the year the company sord machinery at book varue for Solution:

Proce

t

Receil

2,00,000.

CASH FLOW FROM INVESTING ACTIVIIIES

Cashi

Particulars

t (400,000) 2,00,000

Finn

(50,000)

Cash Used in Investing Activities

Working Note: ut.

shar shor

PLANT AND MACHINERY

Pafticulars Balance

To

b/d

Eank A/c (purchase)

(Ealancing Figure)

of

----.---....-

I

--__--

Io

t

lrantcutars

600,000

-;--

by By

400,000

-. --- - -- - -- -

6ank A/c (Sale)

2,00,c00

Balance c/d

Illustration rlustration 38. 39. Following F are the

E,

'rr .lr ,j^f-q

(

il

8,00,000

a

-

l-'rc r\ cc (i

i0,00,000 10,00,000

Sta le

of Elegance Ltd. and also additional Information. Calcu late ,Balance Cash Flow rrom -lnvesting Activities: Sheets

Divir cn let'

EALANCE SHEETS

li is

os at...

Panicrrlar<

lr

31st March,

I.

Shareholders,Funds

2.

Non.CurrentIiabilities

3l st March,

201s (t)

EQUIWANDiIAEItITIES

L

2014

(0 (

ii)

Share Capital

2,00,000

.

(iil

2,00,000

Long-term Borrowinqs

3.

Current Liabilities

400,000

5,00,000

5,00,000

400,000

Other Current Liabilities

Total

il.

r

ASSETS

L 2.

{rr')

1,00,000

r

r,00,000

Non-Cuffent Assets

(o) Fixed Assets (b) Non-Current

Investments

CurfentAssets

(o) Shon-term Loans and Advances (b) Cash and Cash Equivalents Total

(

LjTI) tI

(2,50,000)

Crs/r I

3,00,000

3,00,000

2,00,000

4,W,000

4,00,00c

3,00.000

2,00,000 11,00,000

-10!400 1

1.00.000

Sltrrrt

r--

I'l'k'r I

( ,,., It__

i

Cash FIow Statement-Baseil on ing Stanilard_J (Revisedl

3.41

Additional lnformat ion:

Dividend received on investments and credited to statement of profit and Loss for the year ended 31st March, 2015 is { 5,0C0. Solution:

CAsH FLOW FROM INVESTING ACTIVITIES

Proceeds from Sale of Investments Receipt of Dividend Cash Flow

3. CASH FLOW FROM FINANCING ACTIVITIES Financing Actirities are those actiaities that resurt in change

) 0

irQ)*a@fiiii;Lti

1 t)

from Investing Activities

'

the owners' capital and bortowings of the enterp.rise. It includ'es pfi.".d, ffi.,u or shares (both equity and preference share capitar), isrue of debentures, roans, othe. edemption of preference Shares, buy_back es and repayments of amounts borrowetl. ;* are not included in Financing Activity as

luivalenty' If shares or debentures

.era

ic",,^r

at a , total cash received from the issue (i., face value .rf shares or + ) is shown as Cash Flow from Financing Activities in Cash Flow Accordingly, receipts and payments on of the above are shown in Cash Flow Statement as Cash Flow from Financing Activities. Dividends paid (in case of all the enterprises) and interest paid (in case of non_financial errterprises) .are classified or shown as Financing Activity. _ VV^t It is important to note that

(i)

shares issued as bonus shares are not shown in Cash Flow staterr -,nt as rnvolve cash. It is caprtalisation of reserves ._

(il) when

shares or debentures are issued at a rlrccifi^,{ or classified ^^ ^L.....- as.Financing ^. shown Y

(lli)

Activity.

it does not

J.fut

premiu , securities is

arso

wherL shares or debentures are issued at a discount, net proceeds (r.e., face varuediscount) is shown. as,Financing Activity.

(iu) when equity shares are boug it is classified or.shown as F of shares or dehentures is a Cash Flow

Financing Actiuit.i,es is.ascertnirred share Capital, Dehentures nnt! otrrcr borrouirtgs the period. *Please

fron

tty

nnarysitrg

the

chartge in Equity and pret'eretice

lrrrrpt"srnf oorrdrnft

antr Cash Credit) trurittg

note that the Councir reouires that Current lnvestments, Bank overclraft and Cash Credit is k) be taken as Cash::nd Cash Etluivalents.

3.42

Management ing (Section

Bl_

lSC

ilI

Treatment of some iterns while Computing Cash Flow from Financing Activities

Soh

:-: Pant(

T.eatment 1.

Increase in Equity or Preference Share

Cash

2.

Increase in Debentures/Loans

Cash Inflow

lnIeft

3.

Increase in Securities Reserve

Cash

lnflow

Rede

lncrease in Discount on lssue of Shares/Debentures

4.

lnterest on Debentures or Loans

5.

6.

Commission Proposed Dividend (Previous year)

7.

8.

0n

Interim Dividend

9.

lnflow

C.rh

Note: lt shows lssue of Shares/Debentures at Dremium.

Cash

Subtractfrom the increase in the amount ofShare Caoital/ Debentures to ascertain Cash flow from issue.

Illu

Cash Outflow

Fin;

Cash

0utflow

Parti(

Cash

0udlow

Cash

0utflow

Cash

0utflow

ttrt 100/o

1Vo D

Calculation of Cash Flow from Financing Activities

l.

Bank

Add Cash Inflcw from Financing Adivities

L

Proceeds from lssue oi Equity or preference share capital (including but excluding discount) Proceeds from lssue of Debentures {including but excluding

Solt

discount)

:-: YafIll

Loans received (both Short-term or Long-terrn but excluding Bank overdraft and cash credit)

ll.

Proc(

Cash Used in Financing Activities

Proc(

-Redemption of Preference Shares for Cash (including )

interl

Interest paid on Borrowings (Debentures and Loans)

Divid

Shares

-

Final Dividend paid on Equity Shares

lll.

Rede

Redemption of Debentures for Cash (including )

-y'tnterim Dividend paid on Equity

R:pa

Jprp

(ash

Final Dividend paid on Preference Shares

Illu

Buy back of Equity Shares (including )

calc

:--

Cash Flow from (if | > ll) or Used (if

Partr(

ll > l) in Financing Acrivities

Illustration 39. From the following information, calculate Cash Flow from Financing

t.E 1

Activities:

31st March, 2015

{ Equity Share Capital

5,00,000

l0% Debentures"

r,00,000

Securities Reserve

Ad

d

it n

t

nl

Info r tnatio

50,000

tt:'

lnterest paicl on Debentures of 10%.

{

I

10,000. Debentures rvere redeemed

on 1st April, 2014 at a

Not€ Partlr

;CXII

Cash Flow Statement_Baseil

i

Solution:

on ing

Stand_ard_3

(Reaiseitl

3.43

CASH FLOW FROM FINANCING ACIIVIIIES

Particulars

fr:l

,he tssue of Equity shu,.,

5_1!-11"....9r hterest paid on Debentures

1tn.trdinlfiffi

Redemption of Debentures [{ 50,000 + { 5,000 ( on Redemption)] Cash Flow from Financing Activities

m.

45,000

i'/:'j|#Xl,r[:trix

Ltd provides,the following informariory

carcutare Cash Frow from

Particulars

Ilst March,20l5 ( Equity Share Capital 10,00,000

1070 Debentures

r

5,00,000

1,00,000

8% Debentures

2,00.000

Eank Loan 1,40,000

Addit ional lnfonnat ion:

i. Interest paid on Debentures a 10,000. 2. Dividend Solution: CASH FLOW FR.M FINANCING

paid

t

50,000.

ACTIVITIES

Particulars Proceeds from the lssue of Shares ({ i 5,00,000 _ Proceeds from the lssue of golo Debentures

t

10,00000) 5,00,000

Redemption of I 0olo Debentures Interest paid on Debentures

2,00,000 (1.00,000)

Dividend paid

(r 0,000)

Repayment of Bank Loan

(s0,000)

Cash Flow

(1,40,000)

from Financing Activities

4,f!,000

Illustration 41. From the following extract taken from the Balance Sheet of Cloud 9 l.td., calculate Cash Flow from Financing Activities: Particulars 3l st March,

I,

20r 4

EQUITYANDLIAEILITIES

1.

Shareholders, Funds

(a) (b)

2.

(t)

Share Capital Reserves and Surplus

Non-CurrentLiabilities

10,00,000

10,00,000

1,30,000

1,00,000

3,00,000

2,00000

Long-term Eorrowings Notes to s Particulars 3l st March,

l.

2014

(0

Share Capital Equity Share Capital

l0% Preference Share Capital

6,00,000

400,000

3.44

2,

Management ing lsection 8,,_|.sC

XII

Casl

Reserves and Surplus Securitres Reserves

leJii

Note

Share lssue Expenses Written

off

Surplus, r.e., Balance in Statement of profit and Loss

1.

0pening

n

i

7s,000

Profit for the Year

25,000

L

r,00,000

5

Total (i + ri)

1,00,000

nal Int'onnar io n : 1. Preference dividend and interim dividend @ 15% were paid on Equity Shares on 31st March, 2015. Preference shares were redeemed on 31st March,2015 at a of 5%. 3. Debentures were issued on 31st March, 2015. 4. Equity Shares '.vere issued on 31st March, 2015 at a of 15%. 5. Interest on 12% Debentures { 4,800 is still pavable.

L

Add it io

2

Solution:

CI5H FLOW FROM FINANCING

Calc

3ist Solr

ACTIVITIES

Particulars

Proce

Proceeds from lssue of Equity 5hares [{ 2,00,0001 5hare lssue Expenses Proceeds from lssue

of

12otr

t

30.000

6e.,r'ties

prem,unr neseruerr

2,30,000

Debenture:

Redemption of 1070 Preference shares [t 2,00,000 + { 10,000 ( on Redemption o{ preference shares)] Interest paid on t2% Debentures [t 24,000 - { 4,800-

Proce

(5,000)

Paym

1,00,000

Cash

(2,10,000)

iUnpaid)l Intenm Dividend paid on Equity Shares (15/100 x { 6,00,000) Dividend paid on Preferense Shares (10/100 x t 4,00,000)

(40,000)

Cash Used in Financing Activities

(34,200)

(19,200) (90,000)

Illu: cxis

t

of{ AIL

I

The

2

ShareJssue Expcnses

(t

fl ,.lrr 5,000) are written off from Securities Reserve. Hencc, prclcetc{s

from Issue of shares is not affected. Illustration 42. Hanging Gardens Ltd. commenced its business on 1st April, 2014. Its Bala.ce Sheet as at 31st March,2015 was as follows: Particulars

3l st March, 2015

(t)

Equity Share Capital Reserves and Surplus

Current Liabilities

Total

lt.

;;

Shareholders' Funds

{d) (6)

2.

Partirr

Procer

EQUIW AND LIABILITIES

1.

Solu

10,00,000 50,000

lssue

I

Cash

I

2,00,000 12,50,000

Note

ASSETS

L

{o) (b) Non-Currentlnvestments Fixed Assets

2.

Illus

Non-Current AssetJ

Current Assets Cash and Cash Equivalents

Total

9,50000 1,75,000

1.25,000 i 2,50,000

Eq ity 12q6P

Securi 120,0 D

CXII

Cash EIow SWtement -Based an ing Standaril-3 lReaisedl

3.45

llote to A(counts 3'lst March,20l5 {{)

1.

Reservesand Surplus

r00

Securities Reserve

r,00,000

00

less: 5hare lssue Expenses

r,00,000

00

Surplus, ie., Balance in Statement of Profit and Loss

r,50,000

less: Share lssue Exoenses

1,00000

50,000 50,000

ion

Calculate Cash Flow from Financing Activities 31st March, 2015.

of the company for the year

ended

Solution: CASH FIOW FROM FINANCING ACTIVITIES

Particulars

,

Proceeds from lssue of Equity Shares

(

10,00,000

Proceeds of Securities Reserve ),000

r,00,000

Payment towards Share lssue Expenses

(2,00,000)

,000) ),000

Cash Flow

from Financing Activities

9,00,000

,000) .200)

000) 000)

,00) ash

lwn

Illustration 43. sainath Enterprises Ltd. issued 1,00,000 Equity shares of { 10 each tt} its exi;ting shareholders on the condition that they shall also subscribe 10,000; 10% Debentures of { 100 each a[ a of 10%.

All the

shares and debentures were subscribed and amount was received.

The company incurred issue expenses of

t

1,00,000. You are required to calculate Cash

Flow

from Financing Activities for the period. eds

Solution: CASH FLOW FRolvl FINANCING ACTIVIIIES

nce Particulars h

Proceeds from lssue

of€quity Shares

I0,00,000

Proceeds from lssue

of

10,00,000

100/o

Debentures

Receipts of Securities on 10% Debentures

l l l ;

lssue Expenses on Equity Shares and

1Oyo

1,00,000

Debentures

{1,00,000)

Cash Flow from Financing Activities

Note:

20,00,000

lssue expenses on Equity Shares should be written off through Securities Prenrium Reserve

Illus.tration 44. Following is the extract of Balance Sheets of a company: Curreitt Yeot Equity Share Capital

I

PreviousYeor (lJ

9,00,000

7,00,000

3,00,000

s,00,000

Securities Premiurn Reserve

1,25,000

1,00,000

12% Debentures

400,000

3,00,000

! 2?o I

lI)

Preference Share Capital

Management ing (Section Bl

3.46

- ISC Xll

Cssh

Atld i tionql Information:

l..lnterim dividend on Equity Shares at the end of current year was paid @ 15%. 2. Dividend on Preference Shares was paid. 3. Preference Shares were redeemed at a of 5% at the last date of current year. was charged Irom profit.

Illus Acti' Panrc .

-

Equir)

4. New shares and debentures were issued on the last date of current year. 5. Share Issue Expenses amounting to { 15,000 were debited to Securities

Prefer

Reserve.

5ecur" 1

Calculate Cash Flow from Financing Activities.

Solution:

070

[

Propc P

r0pc

CASH FLOW FRoM FINANCING AOlVlTlES

Sok

Particulars Proceeds from lssue of Equity Shares [{ 2,00,000 +

{

40,000 (Securities )]

Parti.

(r 5,000)

Shzrre lssue Expenses

Redemption of Preference Shares (12,00,000 +

2,40,000

t

10,000)

(2,r0,000) 1,00,000

Proceeds from lssue of Debentures lnterest on Debentures

Proce Reder

Proce (1,05,000)

Inte(

Dividend on Preference Shares

(60,000)

Drvid

€ash Used in Financing Adivities

(86,000)

Divid

Interim drvidend on Equity Shares

Cash

Note:

S;rare lssue Expenses are written off from Securities Reserve.

Not(

Treatment of lmportant ltems in Cash Flow Statement 1. lnterest and Dividends Received Interest and Dividends Received are classified or shown as Investing Activity because they are received on the investments made.

Interest and laividends Paid are cla'ssified or shown as Financing Activity because they are paid on the tunds raised to finance the business operations.

(lli)

(lr (li t

3. Proposed Diviciend

(li)

1

(i

2. lnterest and Dividends Paid

(i)

4.

Proposed Dividend means dividend proposed by the Board of Directors to be 'approved by the shareholders. On being approved by the shareholders in the Annual 'eneral lvleeting, it becomes due for pavnrent. Till the time it is not aPproved at the Annual General Meeting, it is not a liability-

(rt

Illu

Proposed Dividend for the current year becomes due and is paid in the next year because Annual Ceneral Meeting of Shareholders is held after the financial year. It means, it is an outflow of Cash ancl Cash Equivalents in the next year.

Liabi

Proposed Dividend of the previou,s year becomes due and is paid in the current year. It means, it is an outflow ol cash and cash eqr.rivalent in the current year.

5urp

(lo) Proposed Dividend of current year the Cns/r

is atitlecl back to current year's

plofit to calculate

frcm Opernting Actii,tfics. (z') Proposec{ Dividerrd of previous year paid during the vear (r.e., Proposed Dividerrd of previous yehr Dividend nor vet paid) is shown as cash outflow under Financrng Activitv.

Equi 10%

Proc

,1dL

Flozu

Fin

Shr

Cash Flow Statement-Based on ing Standard_3 lReaisedl

tl:f::** Actit,ities:

3.47

45. Frorn the following information, calculare Cash Flow from Financrng

3l st March,20l4

{ Equity Share Capital

6,00,000

4,50,000

1,50,000

2,25,000

22,500

7,500

6,00,000

4,s0,000

52,500

45,000

22,500

22,500

Preference Share Caprtal

trve.

Securities Reserve I 070

Debentures

Proposed Dividend on Equity Shares Proposed Dividend on Preference Shares

t

Solution: Calculation of Cash Flow from Financing Activities

0,000

Particulars

;,000) r,000)

Proceeds from lssue of Equity Share Capital

t,000

Redemption of Preference 5hares ({ 2,25,000 -

,,000)

Proceeds

from lssue of Debenlures

,000)

Interest pard on Debentures

,000)

Dividend paid on Equity Shares Dividend paid on Preference Shares

,000)

Cash

{

t

t{ 6,00,000 - { 4,50,000 +

{

6,00,000 _

{

15,000 ()l

1,65,000

1,50,000)

(7s,000)

{ 4,50,000)

l,sq0oo (45,000) (45,000)

{22,s00)

Inflow from Finan(ing Activities

Notes:

I 2

1,27,500

lt is assumed that the fresh Debentures have been issued at the end of current ing year. lt has been lssumed that Preference Shares have been redeemed at the end of the current

ing year.

ney

are

4. Interim Dividend (r) Interim Dividend is a dividend that is declared by the Board of Directors wiihin the financial year.itself and it does not require approval of the shareholders.

(il) Therefore, it becomes due and is also paid during the year itself. (lil) Interim Dividend is added to current year's profit to calculate Cash Flow fr.m Operatrng Activities.

be

ual

(iz') Interim Dividend is shown as cash outflow under Financiug Activity.

tne

Illustration 45. Follor,"'ing is the extract of the Balance sheets of puma Ltd.:

lat

Liabilitres

.lt

3lst March, 2014 (t)

Equity Share Capiral

5,00,000

5,00,000

5,00,000

Surplus, ie., Ealance in Statement of profit and Loss

5,00,000

2,50,0cc

Proposed Dividend on Equity Shares

4,50,000

r,50000

r,80,000

1070 Preference 5hare

]nt rte

nd 118

31stMarch,20l5 ({)

Adtl it

io na

I

Capital

Int'or mation:

Final Dividend on Preference Shares and an Interim dividend of T 20,000 on Equiry Shares were paid on 31st March,2015.

Show horv the related items wrll appear in Cash Flow Statement.

Management irg (Section

3.48

'

Solution:

B)-ISC

ill

Cash

(,,

CASH FLOW STATEMENI

for the year ended 3lst Morch,2015 Partic Particulars Proce,

Cash Flow from Opeiating Activities

Recerl

Net Profit before Tax (Note)

4,50,000

Receil

(1,s0,000)

urvro(.

Paynl,

Cash Flow fiom Financing Activities Final Dividend paid on Equity Shares,(Previous Year) Final Dividend paid on Preference Shares

(s0,000)

Interim Dividend paid

(20,000)

lnterir lntere Cash

Cash Used in Financing Activities

{2,20,000)

Note:

Notet

{

Calculdtion of Net Profit before Tax: Closing Surplus, ie., Balance in Statement of Profit and Loss

4,50,0.00

[ess: Opening

2,50,000

Surplus,

ie,

Balance in Statement of Profit and Loss

2,00,000

Add;

Proposed Dividend (Current Year)

r,80000

Dividend on Preference Shares

50,000

lnterim Divrdend paid during the Year

20,000

Net Profit befor; Tax

4,50,000

Illur Illustration

following extract taken from the Balance Sheets of Khanduja Ltd. at 31st March and the additional inlormation provided, you are required to calculate:

(l)

47. From the

Cash Flow from Operating

Activities; (il)

Cash FIow

from Financing Activities. 2015 (t)

Liabilities Equity 5hare Capital

"

l07o Preference Share Capital

20,00,000

30,00,000

2,CC,000

1;00,000

Securities Prernium Reserve

1,00,000

Surplus, Le., Balance in Statement of Profit and I oss l0o/o Debentures

4,00,000 10,00,000

8,00,000 't0,00,000

-

Equit' 100k t

Surpl' Propt

Divid'

Add Fina [:

Public Deposits

1,00,000

rI

Equ

qu

Flor'

Additional Infor mation:

Soh

Preference Shares were to be redeemed at par but were redeemed at a of 5olo on 31st March, 2015. Interim Dividend on Equity Shares was paid @'8%. Fresh issue of Equity Shares was done on 1st April,2014. Public Deposit rvas accepted on 3ist March,2015.

Parti(

Solution:

Cash

Net

P

Cash

(4

CASH FLOW FROM OPERATING ACTIVITIES

Cash Final

Particulars

hlraI Net Profit before Tax {Note) Cash Flow from Operating Activities

7,65.000

lnteri

7,65,000

(ash

cxlt

Cash Flow Statement-Based on ing Stanilard_J (Reaised)

(r')

3.49

CASH FLOW FROM FINANCING ACTIVITIES

Particulars

:_

Proceeds from lssue of Equity Shares

i0,00,000

Receipt on Securities

1,00,000

Receipt of Public Deposit

;0,000

1,00,000

Payment for Redemption of preference Shares (including ) Dividend paid on Preference Shares

1,000)

(r,05,000) (20,000)

Interim Dividend paid on Equity Shares

),000)

(2,40,000)

Interest paid on Debentures

1,000) I

(r,00,000)

Cash Flow from Financing A(tivities

7,35,000

),000)

=-

Note:

(

Calculotron

o

f

Net profit before

lax:

Closing Surplus, ie., Balance in Statement of profit and Loss leirr Opening Surplus, ie., galance in Statbment of profit and Loss

0,000

8,00,000 4,00,000

0,000

ffi

Add

1,000 1,000

2,40,000 5,000 1,00,000

3,65,000

Net Profit before Tax

1,000

e:

20,000

Interrm Dividend on Equity Shares on Redemption of preference Shares Interest on Debentures

0,000

,rd.

4,00,000

Dividend on preference Shares

7,65,000

Illustration 48. Following is the extract from the Balance Sheets irt Z Tea Equity and Liabilities 31st March, 2015

{ Equity Share Capital

L r,000 r,C00

/,000

10%o

5,00,000

Redeemable Preference Share Capital

Surplus, ie., Balance in Statement of profit and Loss Proposed Dividend on Equity Shares

Dividend Payable

5,00,000

5,00,000

5,00,000

2,50,000

4,50,000

1,50,000

r,80,000 20,000

Additional Int'ornatiort

:

,,000

,000 ,000

Final Dividend on Preference Shares of t 50,000 and an Inierim Dividend of t 50,000 on Equity Shares were paid on 31st Ma rch, 2015. Show how these iterns w.ill appear in Cash Flow Statement.

Solution: on

uty 5.

CASH FLOW STATEMENT

for the year ended 3tst March, 20ls Particulars Cash Flow

from Operating Activities

Net Profit before Tax (Nore) Cash Flow

from Operating Adivities

Cash Flow

from Finan(ing Activities

Final Dividend paid on Equity Shares 1,50,000 _ {{ Final Dividend paid on preference Shares 000

lnterim Dividend paid on Equity Shares Cash Used in Financing Adivities

4,8C,000

{

20.000)

(r,30,000) (50,000) (50,000) (2,30,u0u1

Management A^ccourting (Sectiott

3.50

Bl-lSC Xll

{

WorA

4,50,000

l. tti

2,50 000

M;

2,00,000

efl

Coiculotion of Net Profia betote Tax: '

Closing Surplus, ie., Balance in Statement of Profit and Loss

less: Opening Add:

Surplus, i.e, Balance in Statement of Profit and Loss

Proposed Dividend (For the Year)

Casl

r,80,000

Dividend on Preference Shares

50,000

Interim Dividend on Equity Shares

50,000

2. Dr Parti( 2,80,000

Net Profit before Tax

Tot

4,80,000

To

t-

Illustration 49. From the fofowing extracts of a company's Balance Sheets, calculate for the year ending 31st March, 2013:

Activities.

(l)

Cash from Investing (il) Cash from Financing Activities. (Note: Current year's figures appear in the first column and the previous year's figures are in the

; Partir

second column.) 2012-13 (t)

Paniculars Equity Share Capital

Long-term Borrowing

(109/o Bank

Loan)

13,00,000

12,00,000

60,000

1,00,000

20,000

21,000

'

Proposed Dividend

Tol

20r1-r2({)

To(

Tol 5.

Fixed Assets: Plant and Machinery

1,70,000

Less: Accunu I ote d Dept eci oti on

(24,000)

r,46,000

(40,500)

Irrct ttler

99,500

clas

1,40,000

,

Non-Current lnvestments

1,00,000

20,000

Land (At cost)

5,00,000

7,00,000

30,000

40,000

Goodwill

Addi tionnl Informat ion

:

1. The loan instalment and interest on loan was paid at the end of the financial year. 2. During the year 2072*73: (n) Dividend of T 17,000 was proposed. (b) The company provrded depreciation o., Plant and Machinery amounting to t 13,500. (c) The company sold 70% of its Non-Current Investments which it held in ihe beginning of the year, at a profit of 20% on its b.ook value. u'c 2ot4)

(il)

'

frorn Inztestittg Actiuifies: Proceeds from Sale of Investmer,.s Payment for Purchase of Investments Proceeds from Sale of Land Payment for Purchase of Plant and Machinery (Note Cash Florv from Investing Activities

if

is

'.-(l1I

as (

6. I' )ior tlre t'il-s,

7.

t

[-rra

arrd

8.!

,(

Cash FIow

3)

16,800

Sha

(94,000)

Issr-

2,00,000

afc

(30,000)

9.

92,800

Cash Flow t'rom Finnncing Actit,ities: 1,00,000

Payment of Interest on Bank Loan Payment of Dividend (Note 2)

(10,000)

(40,000)

01000) 32,000

1

Issr rts r (

Proceeds from Issue of Share Capital Repayment of Bank Loan

Cash Flow from Financing Activities

Iilx

i)r-r

Solution:

(i)

lr

ra.

I-os

ilisc .pny

Act rrtl a

t1t

,XII

{ t,000

Cash Fiow Statement-Based bn ing Standard-3 (Reoised)

Wo*ing Notes:

'l

),000 ),000

2.

lt

is assumed that the company has written back excess depreciation during the year because it has not sold plant and Machinery. Since, depreciation is considered while preparing Cash Flow from Operating Adivities ir will not have any effect on Cash Flow from Investing Activity and Cash Flow from Financinq Activiry.

DL

Particulars 1000 ),000

3.51

To To

Eank A/c-(Payment of Dividend) Balance c/d

PROPOSED DIVIDEND

t r8,000 20,000

Cr

t

Particulars

By By

for

Ealance

b/d

2r,000

Surplus, i.e,,8alance in Statement

and Loss (Provision made) 38,000 3. Dr.

the Particulars

To To To

Balance b/d Gain on Sale oflnvestment A/c Bank A/c (Purchase)(Bal. Fig.)

20,000

1,16,800

Cr

Particulan

By By

l6f*

Eank A/c (Sale)

({

2,800

94,000'

17,000

38,000

INVESTMENT ACCOUNI

{

ofprofit

14,000 + 20%

Balance

cld

of{

14,000) 1,00,0,00

1,16f00

5. lncome Tax Income Tax paid, net of tax refund, is shown as an operating activity. But, if the tax is identified with investing or._financing activities, then cash flow of tixes is accordingly

classified, Le., shown as cash flow from financing or investing activities. For instance, incqme tax on the capital gain on sale of land is idehtified with the inuesting actiz,ities, and thcrefore, it rs shown as Cash Flow from Investing Activities in cash Flonl statement. Similarlv. a company has to pay Dividend Distributron Tax on Drvidend paid. 'fhe rax so paid is shown as Cash FIow from Financing Activity.

6. Non-cash Transactions Non-cash rransactions such as issue of shares for consideration other than cash, i e., ior the purchase of buildings, etc., conversion of debentures into shares, etc., are rnt slLottm ut Crsh Floi,' statement because inflow or outflorv of cash has not taken place. 00.

7. Loan from Bank

t4)

Loan fro..r Bank means borrowing bv the enrerprise other than by way of Bank overdraft and Casl, Credit. Loan fror.r bank is pari of trorrowing and is shown under Financing Activity.

00 )0)

00 )0)

00

00 0) 0)

9l ')0

On the other hand, Bank Overdrafl ancl Cash Credit are taken as Cash and Cash Equivalents. 8. Share lssue Expenses share Issue Expenses being re_lated to share capital, are shown as Financing Activity. sharc isu'te Expenses are written off in the year in which they are incurrecl. Shari issue E*penses are shorvn as outflow of cash in the vear of payment under Financing Activity.

9. lssue of Debentures at Discount or Loss on lssue of Debentures Issue of Debentures at Discotrnt means that the company has receivecl less amount inal

its nominal (face) value. Therc'forel proceeds of issue of debentures is shown at its norninal (face) value less discount. It is shown undcr Cash Florv from Financing Activities. Loss on Issue of Debenhrres is a wider term than Discount orr Issue of Debentures. lt includcs iliscount on issue of debentures antl payable on redemption of debentures. premiurn payable on redemption of debentures is shown as outflow under Cash Flow frorn Financins ActiVities in the year of reclemption. Discount or Loss on issue of debentures is rvrirren off the year in which thr'y are i.curre'd. It being rclated to Financing Activity, it is _in adried to Net Profit before I ax artd dcclucted uncit i Financing Actit,itv.

3.52

Mtnagement ing (Section Bl-ISC

Xil

10. Purchase/Sale of Shares or Debentures Purchase/Sale of Shares or Debentures of other companies means investment. It is classifiecl or shown as Investment Activity. Purchase (outflow) and sale (inflow) is shown in Cash Flow Statement at the amount paid or received. Purchase of shares or Debentures is an outflow of Cash and Cash Equivalents. whereas sale of shares or Debentures is an inflow.

Con

Partic

l.

(r

Gain or loss incurred on sale of shares or debentures is credited (in case of gain) or debited (in case of loss) to the statement of Profit and Loss- It is deducted or added to calculate 'Net Profit before Tax' under Cash Flow from Operating Activities.

(t

11. Purchase/Sale of Current InvestmenUMarketable Securities Current Investment/Marketable Securities are part.of Cash and Cash Equivalents. Gain pr loss is deducted or added to net profit to calculate 'Net profit before Tax'. Il does not recluire furthe'r treatmcnt, since marketable securities are part of Cash and Cash Equivalents.

lsc council prescribes that current Investments is part of cash and cash Equivalents. Therefore, purchase and saie of current Investments will not be shown as cash Flow trom Investing Acttvities.

12. Loan Given to Other Companies l-oan Civen to Other Compaitir's is an Investing Activity, il being investment of surplus funds.

13. Loan Taken from Other Companies I.oan Taken From other Companies meafls borrowings of the company. [t is, therefore, classified or sholvn as Financing Activity. 14. Bank Overdraft and Cash Credit Bank overc{raft and Cash Credit are components of Cash and Cash Equivalents. Hence, credit (negative) balance (it will appear as Current Liability (Short-term Borrowings) orr the liabilities part of the Balance Sheet) in Bank Overdraft or Cash Credit ACcor"rnt is deductecl from the balance of Cash arrd Cash Equivalents. ISC Council has prescribed'Bank Overdraft'and'Cash Credrt'to be taken as Cash and Cash Equ iva lents.

PREPARATION OF CASH FLOW STATEMENT

rlaving discussed cash flows from each activity, let u. discuss the preparation of

Cash

Flou'Statement as a complete statement. The steps involved are: 1 cornpute cash Flow from operating Activities, which may be positive or negati,,,r. 2. Compute Cash Flow from Investing Activities, which may be positive or negative. 3. Compr.rle Cash Flow from Financing Activities, n,hich mav be positir.e or negatrve. 'l Cash Flows rtnder each activily (Operating/lnvestingi Financing) arr. shorvn in ihe Cash Flow Statement. Aggregate of these three activities will be either an increase or c'lecrease in Cash and Cash Equivalents. 5. Adcl opening Balance of Cash and Cash Equivalents to the net increase or decrease in Cash and Casli Equivalents as arrived in Step 4. 6 Resulting.lmoLirlt will be Cash and Cash Equivalents at the end.

Ci

(

].XII

Cash FIow Statement

-Baseil on ing Standad_3 (Reaiseill

3.53

Complete format of Cash Flow Statement is as foilows:

fie,i

FORMAT OF CASH FLOY/ STATEMENT

lash

for the yeor ended Particulars

t

reas

L ited late

Lasn How trom Operating Activities (A) Net Profit before Tax (Note 2) Adjustment for Non-rash and Non_operatinq ltems

(B) Add ltems to be Added -Depreciation

patents

and Trademarks Amonised -6ood$/ill, on Borrowings and Debentures -lnterest off Discount on lssue of Shares/Debentures -Writing -Writing off Underwriting Commission/Shares lssue [xpenses on Redemption of preference Shares/Debenrures -Writing off on Sale of Fixed Assets . -Loss

(C) less; ltems to be Deducted

-lnterest Income -Dividend Income -Rental Income

-Profit on Sale of Fixed Assets (D) OperatinoProfilbeforcWnrtrinar,hirrr.r.---^-,. . ^,, (E) Add: Deciease in curr.nt nrr"ir"ril"rn.r*r. il i i"*? i,liu,,", -Decrease in Inventory (Stock)

Decrease jn Trade Receivables (Debtors and Bills Receivable)

Decrease in Accrued Incomes in prepaid Expenses

-Decrease

Increase in Trade payables (Creditors and Bills paVable) lncrease in 0utstanding Expenses

-lncrease in Advance Incomes provision for Doubtfui Debrs -lncrease in IF\ I ot. t^..^--^:- . rurIFrrus a------- . ano ue(fease tn Cuffert Liabilities in Inventory (StocKl -lncrease

)11

nt

Increase in Trade Receivables (Debtors and gills Receivable) Increase in Acc, ued Incomes

pr,paid -lncrease in

Expenses Decrease in Trade payables (Creditors and Bjlh pavable) Decrease in Outstanding Expenses

-Decrease in Advance Incomes rh

-Decrease

in provision for Doubtful Debts

(G) Cash Genera: 'd from ona"ri^h< rn r

I.

(H) [ess: Income Tax paid {N (l) Cash Flow from {or Used

E

()

rr

nd received)

(..)

Acrivities

-.'

Cash Flow from Investing Activities

-Proceeds from Sale of Fixed Assets h e

-Proceeds from 5ale of Investments -Proceeds from 5ale of Intangible Assets

-lnterest and Dividend -Rent lncome

recetved

-Purchase of Fixed Assets -Purchase of Investments -Purchase of Intangible Assets like Goodwill Cash Flow from (or Used in) In\€stino Activities

/l /l

-

Manngement ing (Section

3.54

lll.

Cash Flow

-Proceeds

B\-ISC XII

from tinancing Activities from lssue of Shares and Debentures

from Oth€r Long-term Borrowings Dividend paid -Final Dividend paid

-Proceeds

C S

t.l (..)

-lnterim on Debentures and Loans paid -lnterest

(...) (...)

N(

-Repayment

(.)

AI

of Loans

-Redemption

-5hare

of Debentures/Preference Shares

lssue Exoenses

on lssue of 5hares/Debentures

-Discount payable on redemption (to the extent not written off) - Cash Flow

tv. Net Increase/De(reaso in Cash and

v. Add:

C(

from (or Used in) Financing Activities

Cash and Cash Equivalents in

Cash

Equivalenti (l+ ll + lll)

Pr

the beginning ofthe year

Ct

on Hand

-Cash at Eank {lesJr -Cash

-5hort-term

Vl,

-l\ilarketable

Bank Overdraft)

DeDosits Securities

Cash and Cash Equivalents

Ct

atthe end ofthe year

t\r

on Hand

-Cash at Bank (less: -Cash

-5hort-term -Marketable

At

Eank Overdraft)

DePosits Securities

tl

Notes: .1.

Amounts in brackets indicate negative amounts, i.e., amounts that are to be oeducted.

2.

:

Net Profit as per Statement of Profit and Loss or Difference between closing Balance and Opening Ealance of Surplus, i.e., Balance in Statement of Profit and Loss

Add; Transfer to Other Reserves

.

t.

Proposed Dividend for current year Interim Dividend paid during the year

Provision for Tax made during the current year tess: Refund of Tax credited to Statement of Profit and Loss

Net Profit before Tax

Treatment of Miscellaneous Expenditure As per Council's lnstructions, Miscellaneous Expenditure such as Loss on lssue of Debentures, Discount on lssue of Debentures, lJnderwriting commission, Prgliminary Expenses are written off in the year in which theY are incuned from Securities Reserve (if it existsl or from General Reserve lif it ex,:sts)or from Surplus, i'e', Balance in Statement of Profit and Loss'

tl

Preparation ol Cash Flow Statement wilhout Adiustments Illustration 50. From the following information, prepare cash Flow statement for the year ended 31st March, 2015: Particulars

Opening Cash Balance Closing Cash Ealance Decrease in Trade Receivables {Debtors) Increase in Irade Payables {Creditors) Sale of Fixed Assets

Redemption of Deb€ntures Net Profit for the year

10,000 r

2,000 5,000 7,000

20,000 50,000 20,000

N

cxlt

Cash Flow Statement-Based on ing Standard_3 (Reoised\

J.JJ

Solution: CASH FLOW STATEMENT

Cash Flow

fot

theyeat ended

ltst Morch,20t5

from Operating Activities

Net Profit before Tax

Add:

Decrease in Cwrcnt Assets

20,000

ond lnueose in Cwrcnt Liobilities:

Defrease in Trade Receivables (Debton) lntiease in Trade payables (Credrtors)

7,000

fron Operoting Activities

Cash Flow

i

5,000 12,000

Cash Flow fiom Investing Activities Proceeds from Sale of Fixed Assets Cash Flow

from lnvesting Adivities

Cash FIow

from Financing Activities

Redemption of Debentures Cosh Used in Financing Activiries (50,000)

Net Increase in Cash and Cash Equivalelrts (A + B + Cl

Add:

2,000

Cash and Cash Equivalents in the beginning

Cash and Cash Equivalents at

r0,000

the end 12,000

Illustration

51. Folrowing are the Balanct sheets of

X Ltcr. prepare Cash Frow statemenr. 31st March,

20ls (t)

I.

ll it March, 2014

(l)

EQUITYANDI-IABITITITS

1,

Shareholders,Funds

(d) (b)

2.

Share Capital Reserves and Surplus

CurrentLiiibilities

25,00,000 2;30,000

20,00,000 't,00,000

450,000

7,00,000

Trade Payables

Total

28,00,000 ASSETS

1.

Non-Cunent Assets Fixed

2.

Asets-Tangible

Assers (Land)

CurrentAJsets

(o) Inventories (b) Trade Receivables (c) Cash and Cash Equivalents Total

6,60,000

9,00,000

8,00,000

11,50,000

12,00.000

4,70,W

3,00,000 28,00,000

110

Note to A((ounts

l)0 ,ji)

3l st Mdrch,

frC

ii0 1i0

i:i)

l.

2014 (O

Reservesand Surplus 5urplus, ie., Balance in Statement ofprofit and Loss

1,00,000

3.56

Management ing (Sectiott B) _lSC

Solution:

x

ill

Cas,

t_td.

Nqte

CASH FLOW STATEMENT

for the yeor ended 3tst

Partir

Motd,20ts

Particulars 1

Cash Flow from 0perating Activities Profit before Tax (Note)

Add:

r,30,000

Decreose in Cuffent Assets:

Decrease in Trade Receivables

50,000

Less: lncrease in Current Assets lnd Dectelse in Cwent Liabilities: Increase in Inventories Decrease in Trade payables

3

(1,00,000) (2,50,000)

4.(

(3,s0,000)

Cosh Used in Operoting Activities

(

Cash Flow from Investing Activities Payment for Purchase of Land

J. I

(r,60,000)

Cash Used in lnvesting Activities

6.

(r,60,000)

Cash Flow from Financing Activities Proceeds from lssue of Shares Cash FIow from

finoncing

A

(

ivities

Sol

5,00,000

Net Increase in Cash and Cash Equivalents (A + B + C) Add Cash and Cash Equivalents in the Beginning Cash and Cash Equivalents at the End

1,70,000 3,00,000

t*l

4,70,000

Note: Calculation of Prclit befote lax:

LC

t

Closing Surplus, r.e., Balance jn Statement of profit and Loss tess; Opening Surplus, ie., Balance in Statement of profit or Loss

2,30

^00

1,00,000

Profit before Tax

_!149

Illustration 52. Prepare Cash Flow statement on the basis of the information given in the Balance Sheets of P.S, Ltd. as at 31st March,2015 and 31st March,2014: Particulars

Note No,

3i st March, 2015

{t)

3lst March, 2014 {{}

EQUITY AND LIAEITITIES

'1.

Shareholders'Funds

(a) Share Capital (b) Reserves and

2.

Surplus

3,

I

Non-CurrentIiabilities Long-term Eorrowings

2,50,C10

2,00,000

70,000

50,000

( .(

t 2

Current Iiabilities

(d) (b)

80,000

Trade Payables

3

1,60,000

60,000

4

20,000

25,000

Total

L

1,00,000

Other Current Liabilities

l

( .( F

t

4,35,000

ASSETS

I

1.

(

Non-Current Assets (o) Fixed Asets:

(i) {ll)

Tangible Assets Intangible Assets

(b)

2.

Long-term Loans and Advances Cufient Assets

{d) Inventories {b) Trade Receivables

(r) Total

Cash and Cash Equivalents

1

tv. I 5

6

2,80,000 2,000

2,00,000 10,000 1,00,000 70,000

v.( vt. ( Not,

l( (

40,000 L

r

5,000

4,35,000

I

2l

cm

Cash Flow Stntement_Based on Accouttting Standaril_3 (Reaiseitl

J.J/

Notes to A((ounts Particulars 31st March,

l. Reserves and Surplus Surplus, ie, Balance in Statement ofprofit and loss - Long-termBor.owings 2.

0,000

3.

0,000

tooo

31st March,

20ls (t)

2014

(t)

70.000

l2% Debentures Tradepayables

80,000

1,00,000

60,000

40000

Creditors Bills Payable

4.

r,000) 1000)

5.

Other Current [iabilities 0utstanding Expenses Tangible Fixed Assets

1,00,000

20,000

1,60,000

;0ooo

20,000

25,000

Land and Buildinq

6.

,000)

IntangibleFixedissets

2,80,000

Goodwill r,000

P.S. ttd. CASH FLOW STATEMENT for rhe.ve ar ended

,,000 r,000

2,000

---------

Solution: Particulars

ll

10,000

st Mvrch, 20!5

,.000

' f,}ii,|,:;:t!# Add:

,000 ,000

I'lon-cosh ond Non.operuting Expenses: b0odwtll Amortis€d

lnrelesrProfi

^

boo

Activities

i*eratine

(Nore 2)

uperating

20,000

pitalChdnges

- Add: lncreose

lhe

20,000

40,000

Increase in Creditors Increase in Eills payable t,

less:

an

fl

d

D e c r e a s e in

:x* ff,:ff :#

Increase in Trade Receivables

.. ll.

Activities g

1,40,000

c u u e n t Li 0 b i Ii r i e s : (5,0001

(20,000) (20,000)

A(tivitres

otng

(r,10,000) 50,000 {20,000) Cosh lnflow from Finoncing Activities lV. Net Increase.in Cash and Cash Equivalents (l + ll + lll) in the beginnins of the period

llll

,X. Vl. Cash

itu,9rl lquivatents a nd Cash

Equivalents at the end of the period (lV + V)

(i 2,000) r

8,000 3,000

15,000 18,000

Notes:

{ 70,000 (s0,000)_

2.

Debenture interest

@

l2% on

{

1,00,000.

20,000_

Management ing (Section

3.58

Preparation of Cash Flow Statement with Adjustments

BI-ISC Xll

^

Casl

Soh

Illustration 53. The Balance Sheets of Rajneesh Ltd. for the years 31st March, 2015 and 31st March, 2014 were as follows: Particulars

Note No.

Partir

3lst March,

31st March,

20rs (t)

20r4 (T)

t.

EQUITY AND LIABILITIES

1.

Shareholders'Funds

(a) (b)

2.

Share Capital Reserves and Surplus

1

1,25,000

1,00,000

33,800

30,250

7,500

r0,000

Non-CurrentLiabilities Long-term Borrowings (Debentures)

3.

Cunent Iiabilities

(a) Short-term Bonowings (b) Trade Payables (c) Short-term Provisions

2

3

Total

3s,000 72,600

75,000

16,500

15,000

2,55,400

2,65,250

1,82,000

1,75,000

37,000

50,c00

32,100

40,000

4,300

250

[.

ASSETS

1.

Non-Cuftent Assets Flxed Assetsr Tangible Assets

2.

Current Assets

(d) lnventories (b) Trade Receivables (c) Ca;h and Cash Equivalents Total

ilt.

tv.

2,55,400

v. Notes to A((ounts Particulars

3l st March, 2014 ({)

l.

Reiervesand Surolus

No 1.

Surplus, r,e, Ealance in Statement of Proflt and Loss

2.

I

30,250

Short-term Borrowings Bank Overdraft

15,000

Short-term Provisions Proposed Dividend

15,000

Fixed Assets (Tangible) Land and Building

1,00,000

Plant and Machinery

75,000

2. Pat

1,75,000

To ,4d d it io

nal

I

nfo

r

1. Depreciation written

t

To

nn tio tr:

off on Building during the year ended 31st March, 2015 was

6,000

2. Land was purchased for

t

19,000

during the year 31st March, 2075.

l'repare Cash FIow Siatement of Rajneesh Ltd.

(lSC 2006, Modifiedt

3.

4.

:nr

I

Cash Flow Statement-Based on ing Standard_J (Reaiseill

Solution:

3.59

Rajn€esh Ltd.

31st

CASH FLOW STATEMENT

for the year ended 3tst Morch,20t s Particulars

ch,

l

l.

t

Cash Flow fiom 0perating Activities Net Profit before Tax (Note l)

Add:

20,050

Non-coshExpenses:

Depreciation on Land and Building Operating Profit before Working Capital Changes

)0 j0

Add:

6,000

26050

Decrease in Cunent Assets: Decrease in Inventories

13,000

Decrease in Trade Receivables 0 0

Less: Decreose in Cunent Liabilities: Decrease in Trade payables

t

Cosh Flow from Operoting Activities

ll.

-

7,900

20,900 46,950

(2,400)

(2,400)

44,550

Cash Flow from Investing Activities Sale of Land and Building (Note 2)

18,000

Purchase of Land and Building

(r9,000)

Purchase of Plant and Machinery in lnvesting Activities

(12,000)

Cosh Used

lll.

Cash Flow

(13,000)

from Financing Activities

lssue of Shares

25,000

Redemption of Debentures

{2,500)

Payment of Proposed Dividend for Last year from Financing Activities

(r 5,000)

Cosh Flow

tv. v.

t

7,500

Net Increase in Cash and Cash Equivalents (l + ll + llu . Cash and Cash Equivaleirts in the beginning ofthe period Bank Overdraft

39,050 (35,000)

Cash

Cash and Cash Equivalents atthe end

250

ofthe period

(34,750) 4,300

Notes:

1.

Calculation of Net profit before Tax: Surplus, ie., Balance in Statement of profit and Losi (Closing) less: Surplus, ie., Balance in Statement of profit and Loss (6penin9)

.3,550

Add: Proposed Dividend (Current year) Net Profit before Tax

2

Dr.

16,500 20,050

LAND AND EUILDING

Particulars

To To

Particulars

Balance b/d

r,00,000

Bank A/c (Purchase)

19,000

By

Ealance c/d

1,19,000

4

Bank overdraft is a negative item.

lt

{

Depreciation A/c

By Bank A/c (5ale) (Ealancing Figure) By

3.

33,800

30,250

6,000 |

8,000

95,000 1,r 9,000

is deducted from Cash and Cash Equivalents.

lnterest on debenrures is not considered whire computing operatrng profit before working caprrar Changes because rate of interest ts not qtven.

TF_I ,

3.50

Management ing (Section BI_ISC

Illustraiion 54. Given

I.

belor^.' are the Balance sheets

Xil

of lvf/s. victor Limited: 3l st March,

31st March,

20l s (t)

20r4 (0

EQUITYANDLIABILITIES

1.

f'

partic

Shareholders' Funds

2.

(d)

Share Capital

(b)

Reserves and Surplus

t. 1

i,60,000

1,60,000

1,60,000

60,000

l

.l

Non-CurrentLiabilities Long-term Borrowings

3.

2

r,50000

Curi'entLiabilities

(d)

Short-term Borrowings

{b) Trade Payables (c) Short.term Provisions

3

4

50,000

74pM

1,80,000

92,000

90,000

64,000

1,80,000

3,0c,0c0

2,40,000

1,00,000

1,94,000

1,90,000

26,000

10,000

Total

II.

ASSETS

1.

Non-Cuirent Assets Fixed [Tangibler

2,

CurrentAssets

(d) Inventories (b) Trade Receivables (c) Cash and Cash Equivalents

it.

t.

Total

Notes to A(counts Net Particulars

Slst March, 2015

1.

2014

1,60,000

.L C

Ir

1,50,000

Short-term Borrowings Overdraft

50,000

449

30,000

24,000

60,000

40,000

90,000

64,000

Short-term Provisions

A

N

Provision for Tax Proposed Dividend

5.

60,000

Long-termBorrowings

Sank

4.

Cash

Not€

Long,term Loans

3.

(()

Reseives and Surplus Surplus, ie ,,Balance in Statement of profit and Loss

2.

3lst March,

(t)

I

Iash

(

Trade Receivables L

Sundry Debtors Bills Receivable

1,72,000

1,60,000

22,000

30,000

1,94,000

1,90,000

).

L

Date

ni

Ad tl il io n n I I n.io r mnt iort :

1. Loarr was paid in the beginning of the year Z0I4_75. 2. Depreciation provided on plant during the year was { Prepare Cash Floiv Statement.

Apfl

20,000. USC

20t 0,

Modifie\

l

xil

Cash Flout Statement-Based on ing Standnrd-J (Reaised)

Solution:

3.61

M/s. Victor Limited CASH FLOW STATEMENT

h

for the year ended 3lst Motch, 20ls Particulars

l.

{

{

Cash Flow from 0perating Activities

0

Net Profit before Tax {Note i

0

Add: Non-cosh Expenseii Depreciation

)

1,90,000

20,000

Operating Profit before Working Capital Changes Add: Decreose in Current Assets lnd lncrclse in Cwent Liobilities:

2,10,000

Reieivable) (Creditors)

Decrease in Trade Receivables (Bills Increase in Trade Payables

)

8,000

gg,000

96,000 3,06,000

)

Less: Increlse in

Cuffent

Assets

and Decreose in Cunent Lilbilities:

Inventories Increase in Trade Receivales (Debtors) Cash Generated fiom Operations before Tax

)

Increase in

I

1,40,000

(r,52,000)

12,000

1.54,000

less: Tax paid Cash Flow

ll,

,

1,30,000

Cash Flowfrom Investing Activities Proceeds from Sale of Plant (Note 3) Cosh Flow

lll.

(24,000)

-

fron Operoting Activities

1,00,000

fron lnvesting Activities

1,00,000

Cash Flow from Financing Activities Repayment of Loan (Note 4)

(r,s0,000)

Payment of Dividend

(40,000)

Cash Used in Finoncing Activities

{1,90,000)

Net Increase in Cash and Cash Equivalents (l + ll + lll) Cash and Cash Equivalents in the begtnning of the year (Note.2)

(64,000)

Cash and Cash Equivalents at

(r-4!00)

40,000

the end of the year (Note 2)

Notes:

1. Colculation of

,t

Net Profit before Tax:

Closing Surplus, r.e., Balance in Statemenr of profit and Loss less: 0pening Surplus, r.e., Balance in Statement of profit and Loss

/dd:

1,60,000

61 000 1,0n,000

Provision for Tax Proposed Dividend

30,000

60,000

Net Profit before Tax

2

Cash and Cash Equivolents

Opening

Closing

t Cash in Hand [ess: Bank Overdraft

3

Paniculars

t

2014

April

t

10,000

26,000

14,000

50,000

(64,000)

(24,000)

PLANT

Date

90,000

1,90,000

Date

Cr.

Particulars

2015 1

To

Balance b/o

3,00,000

1,00,000

Mar. 3l Mar. 31 Mar. il

8y Depreciation A/c By Bank A/c (8a1. Fig.)

8y Balance c/d

20,000

(5ale)

1,00,000 i,80,000 3,00,000

3.62

4'

Management ing (Section B)

-lSC Xll

Rate of interest on long-term loan is not given hence, interest is ignored. Also, it ;s given that loan repaid in the beginning of the year.

is

Illustration 55. From the following Balance sheets of ALtd.,prepare cash Flow statement as per AS-3 (Revised) for the year ended 31st March, 2015:

Casl

Solr

Parti(

BALANCE SHEFTs as ot...

Particulars

Note No.

3l st March,

3l st March,

201s (t)

2014 ({)

EQUIW AND LIABILITIES

l.

Shareholders' Funds

{o) (b)

2.

Equity Share Capital Reserves and Surplus

I

2,00,000

2,00,000

90,000

50000

Current Iiabilities

(d)

Short-term Borrcwings (Loans)

{b)

Trade Payables

(r)

0ther Current Liabilities

10,000

20,000

(,1) Short ierm Provisions

15,000

2

5,000

5,000

3

25,000

20,000

3,40,000

3,00,000

Total

[.

ASSETS

1.

Non-Current Assets

t.

Fixed Assets-Tangrble Assets

2.

CurrentAssets

(d) (b) {c) (d)

2,55,000

'

Short term Investments

2,35,000

20,000

Inventories Trade Receivables Cash arrd Cash Equivalents

4

Total

Net

15,000

25,000

20,000

10,000

30,000

30000

3,40,000

3,00,000

h'J0 Cas

No I

Notes to s Particulars

31st March,

201s ({)

1.

Expenses

Unclaimed Dividend

"

(t)

50,000

2. 1,000

5,000

4,000 5,000

Short-termProvisions Provision for Tax

4.

90,000

0ther Currenr Liabilities Outstanding

3,

2014

Rcserves and Surplus Surplus, r.e., Ealance in Statement of profir and Logs

2.

31st March,

.fo 5,000

20,000

Cash and Cash Equivalents Cash in Hand Cash at Eank

10,000

8,000

20,000

22,000

30,000

Ad

Par

To

25,000

ditional Infor

n

mt io tt:

Net profit f.r the year after pr.r'iding { 20,000 for depreciation was { g0,000. During the year, the company paicl i'terim equity divide.d co 107. ancl pait{ t 15,000 as inc.me iax.

t

). D.

To

i0

:xil an

Cash Flow Statement-Based on iag Standqrd_3 (Reaisedl

is

Solution:

3.63

A Ltd. CASH FLOW SIATEMENT for the yeor ended 3tst Motch,20t5

rent

Particulars

l.

t

Cash Flow from Operating Activities Net Profit before Tax (Note Non.coshExpenses:

l).

80,000

Add:

Depreciation .h

20,000

before Add: Increose in Curren Operating Profit

I

CapitalChanges . s

1,00,000

ond Decreaie in Current Assets:

Increase in Trade

5,000

Decrease in lnventories

0

10,000

Less: lncrease in Cwrent Assets and Deuelse in Cunent Liobilities: Increase in Trade Receivables

0

(10,000)

Decrease in Outstanding Expenses

l

(4,000J

Cash Generated from Operations before Tax lessr Income Tax paid (Given)

0

l l -:==

Cosh Flow

ll. lll.

86,000

Cash Flow from Investing Activities Outflow on Purchasi of Fixed Assets (Note 3) Cash Used in lnvesting Activities

(40,000) (40,000)

Cash Flow from Financing Activities Repayment of Loan

[t

20,000 _

t

(r4,000) 1,01,000 (15,000)

fron Operoting Adivities

Payment of Dividend

15,000 1,15,000

(r0,000)

, 4000 (Unclaimed)]

(i 6,000)

Cosh Used in Finoncing Adtviries

(26,000)

Net Increase (De(rease) in Cash and Cash Equivalents fl + ll + lll) ,4dd; Opening Balance ofCash and Banx

20,000 30,000

cash and cash Equivalents at the end (short-term Investments + cash and fash Equivalents) N

50,000

otes:

1. Calculotion of Net profit before Tox:

t 90,000 50,000 40,000

Add: Provision for Tax (Note

2)

20,000 20,000

lnterim Dividend Net Profit before Tax 2. Dr. Particulars

To To

r9p00_PROVISION FOR TAX

t

t

15,000

8y

Ealance

Balance c,/d

25,000

By

Statement of Profit and Loss (provision made) {Ealancing Figure)

b/d

40,000

Particulars

Io To

Balance b/d Cash Aic (Balancing Figure) (Fiyed Assets purchased)

Cr.

Particulars

Cash A/c {Tax paid)

Dr.

40,000

20,000 20,000 40,000

FIXED ASSETS ACCOUNI TIANGIBLE)

t

t

Particulars

2,35,000

By

Depreciation A/c

40,000

By

Ealance c/d

2,75,000

Cr

20,000 2,55,000 2,7

5,00A

3.64

Management ing (Section B)

Illustration 56. Following are the summarised 31st Marc[ 2015 and 31st March, 2014: Particulars

Balance Sheets

of ABC Ltd. as

. Note No.

-ISC Xll

(( in

at

Solu

Hundredsl

31st March,

3l st March,

20rs (t)

20r4 (0

EQUIlY AND LIABILITIES

1.

Cqsh

Partic

l.t I

Shareholders'Funds

(d)

Share Capital

(b)

Reserves and Surplus

2.

Non-CurrentIiabilities

3.

Cunent Liabilities

Long-term Bonowings

(c) Short-term Bonowings (b) Trade Payables (c) Short-termProvisions

90,000

80,000

1

7,400

6,000

2

23,000

12,000

(Bank 0verdraft)

2s,000 24,000

r

3

Total

3,600

22,000

20000

16,000

1,76,000

1,63,000

ASSETS

1.

Non-Cutrent Assets

2.

CurrentAssets

Fixed Asets

{d)

[angible)

I

Current Investments

(b) Trade Receivables (c) Inventories (d) Cash and Cash Equivalents (e) uther Current Assets Total

1,000

400

48,000

40,000

i0,000

60,000

6,000

2,000

r,000

600

1,76,000

.1,63,000

Notes to s

l{

Particulars

Slst March, 201s (t)

1.

Hundredl

3l st March, 2014

({)

Net

I

Cash

Cast

Reserves and Surplus Surplus, ie., Balance in Statement of

Debenture RedF,nption Reserve

2,

in

ilt.

profiiand Losj

2,000

4,000

Not

l.

( (

6,000

L

Long-termBorrowings 15% Debentures Loan from Eank

3.

12,000 I

Short--:rmProvisions Provision for Tax Proposed Dividend

6,000 't0,000

2(

16,000

Adrlitional I nt'ormolion:

1- Interest paid on Debentures T 1,800. 2. Depreciaiiori charged during the year was t 8,000. 3. 10,000 Equity Shaies of { 100 each were issued on 31st March, 2015; Share Issue Expenses incurred t 1,00,000, which were written ciff from surplus, i.e., Balance in Statement of Profit and Loss. You are required to prepare Cash Flol". Statement_

Ll 11! To

AI

'ill ;

at

Cash FIow Statement-Based on ing Standard_3 (Reaisedl

Solution:

I8C ttd.

'eds)

CASH FLOW STATEMENT

for the yeor ended 3lst Morch, 201s

-n I

3.65

({ in Hundredsl

Particulars

l.

{

FlowfromOp.r.,ingA.,-

Cash

Net Profit before Tax (Note

Add:

Non.cosh ond

l)

2i,400

Non-opetlting Expensej;

r0

Depreciation

0

Interest on Debentures paid (To be shown also as Financing Activnyt Share lssue Expenses Written

8,000 1,800

off

r,000

Operating Profit before Working Capital Changes Less: Inuease in Cwrent Assets and Decreose in Cuftent Liobilities:

32,200

increase in Trade Receivables Increase in Inventories

0

l

(8,000) (r 0,000)

lncrease in 0ther Current Ass€ts Decrease in Trade payables

) )

ll.

{400) (2,000)

20,400

Cash Generated from ODerations less: lncome Tax paid (Last year,s provision for Tax) lash Flow from )perating Activities

Cash Flow from Investing Activities Proceetis from Sale of Fixed Arsets (Note

I r,800 (6,000)

5,800

l)

2,000

fron lnvesting Activities Cash Flowfrom Financing Activities Cosk Flow

lll.

2,000

Proceeds from lssue of Equity Shares

r0,000

Share lssue Expenses

(1,000)

Loan from Bank iNote 4) Proceeds

10,000

from lssue of l5% Debentures

r,000 (r,800)

Interest on Debentures

Dividends (Last year

r)

s

proposed dividend)

{r 0,000)

Cosh Flow from Financing Activities

Net Increase in Cash and Cash Equivalents (l + ll + llll Cash and Cash Equivalents in the beginning of the year (Note Cash and Cash Equivalents at the end

8,200 16,000 2)

{22,600)

ofthe year (Note 2)

(6,600)

Notes:

1. Calculation of Net profit before Tax: Closing Surplus, r.e., Balance in Statement of profit and Loss Less: Opening Surplus, l.e., Balance in Statement of profit and Add;

2,400 Loss

Transfer to Debentures Redemption Reserve Provision for Tax (Current year) Proposed Dividend (Current year)

2,000

.

400 1,000 8,400

't1,600

Net Profit before Tax

21,000 21

,400

2. Cash and Cash Equivalents-Opening = Cash and Cash Equivalents + Current Investments - Bank Overdraft (ie., { 2,000 + { 400 _ t 25,000), Le., (t 22,600). -Closing = Cash and Cash Equivalents + Cunent Investments _ Bank Overdraft (ie., { 6,000 + t 1,000 - t 1.3,600), i.e., (t 6,600). Dr.

FIXED ASSETS

t

Particuiars

To

Balance

b/d

60,000

Particulars

Dep;eciation A/c Bank A/c {Sale) (Balancing Figure) 8y Balance c/d

Cr

,{

By

8,000

By

2,000

60,000

4. Loan from Eank is a borrowing, t.e., parl of Financinq Activitv.

50,000 60,000

3.66

Management ing (SectionB) _ISC

XII

Cas

Illustration 57. From the following Balance Sheets of ADC Ltd., prepare Cash Flow Statement for the year ended 31st March 2015: Particulars

Note No.

31st March,

3l n March,

2015 ({)

2014 ({)

EQUITY AND LIABILITIES

1.

Shareholders' Funds

(o) {b)

Equity Share Capital

30,000

Reserves and Surplus

2.

Non-CurrentLiabilities

3.

Current Liabilities

l

r6000

Long-term Borrowings (10% Debentures) Trade Payables

r5,000 2

8,500

Total

69,500

ASSETS

1.

Non-Curent Assets

lo)

Fixed Assets:

(i) Tangible (rl) Intangible (Goodwi (b)

2.

)

Non-Current 10% Investments

41,000

32,000

8,000

10,000

I nn^

CurrentAssets

(a) Current investments (b) Inventorjes (c) Trade Receivables (d) Cash and Cash Eqtiivalents

3,000

2,500

5,s00

4;000

r9,000

8,000

10,000

i0,000

Total

tv.

Paniculars

3'lst March,

20r5 ({)

. 2.

il.

69,500

Notes to s

1,

il.

3i n March, 20r4 (0

V.

Reserves and Surplus General Reserve Surplus, rie., Balance in Statement of profit and Loss

15,000

10,000

7,000

6,000

22,000

Trade Payables Sundry Cre.litors Bills Payable

I

1 No

I 1,000

7,s00

1,500

r,000

12,500

&500

itional Int'ormation: 1. Investments costin,; { 3,000 were sold for { 2.800 during the year 20t4-15. 2. A new machine wai purchased for t 13,000. Deprcciation of { 4,000 has been chargeC on Machinery. Solution: A8C ttd.

L

Add

CASH FLOW STATEMENf for theyear ended

jtst Mord,20t5

2.

l. 4.

Particulars

l.

Pa

Net Profir before Tax (Note

Add:

l)

Non-cosh and Non-operoting Expenses: Depreciation on Machinery Goodwill Written off Loss on Sale of Investments

Interest on loEo Debentures (Note 2)

Tc Tc

1,700 13,700

ilI

Cash Flow Statement-Baseil on ing Standaril-3 (Reaisedl

3.67 .

ow

Less: Non-opent;ng

lncone:

lnterest on Investments ({ 3,000 x l0/100) (Note 3) h,

.

(300)

Operating nofit before Vlorking CapitalChonges

13,400

Add: lnueose in Current Liobilities: lncrease in Creditors

'

Increase in Bills Payable

l l

3,500 500

4,000 17,400

Less: lncteose in Cunent Assets:

-

)

(r,s00)

Increase in Inventoiies

(r r,000)

lncrease in Trade Receivables

(12,500)

Cosh FIow from 1peroting Activities I

a=

ll.

4,900

Adivities

Cash Flow fromlnvesting

(13,000)

Purchase of Machinery Purchase

of 1070Investments (Note 4)

{8,000}

Proceeds frorn Sale of l0% Investments

2,800

Interest on 10% Investments Cash Used in lnvesting

lll.

300

Activit:I

117 ,900)

from tinancing Activities

Cash Flow

Proceeds from lssue of Share Capital

5,000

Proceeds from lssue of l07o Debentures

lnterest on Cash Flow

lV.

'10%

fron Financing Activities

r

3,500

Net Increase in Cash and Cash Equivalen'ls (l+ ll + lll) 13,500)

500

Cash and Cash Equivalents in th€ beginning ofthe period Cash and Cash Equivalents

Vl.

(1,s00)

Debentures

({4,900-T 17,900+{

V.

10,000

(t

2,500 + {'10,000)

Cash and Cash Equivalents at

12,500

the end of the period {lV + V} (t 3,000 + t 10,000)

13,000

Notes:

1. Colculation of Net Prcfit before Tax: Closing Surplus, i.e., Balance in Statement of Profit and Loss leJir Opening Surplus, i.e., Balance in Statement of Profit and Loss

t 7.000

6,000 1,000

Add: Transfer to General Reserve Net Profit before Tax

5,000 6,000

2. lt is assumed that new Debentures have been issued at the end of the current ing year, 3. lt has been assumed that new Investments have been purchased at the end of the current ing year. 4. Dr. TNVESTMENTS Cr. Particulars

To To

t

Balance b/d

3,000

Bank n/c (Purchase)

8,000

Particulars

By By

Bank A/c

Statement of Profit and Los

{ 2,800 200

(Loss on Sale of Investment)

{Balancing Figure)

8y r 1,000

Ealance c/d

8,000

't 1,000

3.58

Managemerit ing (Section Bl

Illustiation 58. Given below are the

Balance Sheets o{ Gurmeet and Companv

at 31st March, 201.4 and 31st March, 2073: Particulars

Note No.

-ISC

nI

Limited

as

3ist March,

3lst March,

20r4 (t)

20i 3 (t)

Casl

Solr Partir

IJ tr

EQUITY AND LIABTTITIES

1. Shareholders'Funds (o) Equity Share Capital (b) Reserves and Surplus 2. Non-CurrentLiabilities Long-term Borrowings

3.

3,50,000

3,00,000

2,20,000

1,60,000

2

2,50,000

1,50,000

3

1,25,000

85,000

9,45,000

6,95,000

4,10,000

3,20,000

80,000 qn nr,,l

1,00,000

Cunent tiabilities Trade Payables

'r

Total

il.

.

I

(

ASSETS

l.

Non-Cufrent Assets

(o)

Fixed Assets:

(l) Tangible A5sets (Machinery) (ri) Intangible Asets (Goodwill) (b)

2.

Non-Current Investments

I

?n nnn

Cqrrent Assets

(a) {b) {c)

't,90,000

Trade Receivables

Inventories Cash and Cash Equivalents

Total

5

80.000

55,000

40000

1,30,000

1,25,000

9,4s,000

6,95,000

.

Notes to s Particulars

llst

March,

2011{t)

l.

Reserves and Surplus GeneralReserve Surplus, ie., Balance in Statement of profrt and Loss

2.

Long-termEotrowings

3.

Trade Payables Creditors

1196

Debentures

Bills Payable

4,

2013

(t)

1,45,000

r.00,000

/5,000

60,000

2,20,000

1,60,000

2,50,000

r,50,000 Wot

r,t 0,000

75,000

r5,000

10000

1,25,000

85,000

80,000

30,000

1,30,000

1,20,000

1r C

tl

Non-Currentlnvestments 12% investments

5.

t.

3lst March,

Cash and Cash Bank

A

Equivalents

N

2.i

Cash

5.000 1,30,000

r,25,000

Pad

fo To

itionnl Int'ormntion: 1. Investments costing { 36,000 were sold for t 30,000 during the vear 201,1. 2. New debentures have been issued at the end of the clrrrent ing year at a discount of .5%, rvhich was written off from Gcneral Reserve. 3. New investments have been purchased at rhe end.f the current ing year. '1 Depreciation charged on Machinery during the currerli accou.ti.g year *u, {t'o,ooo. From the above informaiion, prepare Cash Flow Statement as per Acco'-urting Standard-3 Atld

(Revised).

USC

l0l

l, Modifiedl

3.

P. fo To

'

XII

Cash Ilozo Statement-Based on ing

Solution:

Standail-J lReaiseitl

3.59

CASH FLOW STATEMENT AS PER ING STANDARD-3 {REVI5EDI

for theyear ended 3lst Morch,2014 h

Particulars

Net Profit before Tax (WN 't)

Add:

Non-cosh ond Non-operuting Expenses:

Depreciation on Machinery Goodwill Amortised Loss on Sale of Investments Debenture Interest ({ 1,50,000 x 11/100) )

Less: Non-opentinglncomes:

lnterest on Investment ({ 30,000 x 12l100)

l__

Operuting Prcfit before Working CapitalChanges

)

Add:

lncreose in Current Liobilities:

Increase in Creditors lncrease in Bilh Payable

35,000 5,000 1,53,900

ll.

Less: Decreose ln Cwrent Assets: Increase in Stock Increase in Debtors Cosh Flow from 1perating Activities Cash Flow from Investing Activities

15,000

l,l

Purchase of Machinery (WN 2) Purchase of Investment (WN 3) Sale

lll,

of Investment

Interest on Investment ({ 30,000 x l2l100) Cosh Used in lnvesting Activities Cash Flow from Financing Activities Proceeds from lssue of Shares Proceeds from lssue of Debentures [{ 1,00,000

(1,s2,400)

{

5,000 (Drscount)]

Interest on Debentures Cash Flow from Financing Activities

Add:

Net Increase in Cash and Cash Equivalents (l + ll + lll) Cash and Cash Equivalents in the beginning of the period

1,25,000

Cash and Cash Equivalents at the end of the period

1,30,000

Working N tes: 1. Colculonon of Net Profit beforeTox: Closing >urplus, ie., Balance in Statement of Profit and Loss less: Opening Surplus, ie., Balance in Statement of Profit and Loss

t 75,000 60,000 15,000

,4dd: Transfer to General Reserve ({ 45,000 + { 5,000) Net Profit before Tax

' 2. )r.

50,000 65,000

IVACHINERY ACCOUNI

{

Particulars To Balance b/d o Bank A/c (Balancing Fig ure: Purchase)

Cr.

{

Particulars

3,20,000

8y Depreciation A/c

1,00,000

By Balance

c/d

4,20,000 3. Dr.

To To

Balance

4,20,000

I 29lo INVESTMENT

Particulars

{ b/d

Bank A/c

30,000

86,000

(Ealancing Figure: Purchase)



Particulars By Bank A/c (SaleJ By Statement of Profit and Loss (Loss on Sale)

8y Balance c/d 1,16,0cc

10,000

4,10,000

Cr.

t 30,000 6,000 80,000 r,15,000

3

.70

Management ing lsection Bl

-

ISCXII

Illustration 59. The Balance Sheets of Copper and Comoan,rr Ltd. as at 31st March, and 31st March, 2012 are given below:

2013

EALANCE SHEETS ds dr...

Particulars

Note No.

3l st March, 20r3 (t)

3l st March, 20r2 (O

t. EQUITYANO LIABILITIES

l.

Shareholders' Funds

(o) (b)

Non-CurrentLiabilities

3.

Long-te.m Borrowings Cunent Iiabilities

(a)

Trade Payables

(b)

Other Cunent Liabilities

Addi (,) (,4

(iil (iu) . Fron

for

Equity Share Capital Reserves and Surplus

2.

Csslr

1,80,000

r,50,000

I

1,00,000

80,000

2

1,89,000

1,31,000

t

s"l} Particl

4

Total

C;,

14,000

N,

1,000

3,000

AL

484,000

3,78,000

3,20,000

2,30,00c

5,000

10,000

l4

3

l.

000

ASSETS

l.

Non-Current Assets Fixed Assets:

(d) (b)

2.

Tangible Assets

5

Intangible Assets (Goodwill)

CurreniAssets

{d) Inventories (b) Trade Receivables (c) Cosh and Cash Equivolents: (d) Other Current Assets

. 6 Cash

Total

7

'

75,000

60,000

26,000

28,000

50,000

40,000

&000

10,000

4,84,000

3,78,000

Lr

Notes to s

l.

3lst March, 2012 (t) General Reserve Surplus, i e., Balance in Statement of profit and Loss

2.

30,000

1270

Debentures

C P P

ilt. (

Long-t€rmBorrowings '1270

C

.

Reservesand Surplus

51,000

Public Deposits

P P P

3.

4. 5.

Trade Payables

It

Creditors

lr

Billi Payable

(

OtherCurrent Liabilities

(

Cash Credit

(

I

Fixed Assets (Tangible) Euilding

Worl

Plant

tL0 Clt

6.

7.

Trade Receivables

Ier

Debtors

N(

Eills Receivable

2.D

Other Cufrent Assets

Parti

Accrued lncome

10,000

Prepaid Expenses

:'to t Tol

r0,000

:ilt

Cash Elow

2013

Add

ch, :)

Stfiement-Based oa ing Standard-3 lReoisedl

3.71

tional lnfo r mation: (i) Depreciation charged on Building { 10,000. (ii) Depreciation charged on Plant { 5,000. (lii) Interest paid on Debentures I7,200 for the year. (lu) Interest paid on Public Deposit t 9,600 for the year. From the above information, prepare Cash Flow Statement as per ing Standard-3 for the year ended 31st March, USC 2012, Modifiedl i

2013.

,0 J0-

Solution:

CASH FLOW STATEMENT for the year ended

3lst Motch,2013

{

Particulars )0

l.

Cash Flow

from 0perating Activities

Net Profit before Tax {WN I ) Add: Non-cosh and Non-openting ltems: Depreciation on Building Depreciation on Plant lnterest on Debentures Goodrryill Amortised Interest on Public Deposits Operating Profit before Working Capital Changes Add: Decrease in Cunent Assets cnd Inftose is Cinrent Liobilities:

l0 r0 !0

:

T

20,000 10,000

5,000 7,200 5,000

9,600 56,800

Debtors

3,000

Accrued Income

4,000

Creditors

2,000

65,800 Less: lncreose in Current Assets ond Deueose in Curient Liobilities:

lnventories Bills Receivable Prepaid Expenses Bills Payable

I

=:

15,000 1,000

2,000 2,000

(20,000)

flow from Operoting Activities Cash Flowfrom Investing Activities

45,800

Cash

ll.

(80,000)

Purchase of Building (WN 2) Purchase of Plant (WN 3)

(2s.000) (1,05,000)

Cosh Used in lnvesting Activittes

lll.

Cash Flow from Finanring Activities Proceeds from lssue of

Equit; Share Capital

30,000

Proceeds from lssue of 12% uebentures Proceeds

from

18,000

1270 Public L,,eposit

40,000

Interest paid on Debentures Interest paid on Public Deposits

0,200) (9,600)

Cosh tlow from Financing Activities Net Increase in Cash and Cash Equivalents (l + ll + llll Cash and Cash Equ;',alents in the beginning of period (WN 4) Cash and Cash Equivalents atthe end ofthe period (WN 4)

71

37,000 49,000

Working Notes: 1. Colculotion

,200

12,000

t

of Net Prcfit belorc fax:

Closing Surplus, i.e,, Balance in Statement of Profit and Loss

70,000

Less; Opening Surplus, i.e., Balance in Statement of Profit and Loss

50,000

Net Profit before Tax

20,000

2.

Dr.

BUILDING

Cr'

Particulars

To To

Balance b/d

By Depreciation A/c

Bank A/c {Balancing Figure: Pur(hase)

By Balance

c/d

10,000 2,20,000 2,30,000

3.72

Maragement ing (Section Bl

Dr.

XII

t

b/d Bank A/i(Balancing Figure: Purchase) Balance

80,000

25,000

By

0the

(

Particula15

By Depreciation

Crch Fl

Cr.

0utst Fixe(

A,/c

Balance c/d

1,05,000

4.

ISC

PLANT

Particulars

To To

-

5,000

Build

1,00,000

Plant

1,05,000

Trad Cash and Cash Equivalents

Debt

Particulars

3lst March, 2012 (t)

Cash

31st March,

Lasn

20r 3 ({)

Cash

50,000

Cash Credit

Additio

(1,000)

(i)

D

(ri) (ii4

r\

Illustration 60. From the following Balance

Sheets of Diamond

Limited as on 31st March, 2013 and 31st March, 7074, prepare a Cash Flow Statement (as per ing Standard-3): BALANCE SHTETS

di

Soluti,

0r...

Particulars

I.

3l st March, 20r 3 ({)

EQUITYANDIIABILITIES 1. Shareholders' Funds

(d) (b)

3,40,000

r,60,000

1,20,000

3

3,50,000

2,60,000

Trade Payables

4

55,000

30,000

Other Current Liabiliries

5

Reserves and Surplus

Add:

-Pe

Current Liabilities

{a) (b)

A(IG

Total

il.

Ltr-r

ASSETS

L

Non-Current Assets Fixed Assets

2.

flangible)

480,000

Current Assets

(d) Inventories (b) Trade Receivables {c) Cash and Cash Equivalents

50,000

r,30,000

Cas'

ll.

95,000

Pay Cas

Notes to s Particulars

llJ. 3l st March, 2014

2.

Statement of Profit and Loss

2013 R)

Pro

Debentures

j

L{.-

4,00,000

40,000

50,000

42,000

Net lnfi

Add: a Closin

1,10,000

c

Notes

1

1,60,000

1,20,000

3,50,000

260,000

Les

45,000

18,000

Adl

0,000

12.000

Long-tefmBorrowings 570

4.

Prc

Reservesand Surplus GeneralReserve

3.

(t)

Cas

31st March,

ShareCapital Equity Share Capital

Cas Pi'or

Total

l.

Lasl Net

400,000

2. Non-CurrentIiabilities 3,

Partirula

l.

Share Capital

Long-term Borrowings

D

Cal

Clo-

Trade Payables Creditors

Eilk Payable

r

55,000

Ne

CXII

Cnsh Flow Statement-Bnsed on inx Standard-3 (Rcoisedl

Cr,

5.

-._ (

3.73

OtherCurrent Liabilities 0utstanding Expenses

6. 5!00

Fixed Assets Bui!ding

)0,000

Plant and Machinery

15,000

7,

Trade Re(eivables Debtors

8.

h,.

Cash and Cash Equivalents Cash at Bank

Additional lnt'ormnt ion: (l) Depreciation charged on Building 20,000. (ii) A machine with a book value of 10,000 was sold for { 8,000. (iil) Debentures were issued on ist April, 2013, at a discount of 10%. The discount was (lSC Somple Question Popet 2015]r written off from General

t

rch,

t

Reserve.

l-3),

Solution:

CASH FLOW STATEMENT

for the yeor ended 31st Morch,2014 ch,

Particuiars

1

l.

Cash Flow

from Operating Activities

Net Profit before Tax (Note 1) JO

Add:

l0

49,000

Non-cosh and Non-oDerotine ltems:

Depreciation (Building { 20,000 + Plant and Machinery Loss on 5ale of Machine 0perating Profit before Working Capital Changes

)0

Add: )0

{

20,000)

42,000

9r,000

lncreose in Current Li0bilities:

Creditors (t 45,000 -

{

27,000

i8,000)

)0

)0

1,18,000 1

Less: Increose in Cunent Assets ond Decreose in Cuftent Liobilities:Inventories ({ 73,000 Debtors Bills

(t

1,55,000

Payable ({

-t

-(

12,000

50,000)

(23,000)

1,30,000)

(25,000)

-{

(2,000)

I0,000)

(t

5,000 - T 2,000) Outstanding Expenses tron jperIting Adivities Cash Flow from Investing Attivities Proceeds from Sale of Frant and Machinery Payment towards Building

r0

Cash Flow

0

0

(1,62,000)

Cosh Used in lnvestinq Activities

= '1,

lll.

Cash

Flowfrom Financing Activities

from lssue of Share Capital Proceeds from lssue of Debentures ({ q0,000 Proceeds

-{

9,000)

tlow from Financing Activities Net Inflow of Cash and Cash Equivalents (l + ll + lll) Add: Opening Cash and Cash Equlvalents Closing Cash and €ash Equivalents Cosh

l

1,41,000 ,000 1,39,000

)

Notes:

) I

=

1. Calculation of Net Profit before Tax: Closing Surplus, i.e., Balance in Statement of Profit and Loss less: Opening Surplus, i.e., Balance in Statement of Profit and Loss

t 1,10.000 78,000 32,000

Add; Transfer to General Reserve ({ 50,000 t 42,000) Discount on lssue of Debentures written off from General Reserve Net Profit before Tax

8,000 9,000 49,000

Management Accouflting (sectiott

3.74

Cr.

PLANT AND MACHINERY

Dr

,

Particulars

Particulars

To

B)-ISC XII

Balance b/d

1,90,000

rp*

By Bank A/c (Sale) By By

2,000

Loss on Sale of Machinery A/c Depreciation (Bal. Fig.)

20,000 1,60,000

By Balance c/d

1,90,000

r,90,000

T

Particulars

To To

Balance b/d Bank

Cr.

BUII.-DING

UI

A/c-Purchase

2,90,000

r,70,000

{

Particulars By

20,000

Depreciation A/c

By Balance

/d

4,40,000

{Bal. Fiq.)

4,60,000

4,60,000

At

o Cash Flows are the inflows and outflows of Cash and Cash Equivalents' . cash Flow statement is a statement that shows the flow of cash and cash Equivalents during

.

a. a period'

ThisstatementshovvsthenetIncreaseornetdecreaseofCashandCashEquiva|entsundereachactiv|ty (operating/tnvesting/financing) and collectively When does the Flow of Cash Arise? increase o( to decrease the amount of cash Ffow arises when the net effect of tlansactions is either to

a.

Cash or Cash Equ ivalents.

o Cash means Cash in Hand and Demand Deposits with Bank readily convertible o cash Equivalents: cash Equivalents are short-term, highly liquid investments that are in value An change risk of into known amount of cash and which are subject to an insrgnificant investmentnormallyqualitiesascashequivalentonlywhenithasashortmaturityof'say'threemonths or less from th€ date of acquisition. (b) Treasury bills, (c) Commercial papers' Examples of Cash Equivatents are: {d) Current Investments, (d)moneymarketfundsand(e)|nvestmentinPreferenceSharesredeemablewithinthreemonthsan utsouut.lenascashequivaIentsifthereisinsignificantriskofchangeinit:va|ueCashEquivalentsaIsoinc|udeBank,Marketab|eSecurities,BankoverdraftandCashCredit' producing activities of the enterprise . o .operating Activities: operatrng Activities are the principal revenue and other activities that are not investing or financing activities r lnvesting Activities: Investing Activities are the acquisition and disposal of Iong-term assets and other investments not included in cash equivalents in the size and o Financing Activities: Financing Activities are the activities that result in change in the case of a company) and compositln of the owners' capital (including Preference Share Capital bonowings of the enterPrise. preparation of cash Flow Statement: cash Flow statement is prepared following the steps as under: Step Step Step

l:

2; 3:

Compute Cash Flow from Operating Activities' Compute Cash Flow from Investing Activities' Compute Cash Flow from Financing Activities'

Step4:Thecashf|owsundereachactivity,l'e.,operatingACtivity,InvestingActivityandFinancing Flow Statement and Activity as conrputed under Steps 1, 2 and 3 are shown in Cash and Cash Equivalents is determineci. This will be Net lncrease or Decrease in Cash

net fiow

step5:AddopeningcasharrdCashEquiv]lentsba|ancetocashf|owsasarrivedatunderStep4. Step6:TheamountSodeterminedshou|dbeequa|toCashandCashEquivalentsbalanceattheend of the Year.

a

i].

SCNI Cr.

( 8,000 2,000

20000 r,60,000

Cash Flow Statement-Based on ing Stdndani-3 (Reaised)

Treatment of Miscellaneous Expenditure Miscellaneous Expenditure such as Loss on lssue of Debentures, Discount on lssue of shares/Debentures, underwriting commission, preliminary Expenses are written off .in the year in which thev are incurred from Securities pre,mium lif it existsl or from General Reserve lif it exists) or from surplus, i.e., Balance in statenent of profit and Loss under the head'Reserves and Surolus'.

ry -'Cr,

Higher Otder Thinking Skills (HOTS) euestions Q.

1.

Infotech Pvt. Ltd. purchased a building for t 5,00,000 and paid the consideration bv issue of Equity Shares. Anil, the ant, has prepared Cash Flow Statement anij shown the trinsaction

GSC

as follows:

(

: :

Investing Activity Purchase of Building 5,00,000 Financing Activity lssue of Equity Shares 5,C0,000 ls it shown in accordance with the AS-3? Ans. The manner in which it is shown is not correct because there is no inflow or outflow of cash rn

the transaction. In Cash Flow Statement only those transactions are shown in which the enterplse has transacted cash.

reriod. cUVrty

.Jr'rt

of

2.

Prince Businesses Ltd. has shown interest earned under the Operating Activity. Do you rhink it is appropriate? Give reasons to your reply. Ans. lt is not an Operating Activity because earning of interest is related to investments made. Therefore. showing it as an Operating Activity is not correct. lt should be shown as Investinq Activitv. Q. 3. uD Enterprises Ltd., a company engaged ii the business of importing and sellingiimber. it had surplus funds and invested them in shares receiving dividends on them. The accouniant has souqht your advice on how to show it in cash Flow statement. Give your advice with reasons. Ans' The company is engaged in timber business. Any income arising from this activity should be shown as

Q.

)rtible e. An

Q.4.

ontns

Ans.

i5 Can

Q.

other

Dolphin Commercial Ltd. is engaged in trading of commodities. lt had received incenrive for achieving higher sale. In Cash Flow Statement where should it be shown and whv? lncentive received should be shown as 'Operating Activity, because: Operating Activity is defined by A5'3 (Revised) to be an activity which is the principal revenue producing activity and other activity that is not Investing or Financing Activity. Incentive received by the company is associated with the operating Activity, i.e., purchase and sale of gouds. Therefore, it should be shown as Oper.ting Activity.

rpers/

rpnse

Operating Activity. Receipt of income on of investment should be shown as Investing Activities.

5.

Statement of Profit and Loss of Abhirai Pvt. Ltd. sho$'s payment of income taxes as follows:

(i) Income Tax (ii) Income Tax on Capital Gains (iii) Dividend Tax

(Arising on sale offixed dssets)

it be classified or shown in Cash Flow Statement? Give your Ans, In Cash Flow Statement, each of the transaction will be shown as; (i) Income Tax ({ 5,00,000) How should

: and

I

^n0

nder:

(ii) )c|ng

flow ) 4. end

t

5,00,c00 50,000 25,000 reasons.

It will be classified as Operating Activity because it cannot be classifred as any other activrty unless it can be related to any other activity. Since, income tax cannot be related to any other activity, it will be classified as'operating Activity'. lt will be shown as a separate item under'Operatlng Activities' as required by AS-3 (Reviseot. Income Tax on Capital Gains (t 50,000)

It will be classified as Investing Activity to be depicted as a separate item because identified with the profit arising out of sale of fixed assets.

(iii) Dividend Tax ({ 25,000) It will be classified as Financrng Activity to be depicted

it

rs

as a separate item because it is identified with the payment of dividend on shares. Dividend paid is always classified as Financino Activiiv,

lvlanagement itig (section

3.76 Q.

6.

Ans.

B)-lSC

ill

under more Give an example of a single transaction which includes cash flows that are classified than one activitY. includes both interest Instalment paid in respect of a fixed asset purchased on hire-purchase basis loan element is and loan, th" int.r.ri element is classified inder.Financing Activities and the classified under lnvesting Activities

Q.

7.

in Inflow, outflow or no Flow State with reason whether cash deposited into Bank would result

of Cash and Cash Equivalents. items of Cash and Ans. No F|ow' Reason: Cash deposited into Bank represents movement between Q.

8.

Cash Equivalents. outflow or no Flow of State with reason whether old furniture written off would result in Inflow, Cash and Cash Equivalents. it does not Flow, Reason: old furniture written off would result in no flow of cash because

't. 7. t).

4.

Ans. No

involve cash as it is a non-cash transaction in inflow, outflow or no flow of cash: Q. 9. State with reason whether the following would result (i) Charging depreciation on furniture. usc 20t4) (ii) Cash withdrawn from bank for office use Ans. (i) No Flow because it is a non-cash transaction' (ii) No Flow because both Cash and Bank are Cash and Cash Equivalent

Objective Type Questions.

i

Reod the

!i)

fttii)wirtg jidieinenti and select thc rciic(t cnswct:

Cash Flow Statement is based on (a) Accrual basis of

ing

(c) ing

received is shown in Cash Flow Statement under (b) Investing Activities' (a) Operating (d) None of the above' (c) Financing Interest paid is shown in Cash Flow Statement under (b) lnvesting Activities' (a) Operating (d) None of the above' (c) Financing Flow Statement under in Cash Dividend received is shown

(ii) Inteiest

' (iii)

{iv)

equation.

(b) Cash basis of ing (d) None of the above'

Activities. Activitie5

7

8

Activities. Activities.

(b) lnvesting Activities' (a) Operating Activities. (d) None of the above' (c) Financing Activities. (v)BankoverdraftorBankCashcreditisshowninCashF|owStatementUnder ib) Investing Activities. (a) Operating Activities. (d) l'lone of the above. (c) Financing Activities.

t 1t 11

1i

[Ans.: (i) (b); (ii) (b); (iii) (c); (iv) (b); (v) (d)]

2.

State whethet the foltowing stotements are

(i)

(iil

frue or False:

under Cash Flow from Cash proceeds from issue of shares are shown in Cash Flow Statement

Financing Activities.

Cash Flow from Financing PurchaseTsale of fixed assets is shown in Cash Flow Statement under

Activities.

(iii) cash payment to and on behalf of employees

is shown in cash Flow statement under cash

Flow from OPerating Activities under Cash Flow Cash receipts from iale of investments are shown in Cash Flow Statement from Investing Activities. (v) Cash Flow Statement is based on accrual basis of ing(vi) cash Flow statement is concerned with change in workinE capital position between the two (v) False; (vi) Falsel tnns.: (i) True;iii) False; (iii) True; (iv) True; Balance Sheet

(iv)

dares.

Fill

in the blonks with opprriote words:

(i) Cash Flows are inflows and outflows of Cash and with banks. (ii) Cash comprrses of Cash in Hand and (iii) Taxes paid on income should be shown separately as Cash Flow from (iv) Cash Flow from Operating Activities are derived from the en te rp n se.

Actrvities.

activities of the

Activities dre the activities that resutt in cilaltge in the size and composrtion of the owners' capital and borrowings of the enterprise'

(v)

--

cxil

Cash

more

Activities are the acquisition and disposal of long-term asset( and other investments not included in cash equivalents. (vii) Bank Overdraft is included in

is

lAns.: (i) Cash Equivalents; (ij) demand deposits; (iii) Operatrng; (iv) principal revenue producing; (v) Financing; (ui) lnu"ir,ng, (vii) cash and cash Equivalentil

Flow

) and

3.77

(vi)

terest

ent

Flow Statement-Based on ing Stanilard_J (Repisedl

short Answer Type

Questions

ctives?

ctivities?

)w of

ng the Cash Flow Statement. ses and limitations.

s not

) Operating Activities, (b) Investing Activities and ow Statement:

ii) lssue of Share Capital v) payment of Dividend i) Sale of Long-term Investments ii) Dividend received

20r41

)

6.

Sale of Machine.

[Ans: Cash Flow from Oprcrating Activities: (iii); Cash Flow from Invest;ng Activities: (i), (vi), (vii), (viii), (x); Cash Ftow from Financing Activiries:

fiif, n:"f, t"j, ii_ii classify the following into cash Frow-from Investing Acrivities. Financing A.ivities op"i.ii.q Activities while preparing Cash Flow Statement. ""a

Dividend Deposits

(i) (iii)

Receipt of Repayment of Pubric

(ii) (iii) (iv)

lncrease/Decrease in balance

(ii) (iv)

7

8

purchase of Goodwill

rax

payment of (sc sampte popet 2015) ty; (iii) Financing Activity; (iv) Operating Activiryl ties and (iii) Financing Activities. Cash Flow Statement if no information is qiven:

of plant and Machinerv?

Proposed Dividend for previous year and current vear? Provision for Tax for previous year and current year?

List any two types of financing activities. What is meant by Cash Equivalents? t'1. Where is Short-term Investment shown in Cash Flow Statement? 12. Where is Bank Overdraft or Bahk Cash Credit shown in Cash Flow Statement? 13. Give two differences between Net profit and Cash from Ooerations. 9.

10.

(d)l

usc 2008) (lsc 2010)

usc

2012J

ng rsh

(iii)

ow

(v) Sellinq and Distribution (vii) Wages and Salaries.

v0 ',el

Loans Expenses

(iv) Dividend received (vi) purchase of Buitding

State which of the followinq transactions are classified or shown as Investing Activity: (i) Proceeds from sale (ii) Loan taken from Bank (iji) Purchase of (iv) Djvidend recerved on Investments (v) Public Depo_sits given. 3. Sta.te.which of the following ,transactions are classified or shown as Financing Activity: (i) Loan taken from {ii) lssue of Debentures

oflnvestments Debentures

(iii) (v)

1e

lnterest paid on

4.

Bank

lssue of Shares Buy-back of

shares

fil

3',ffIifi:;lDebentures

ldentify which of the foflowinq,tran sa-ctions are:.(a) operating Activity; (b) Investing Activity; (c) Fin_ancing Activity (d)

(i) Cash Sales (iii) sarary and

and

Cash and Cash Equivalents:'

wases

,lil ::;ll":'n'j^i"

Management ing lSection

3.78

(v) (vii) (ix) (xi)

Cash at Bank

Computer Maintehance Expenses Dividend received

Bl-ISC Xll

(vi) Income Tax Refund (viii) Purchase of Investments (x) Dividend paid

lssue of Shares.

5. ldentify which of the following transactions is: (a) Operating Activity; (b) Investing Activity; (c) Financing Activity and (d) Cash and Cash Equivalents: (ii) Purchase (i) Buy-back of Shares

(iii) Sellinq Expenses (v) Fixed Deposit with Bank (vii) Cash paid to Creditors (ix) Loan taken

(iv) (vi) (viii) (x) (xii)

N

of Patents

D,

Sale of Goodwill

ln

Sale of Investments

5l

lssue of Shares

PI

Salaries paid

G(

Marketable Securities (xi) Marketing Expenses (xiii) Redemption of Preference Shares. 6. ldentify which of the following transactions are: (a) Operating Activity; (b) Investing Activity; (c) Financing Activity and (d) Cash and Cash Equivalents: (ii) Dividend paid (i) Purchase of Investments (iv) Rent received by a Real Estate Company (iii) Dividend received (v) Rent received by a Trading Company (vi) Interest paid on Borrowings (viii) l,4arkctable Securities. (vii) Proceeds irunr issue of Debeniures

Calculation of Net Profit before Tax 7. Calculrre f.iet Profir before Tax of Premier Sales Ltd, from and

:liit

Prt

lnt (

Par

I

l\iarch, 2014: Slst Maich, 2014

{i)

EQUITY AND LIABILITIES

1.

Shareholders' Funds

2.

(a)

5hare Capital

s,oo,ooo

5,00,000

(b)

Reserves and Surplus

2,00,000

1,45,000

10,000

15,000

. 80,000

35,000

Current Liabilities (a) Short term Bonowings

(b) Trade Payables (c) 0ther Current Liabilittes (d) Short-term Provisions

20,000

10,000

r,00,000

55,000

-

tl

7,60,000

Total

il.

Lo

its Balance Sheets as at 31st i\4arch, 2ili5

Particuldis

I.

i

ASSETS

1. .

2.

Non-Current Assets

(a)

Fixed Assets

(b)

Investments

Current Assets

Total

.

Notes 4,00,000 1,50,000

7,60,000

1,

Rr

5r

Notes to Ac(ounts Particulars

Particr,

2,10,000

ln 3'l st March,

20r 4 ({)

l.

Tt

Reserves and Surplus Surplus, i.e., Balance in Statement of Profit and Loss

2.

It Bi

0ther Current Liabilities 0utstanding Expenses

3.

1,45,000 10,000

3.0

Short-termProvisions Provision for Tax

30,000

0

Proposed Dividend

25,000

4,s P