Cash Flow Statement | CMA Inter Syllabus

Table of Content

1. AS 3 - Cash Flow Statements
2. Cash Flow Statement under AS 3 and Ind AS 7 - A Comperative View 
3. Profoma of Cash Flow Statement under AS 3
4. Exercise

CMA Inter Blogs :

1. Capital Budgeting
2. Tools for Financial Analyses
3. Introduction to Management Accounting - Management Accounting
4. CMA Inter Syllabus (New Updates)

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Introduction

In addition to the Statement of Profit and Loss and Balance Sheet, companies also prepare a Cash Flow Statement as a part of its complete set of financial statements. Cash flow statement is an additional information source to the users of financial statements. This statement exhibits the flow of incoming and outgoing cash and cash equivalents. It assesses the ability of the enterprise to generate and utilize cash. In other words, this statement

is an important tool for assessing the liquidity position and the sources of liquidity.

As per SFAS 95, Statement of Cash Flows, issued by Financial Accounting Standards Board (FASB) of USA, the information provided in a statement of cash flows, if used with related disclosures and information in the other financial statements, should help investors, creditors, and others to –

• assess the enterprise’s ability to generate positive future net cash flows;
• assess the enterprise’s ability to meet its obligations, its ability to pay dividends, and its needs for external financing;
• assess the reasons for differences between net income and associated cash receipts and payments; and
• assess the effects on an enterprise’s financial position of both its cash and non-cash investing and financing transactions during the period.

In India, the preparation and presentation of Cash Flow Statements for eligible entities is guided by Ind AS 7, Statement of Cash Flows (and by AS 3 for companies to which Ind AS is still not applicable).

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1. AS 3 - Cash Flow Statements

1.1 Objective of the Standard

Information about the cash flows of an entity is useful in providing users of financial statements with a basis to assess the ability of the entity to generate cash and cash equivalents and the needs of the entity to utilise those cash flows. The economic decisions that are taken by users require an evaluation of the ability of an entity to generate cash and cash equivalents and the timing and certainty of their generation.

Accordingly, the objective of this Standard is to require the provision of information about the historical changes in cash and cash equivalents of an entity by means of a statement of cash flows which classifies cash flows during the period from operating, investing and financing activities.

1.2  Scope or Applicability

As per AS 3, all AS compliant entities shall prepare a statement of cash flows in accordance with the requirements of this Standard and shall present it as an integral part of its financial statements for each period for which financial statements are presented.

1.3  Benefits of Cash Flow Information

A Cash Flow Statement, when used in conjunction with the rest of the financial statements, provides information that enables users to evaluate the changes in net assets of an entity, its financial structure (including its liquidity and solvency) and its ability to affect the amounts and timing of cash flows in order to adapt to changing circumstances and opportunities. Cash flow information is useful in assessing the ability of the entity to generate cash and cash equivalents and enables users to develop models to assess and compare the present value of the future cash flows of different entities. It also enhances the comparability of the reporting of operating performance by different entities because it eliminates the effects of using different accounting treatments for the same transactions and events.

Historical cash flow information is often used as an indicator of the amount, timing and certainty of future cash flows. It is also useful in checking the accuracy of past assessments of future cash flows and in examining the relationship between profitability and net cash flow and the impact of changing prices.

1.4  Presentation of a Statement of Cash Flows

The statement of cash flows shall report cash flows during the period classified under the following three categories –

1. Cash flow from operating activities;
2. Cash flow from investing activities; and
3. Cash flow from financing

Sum of these three types of cash flows reflects the net change in cash and cash equivalent of the entity. In this context,

1. Cash shall consist of cash in hand and demand deposits; and
2. Cash equivalent consist of short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

The following points shall be kept in mind with respect to Cash Equivalents:

1. Cash equivalents are held for the purpose of meeting short-term cash
2. For an investment to qualify as a cash equivalent it must be readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. An investment normally qualifies as a cash equivalent when it has a short maturity of, say, three months or less from the date of acquisition.
3. Equity investments are excluded unless they are, in substance, cash equivalents.
4. Bank borrowings are generally considered to be financing activities. However, where bank overdrafts which are repayable on demand form an integral part of an entity’s cash management, bank overdrafts are included as a component of cash and cash equivalents. A characteristic of such banking arrangements is that the bank balance often fluctuates from being positive to overdrawn.
5. Cash flows exclude movements between items that constitute cash or cash equivalents because these components are part of the cash management of an entity rather than part of its operating, investing and financing activities

Illustration 1            

M Ltd. had a cash balance of ₹1,50,000 as on 30.09.2021. On 15.10.2021, M Ltd. used the cash balance to purchase a short-term bank deposit with a maturity of three months. How should this be shown in the statement of cash flow to be prepared for the quarter ended 31.12.2021?

Solution:

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a. Cash flow from operating activities

Cash flows from operating activities are primarily derived from the principal revenue producing activities of the entity. Therefore, they generally result from the transactions and other events that enter into the determination of profit or loss. Examples of cash flows from operating activities are:

1. cash receipts from the sale of goods and the rendering of services;
2. cash receipts from royalties, fees, commissions and other revenue;
3. cash payments to suppliers for goods and services;
4. cash payments to and on behalf of employees;
5. cash receipts and cash payments of an insurance entity for premiums and claims, annuities and other policy benefits;
6. cash payments or refunds of income taxes unless they can be specifically identified with financing and investing activities; and
7. cash receipts and payments from contracts held for dealing or trading purposes.

Note: Cash received on account of sale of an item of plant is a cash flow from investing activities.

Again, cash flows arising from the purchase and sale of dealing or trading securities are classified as operating activities. Similarly, cash advances and loans made by financial institutions are usually classified as operating activities since they relate to the main revenue-producing activity of that entity.

b. Cash flow from investing activities

The activities of acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents are investing activities. However, only expenditures that result in a recognized asset in the balance sheet are eligible for classification as investing activities. Examples of cash flows arising from investing activities are:

1. cash payments to acquire property, plant and equipment, intangibles and other long-term assets. These payments include those relating to capitalised development costs and self-constructed property, plant and equipment;
2. cash receipts from sales of property, plant and equipment, intangibles and other long-term assets;
3. cash payments to acquire equity or debt instruments of other entities and interests in joint ventures (other than payments for those instruments considered to be cash equivalents or those held for dealing or trading purposes);
4. cash receipts from sales of equity or debt instruments of other entities and interests in joint ventures (other than receipts for those instruments considered to be cash equivalents and those held for dealing or trading purposes);
5. cash advances and loans made to other parties (other than advances and loans made by a financial enterprise);
6. cash receipts from the repayment of advances and loans made to other parties (other than advances and loans of a financial enterprise);
7. cash payments for futures contracts, forward contracts, option contracts and swap contracts except when the contracts are held for dealing or trading purposes, or the payments are classified as financing activities; and
8. cash receipts from futures contracts, forward contracts, option contracts and swap contracts except when the contracts are held for dealing or trading purposes, or the receipts are classified as financing

c. Cash from financing activities

These are activities that result into change in size and composition of owner’s capital and borrowing of the organisation. Accordingly, it includes receipts from issue of shares, bonds and other instruments, borrowing and repayment of loans. Examples of cash flows arising from financing activities are:

1. cash proceeds from issuing shares or other similar instruments;
2. cash proceeds from issuing debentures, loans, notes, bonds, mortgages and other short-term or long-term borrowings;
3. cash repayments of amounts borrowed; and

1.5 Reporting of cash flows from operating activities

An entity shall report cash flows from operating activities using either:

1. the direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed; or
2. the indirect method, whereby profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash

Under the direct method, information about major classes of gross cash receipts and gross cash payments may be obtained either:

• from the accounting records of the entity; or
• by adjusting sales, cost of sales (interest and similar income and interest expense and similar charges for a financial institution) and other items in the statement of profit and loss for:

1. changes during the period in inventories and operating receivables and payables;
2. other non-cash items; and
3. other items for which the cash effects are investing or financing cash

Under the indirect method, the net cash flow from operating activities is determined by adjusting profit or loss for the effects of:

1. changes during the period in inventories and operating receivables and payables;
2. non-cash items such as depreciation, provisions, deferred taxes, unrealised foreign currency gains and losses, and undistributed profits of associates; and
3. all other items for which the cash effects are investing or financing cash

Alternatively, the net cash flow from operating activities may be presented under the indirect method by showing the revenues and expenses disclosed in the statement of profit and loss and the changes during the period in inventories and operating receivables and payables.

1.6 Reporting of cash flows from investing and financing activities

An entity shall report separately major classes of gross cash receipts and gross cash payments arising from investing and financing activities.

Note: However, Cash flows arising from the following operating, investing or financing activities may be reported on a net basis:

1. cash receipts and payments on behalf of customers when the cash flows reflect the activities of the customer rather than those of the entity, such as–
   1. the acceptance and repayment of demand deposits of a bank;
   2. funds held for customers by an investment entity; and
   3. rents collected on behalf of, and paid over to, the owners of properties.
2. cash receipts and payments for items in which the turnover is quick, the amounts are large, and the maturities are short, such as –
   1. principal amounts relating to credit card customers;
   2. the purchase and sale of investments; and
   3. other short-term borrowings, for example, those which have a maturity period of three months or less.

In addition, Cash flows arising from each of the following activities of a financial institution may be reported on a net basis:

1. cash receipts and payments for the acceptance and repayment of deposits with a fixed maturity date;
2. the placement of deposits with and withdrawal of deposits from other financial institutions; and
3. cash advances and loans made to customers and the repayment of those advances and loans.

Illustration 2

Classify the following cash receipts and payments of a furniture company into cash from operating, investing and

financing activities:

1. Receipt from sale of furniture
2. Purchases of furniture from various suppliers
3. Wages paid
4. Advertisement expenses paid
5. Credit sales of furniture
6. charges received from customers for repairs of furniture
7. Warranty claims received from the suppliers
8. Loss due to decrease in market value of the closing stock of furniture
9. Payment to suppliers of furniture
10. Depreciation on furniture of sales showrooms
11. Interest paid on bank loan
12. Profit on sale of equipment, in exchange of new equipment
13. Advance received from customers
14. GST paid
15. Equity dividend paid for the current financial year

Solution:

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Illustration 3

Classify the following transactions into cash flow from operating, investing and financing activities in respect of a

pharmaceutical company:

1. Issued equity shares
2. Bonus shares issued
3. Right shares issued
4. Purchased 90% shares of subsidiary company
5. Dividend received from subsidiaries
6. Dividend received from investment in other companies
7. Payment of license fees
8. Royalty received from the goods patented
9. Rent received from the letting out of free space
10. Interest received on loans to Y
11. Preference Dividend paid
12. Interest paid on security deposits
13. Acquired the assets of a company through issue of equity shares
14. Purchased goodwill
15. Interim dividends paid
16. Sale of investment in subsidiary

Solution:

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1.7 Foreign currency cash Flows

Cash flows arising from transactions in a foreign currency shall be recorded in an entity’s functional currency by applying to the foreign currency amount the exchange rate between the functional currency and the foreign currency at the date of the cash flow. A rate that approximates the actual rate may be used if the result is substantially the same as it would arise if the rates at the dates of the cash flows were used. The effect of changes in exchange rates on cash and cash equivalents held in a foreign currency shall be reported as a separate part of the reconciliation of the changes in cash and cash equivalents during the period.

Illustration 4

On 01.01.2022, P Ltd., an Indian company, bought goods from USA for $1000 to be sold within India. The exchange rate on that date was ₹76 = 1$. On 31.03.2022, the exchange rate moved to ₹78 = 1 $. How will you report the above in the Cash Flow Statement?

Solution:

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1.8 Interest and Dividends

Cash flows from interest and dividends received and paid shall each be disclosed separately. Cash flows arising from interest paid and interest and dividends received in the case of a financial institution should be classified as cash flows arising from operating activities. In the case of other entities, cash flows arising from interest paid should be classified as cash flows from financing activities while interest and dividends received should be classified as cash flows from investing activities. Dividends paid should be classified as cash flows from financing activities.

Illustration 5

X Ltd. provides you the following information of its cash inflow and outflow for the financial year 2021-22:

1. Dividend paid to equity and preference shareholders ₹50,000
2. Interest paid ₹10,000
3. Interest received on loan ₹ 20,000
4. Dividend received from Y ₹15,000

How will you classify the above in the Cash Flow Statement of X Ltd. if –

• X is a financial institution and
• X is a manufacturing concern.

Solution:

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Illustration 6

B Ltd., a manufacturing concern, invested ₹3,00,000 in a five-year bond with an effective interest rate of 10% for 4 years. It received ₹4,40,000 on maturity. During the four years it recognised the interest income based on the effective interest rate in its income statement. How will you treat the transactions over four years and on maturity?

Solution:

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1.9 Treatment of Taxes on Income 

Cash flows arising from taxes on income shall be separately disclosed and shall be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities.

Illustration 7

A Ltd. paid an advance tax amounting to ₹3,65,000 out of which ₹15,000 is relating to a short-term capital gain on sale of securities. How will A Ltd. report the payment of advance tax in its Cash Flow Statement?

Solution:

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1.10 Investment in subsidiaries, associates and joint ventures

When accounting for an investment in an associate, a joint venture or a subsidiary is accounted for by use of the equity or cost method, an investor restricts its reporting in the statement of cash flows to the cash flows between itself and the investee, for example, to dividends and advances.

The aggregate cash flows arising from acquisitions and from disposal of subsidiaries or other businesses shall be presented separately and classified as investing activities. The entity, in this context, shall disclose

• the total purchase or disposal consideration;
• the portion of the consideration consisting of cash and cash equivalents;

1.11 Non-cash Transactions

Investing and financing transactions that do not require the use of cash or cash equivalents shall be excluded from a statement of cash flows. Such transactions shall be disclosed elsewhere in the financial statements in a way that provides all the relevant information about these investing and financing activities. Examples of non-cash transactions are:

1. the acquisition of assets by assuming directly related liabilities
2. the acquisition of an entity by means of an equity issue; and
3. the conversion of debt to equity.

1.12 Disclosure

An entity shall disclose the components of cash and cash equivalents and shall present a reconciliation of the amounts in its statement of cash flows with the equivalent items reported in the balance sheet.

An entity shall disclose, together with a commentary by management, the amount of significant cash and cash equivalent balances held by the entity that are not available for use by it. For example, when cash and cash equivalent balances held by a subsidiary that operates in a country where exchange controls or other legal restrictions apply, the balances are not available for general use by the parent or other subsidiaries.

In addition, management shall also disclose additional information regarding –

1. the amount of undrawn borrowing facilities that may be available for future operating activities and to settle capital commitments, indicating any restrictions on the use of these facilities;
2. the aggregate amount of cash flows that represent increases in operating capacity separately from those cash flows that are required to maintain operating capacity;

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2. Cash Flow Statement under AS 3 and Ind as 7 - A Comparitive View

AS 3	Ind AS 7
Existing AS 3 is not mandatory for Small and Medium Sized Companies, as defined in the Notification. However, it encourages such entities to comply with the standard.	Ind AS 7 does not offer any exclusion with regard to its applicability for certain concerns. All Ind AS compliant entities are required to prepare Cash Flow Statement.
Repayment of overdraft as demand is silent in existing AS 3.	Ind AS 7 specifically includes bank overdrafts which are repayable on demand as a part of cash and cash equivalents.
AS 3 uses the term “Reporting Currency”.	Ind AS 7 uses the term “functional currency” instead of “Reporting Currency”.
AS 3 does not deal with cash flows arising from foreign subsidiaries.	Ind AS 7 deals with translation of cash flows arising from foreign subsidiaries.
AS 3 does not contain any requirement in the treatment of cash payments to manufacture or acquire assets held for rental to others and subsequently held for sale in the ordinary course of business as cash flows from operating activities.	Ind AS 7 requires the treatment of cash payments to manufacture or acquire assets held for rental to others and subsequently held for sale in the ordinary course of business as cash flows from operating activities. Further, treatment of cash receipts from rent and subsequent sale of such assets as cash flow from operating activity is also provided.
AS 3 is silent in adjusting profit or loss for the effects of: undistributed profits of associates, and non-controlling interests.	Under Ind AS 7, the net cash flow from operating activities, using the indirect method, is determined by adjusting profit or loss for the effects of: undistributed profits of associates, and non-controlling interests.
AS 3 requires classification under cash flow from investing activities.	Under Ind AS 7, cash flows arising from changes in ownership interests in a subsidiary that do not result in a loss of control shall be classified as cash flows from financing activities.
AS 3 requires cash flows associated with extraordinary activities to be separately classified as arising from operating, investing, and financing activities.	Ind AS 7 does not have any such requirement.
AS 3 does not require any disclosures as required in Ind AS 7.	Ind AS 7 requires the following additional disclosures: (i) the amount of cash and cash equivalents in the subsidiaries or other businesses over which control is obtained or lost; (ii) the amount of the assets and liabilities other than cash or cash equivalents in the subsidiaries or other businesses over which control is obtained or lost, summarised by each major category.
AS 3 does not have any requirements in cash flows arising from changes in ownership interests in a subsidiary.	Ind AS 7 requires to classify cash flows arising from changes in ownership interests in a subsidiary that do not result in a loss of control as cash flows from financing activities.
AS 3 does not provide examples of cash flows from financing activities.	Ind AS 7 provides examples of cash flows from financing activities, such as: (i) Cash payments to owners to acquire or redeem entity’s shares; (ii) Cash receipts from mortgages; (iii) Cash payments made by lessee for reduction of outstanding liability in a finance lease.

 

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3. Perfoma of Cash Flow Statement under AS 3

Proforma of Cash Flow Statement under Direct Method

Cash Flow Statement of                                                         for the period ended on       

Particulars	₹	₹	₹
A. Cash Flows from Operating Activities:
Cash receipts from Customers		-
Less: Cash paid to Suppliers and Employees and for other expenses		-
Cash Generated from Operation		-
Less: Income Tax Paid		-
Cash Flows from Operation before Extraordinary Items		-
Add: Proceeds from any Disaster Settlement		-
Net Cash Flow from Operating Activities			-
B. Cash Flows from Investing Activities:
Proceeds from Sale of Fixed assets including Investments		-
Less: Purchase of Fixed assets including Investments		-	-
Add: Interest Received		-
Dividends Received		-
Net Cash Flow from Investing Activities			-
C. Cash Flows from Financing Activities:
Proceeds from issuance of share capital		-
Proceeds from Long-term Borrowings		-
Less: Repayment of Long-term Borrowings including Redemption of Preference Shares		-
		-
Less: Interest Paid	-
Dividend Paid	-	-
Net Cash Flow from Financing Activity			-
Net Increase in Cash and Cash Equivalents			-
Add: Cash and Cash Equivalents at the beginning of the period			-
Cash and Cash Equivalents at the end of the period			-

Notes:

1. Figures of cash sales may be directly available from cash Then Cash collection can be derived taking Credit sales + Opening balance of debtors - closing balance of debtors.
2. Similarly figures of cash purchases can also be obtained from cash
3. Interest and dividend are investment cash inflow and, therefore, to be
4. Interest expense is financing cash
5. Tax provision is not cash expense, advance tax paid should be treated as tax cash

• Proforma of Cash Flow Statement under Indirect Method

Cash Flow Statement of                    for the period ended on         

Particulars	₹	₹	₹
A. Cash Flows from Operating Activities:
Net Profit for the Period before Taxation & Extraordinary Items		-
Add: Adjustment for Non-current and Non-operating Items charged to Profit & Loss A/c	-
Depreciation	-
Interest paid	-
Foreign Exchange Loss	-
Loss on Sale of Fixed Assets & Investments	-
Less: Adjustment for Non-current and Non-operating Items charged to Profit & Loss A/c	-
Interest Earned	-
Dividend Earned	-
Profit on Sale of Fixed Assets & Investments	-
Operating Profit before Working Capital Changes	-
Add: Increase in Current Liabilities	-
Decrease in Current Assets	-
Less: Increase in Operating Current Assets	-
Decrease in Operating Current Liabilities	-
Cash Generated from Operation	-	-
		-
Less: Income Tax Paid		-
Add: Proceeds from any Disaster Settlement		-
Net Cash Flow from Operating Activities			-
B. Cash Flows from Investing Activities:
Proceeds from Sale Fixed assets including Investments		-
Less: Purchase from Sale Fixed assets including Investments		-
		-
Add: Interest Received		-
Dividends Received		-
Net Cash Flow from Investing Activities			-
C. Cash Flows from Financing Activities:
Proceeds from issuance of Share Capital		-
Proceeds from Long-term Borrowings		-
		-
Less: Repayment of Long-term Borrowings including Redemption of Preference Shares		-
		-
Less: Interest Paid	-
Dividend Paid	-	-
Net Cash Flow from Financing Activity			-
Net Increase in Cash and Cash Equivalents			-
Add: Cash and Cash Equivalents at the beginning of the period			-
Cash and Cash Equivalents at the end of the period			-

 

Illustration 9 

Name of the Company: MZ Ltd.

Statement of Profit and Loss for the year ended 31st March, 2021

Particulars	Note No.	As at 31st March, 2021	As at 31st March, 2020
I Revenue from Operation		10,000	10,000
II Other Income		1,200
III Total Income (I + II)		11,200
IV Expenses:
(a) Cost of material consumed		5,500
(b) Changes in inventories of finished goods		(1,000)
(c) Employee cost/benefit expenses		2,500
(d) Finance cost		800
(e) Depreciation and amortization expenses		500
(f) Other expenses		2,000
Total Expenses		10,300
V Profit Before Exceptional and Extraordinary Items and Tax (III - IV)		900
VI Exceptional Items		--
VII Profit Before Tax		900
VIII Tax Expense		100
IX Profit for the Year		800
X Balance brought forward from previous year		550
Total Profit Available		1,350
XI Appropriation:
(a) Dividend Paid		450
(b) Transfer to General Reserve		250
Balance Carried Forward		650

 

Name of the Company: MZ Ltd.

Balance Sheet as at 31st March, 2021

Ref No.	Particulars	Note No.	As at 31st March, 2020	As at 31st March, 2021
I	Equity and Liabilities
1	Shareholders' Fund
	(a) Equity Share Capital		3,000	4,000
	(b) Reserve and Surplus		1,300	1,650
2	Liabilities
	Non-current Liabilities
	(a) Long-term borrowings		4,000	6,000
	Current Liabilities
	(a) Trade payables		4,650	4,200
	(b) Short-term provisions		300	250
	Total		13,250	16,100
II	Assets
1	Non-current Assets
	(a) Property, Plant, and Equipment		5,000	6,500
	(b) Non-current Investments		1,000	1,500
	(c) Long-term Loans and Advances		150	100
2	Current Assets
	(a) Inventories		5,000	5,500
	(b) Trade Receivables		1,500	2,000
	(c) Cash and Cash Equivalents		600	500
	Total		13,250	16,100

 

1. Revenue from Operation	As at 31st March, 2020	As at 31st March, 2021
Sales (net of Excise Duty)	10,000
	10,000

 

2. Other Income	As at 31st March, 2020	As at 31st March, 2021
Income from Investments	1,200
	1,200

 

3. Raw Material Consumed	As at 31st March, 2020	As at 31st March, 2021
Opening Stock of Raw Material	2,000
Add: Purchase of Raw Material	5,000
Less: Closing Stock of Raw Material	1,500
	5,500

 

4. Changes in Stock of Finished Goods	As at 31st March, 2020	As at 31st March, 2021
Closing Stock	4,000
Less: Opening Stock	3,000
	1,000

 

5. Employees Benefits	As at 31st March, 2020	As at 31st March, 2021
Salaries and Contribution to Retirement Benefit Schemes	2,500
Total	2,500

 

6. Other Equity (Reserve & Surplus)	As at 31st March, 2020	As at 31st March, 2021
General Reserve	750	1,000
Profit & Loss A/c	550	650
	1,300	1,650

 

7. Long Term Borrowings	As at 31st March, 2020	As at 31st March, 2021
Secured Loan	4,000	6,000
	4,000	6,000

 

8. PPE	As at 31st March, 2020	As at 31st March, 2021
Gross Block	6,000	8,000
Less: Accumulated Depreciation	1,000	1,500
	5,000	6,500

 

9. Long Term Loans and Advances	As at 31st March, 2020	As at 31st March, 2021
Advance Tax	150	100
	150	100

 

10. Short Term Provisions	As at 31st March, 2020	As at 31st March, 2021
Tax Provision	150	100
Other Provisions	150	150
	300	250

Consider the above Profit and Loss account and Balance Sheet and derive Cash flows from operating activities using direct and indirect method.

Solution:

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Illustration 10 (a):

Taking the data given in Illustration 9, and using the following additional information derive cash flow from investment activities:

Take 10% of the investments given in the Balance Sheets as risk-free and readily encashable and remaining of the investments as long-term investments.

Cash flow from Investment Activities

Particulars			₹ In lakhs
Purchase of fixed assets
Increase in gross block			(2,000)
Purchase of long-term investments
	31-03-2020	31-03-2021
	1,000	1,500
Less: cash equivalents	100	150
	900	1,350	(450)
			(2,450)
Income from Investments			1,200
Total			(1,250)

Thus, there were net cash outflows for investing activities.

Illustration 10 (b):

Take the information given in Illustration 9 & 10 (a) and derive cash flow from financing activities:

Cash flows from financial activities	₹ In lakhs
Issue of share	1,000
Loans raise	2,000
Interest	(800)
Dividend paid	(450)
	1,750

 

Illustration 10 (c):

 Use the data given in Illustration 9 & 10(a) and find out change in cash and cash equivalents:

Particulars	31-03-2020	31-03-2021	Icrease/(Decrease)
Cash and bank Balances	600	500	(100)
Risk-free and readily encashable
Investments	100	150	50
	700	650	(50)

There was a decrease in cash and cash equivalents by ₹50 lakh.

Illustration 10 (d):

Now using data given in Illustration 9-10 (c), prepare a cash flow statements:

Cash Flow Statement	₹ in lakh
Cash flows from operating activities	(550)
Cash flows from investment activities	(1,250)
Cash flows from financing activities	1,750
Decrease in cash and cash equivalents:	(50)

 

Illustration 11

The following is the income statement XYZ Company for the year 2020 – 21.

			(₹)
Sale			1,62,700
Add: Equity in ABC company’s earning			6,000
			1,68,700
Expenses
Cost of goods sold		89,300
Salaries		34,400
Depreciation		7,450
Insurance		500
Research and development		1,250
Patent amortization		900
Interest		10,650
Bad debts		2,050
Income tax:
Current	6,600
Deferred	1,550
Total expenses		8,150	1,54,650
Net income			14,050

Additional information is:

1. 70% of gross revenue from sales were on credit.
2. Merchandise purchases amounting to ₹ 92,000 were on
3. Salaries payable totalled ₹ 1,600 at the end of the
4. Amortisation of premium on bonds payable was ₹1,350.
5. No dividends were received from the other
6. XYZ Company declared cash dividend of ₹ 4,000.
7. Changes in Current Assets and Current Liabilities were as follows:

Particulars	Increase (Decrease) ₹
Cash	500
Marketable securities	1,600
Accounts receivable	(7,150)
Allowance for bad debt	(1,900)
Inventory	2,700
Prepaid insurance	700
Accounts payable (for merchandise)	5,650
Salaries payable	(2,050)
Dividends payable	(3,000)

Prepare a statement showing the amount of cash flow from operations.

Solution:

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Illustration 12

From the information contained in Income Statement and Balance Sheet of ‘A’ Ltd., prepare Cash Flow Statement:

                                                    Income statement for the year ended March 31,2021        

Particulars		₹
Net Sales	(A)	2,52,00,000
Less:
Cash Cost of Sales		1,98,00,000
Depreciation		6,00,000
Salaries and Wages		24,00,000
Operating Expenses		8,00,000
Provision for Taxation		8,80,000
	(B)	2,44,80,000
Net Operating Profit (A - B)		7,20,000
Non-recurring Income – Profits on sale of equipment		1,20,000
		8,40,000
Retained earnings and profits brought forward		15,18,000
Total		23,58,000
Dividends declared and paid during the year		7,20,000
Profit and Loss Account balance as on March 31, 2021		16,38,000

Name of the company: A Ltd.

Balance Sheet as at: 31.03.2021 (₹)

Particulars	Note No.	Note No.	As at 31.03.21	As at 31.03.20
I	Equity and Liabilities
1	Shareholders’ Fund
	(a) Share capital		44,40,000	36,00,000
	(b) Reserve & Surplus		16,38,000	15,18,000
2	Liability
	Non-curret Liabilities		NIL	NIL
	Current Liabilities
	(a) Trade payables		23,40,000	24,00,000
	(b) Other current liabilities		4,80,000	2,40,000
	(c) Short-term provisions		1,32,000	1,20,000
	Total		90,30,000	78,78,000
II	Assets
1	Non-current assets
	(a) Property, Plant and Equipment		54,00,000	28,80,000
2	Current assets
	(a) Inventories		9,60,000	26,40,000
	(b) Trade receivables		18,60,000	16,80,000
	(c) Cash and cash equivalents		7,20,000	6,00,000
	(d) Short-term loans and advances		90,000	78,000
	Total		90,30,000	78,78,000

Note - Relevant items of Assets/ Liabilities are reflected in Balance Sheet and Schedule III. Hence sub-item not having any value for the given illustration is not shown/ represented in Balance Sheet.

Note on Accounts

1. PPE	31.03.21		31.03.20
Land		9,60,000		4,80,000
Building and Equipment	57,60,000		36,00,000
Less: Depreciation	13,20,000	44,40,000	12,00,000	24,00,000
		54,00,000		28,80,000

 

2. Short Term Provisions	31.03.21	31.03.20
Income Tax Payable	1,32,000	1,20,000
Total	1,32,000	1,20,000

 

3. Other Current Liabilities	31.03.21	31.03.20
Outstanding Expenses	4,80,000	2,40,000
Total	4,80,000	2,40,000

 

4. Short Term Loans and Advances	31.03.21	31.03.20
Advances	90,000	78,000
Total	90,000	78,000

The original cost of equipment sold during the year 2020-21 was `7,20,000.

Solution:

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Illustration 13:

Name of the Company:

Balance Sheet as at 31-12-2020 and 31- 12- 2021                                                                                                                          (₹ in thousands)

Ref No.	Particulars		Note No.	31.12.2021	31.12.2020
I		Equity And Liabilities
	1	Equity
		(a) Equity Share capital		1,500	1,250
		(b) Reserve & Surplus	;.	3,410	1,380
	2	Liability		NIL
		Non-current liabilities		NIL
		(a) Long-term borrowings		1,110	1,040
		Current Liabilities			.
		(a) Trade payables		150	1,890
		(b) Other current liabilities		230	100
		(c) Short-term provisions		400	1,000
		Total		6,800	6,660
II		ASSETS
	1	Non-current assets
		(a) PPE		730	850
		(b) Non-current investments		2,500	2,500
	2	Current assets
		(a) Current investments		670	135
		(b) Inventories		900	1,950
		(c) Trade receivables		1,700	1,200
		(d) Cash and cash equivalents		200	25
		Total		6,800	6,660

Note - Relevant items of Assets/ Liabilities are reflected in Balance Sheet and Schedule III. Hence sub-item not having any value for the given illustration is not shown/ represented in Balance Sheet.

Notes on Accounts                                                                                                              (₹ in thousands)

1. Other Current Liabilities		31.12.2021	31.12.2020
Interest Payable		230	100
Total		230	100

 

2. Short Term Provision		31.12.2021	31.12.2020
Income Tax Payable		400	1,000
Total		400	1,000

 

3. PPE		31.12.2021	31.12.2020
Fixed Assets at Cost		2,180	1,910
Less: Accumulated Depreciation		1,450	1,060
Total		730	850

 

4. Other Current Assets		31.12.2021	31.12.2020
Interest Receivable		100	-
Total		100	-

 

Particulars	₹ in thousands
Sales	30,650
Cost of Sales	(26,000)
Gross Profit	4,650
Depreciation	(450)
Administration and Selling Expenses	(910)
Interest Expenses	(400)
Interest Income	300
Dividend Income	200
Foreign Exchange Loss	(40)
Net Profit Before Taxation and Extraordinary Item	3,350
Extraordinary Item - Insurance Proceeds from Earthquake Disaster Settlement	180
Net Profit After Extraordinary Item	3,530
Income-tax	(300)
Net Profit	3,230

 

Additional information (₹ in thousands):

1. An amount of ₹ 250 was raised from the issue of share capital and a further ₹ 250 was raised from long-term borrowings.
2. Interest expense was ₹ 400 of which ₹ 170 was paid during the ₹100 relating to interest expenses of the prior period was also paid during the period.
3. Dividends paid were ₹1,200.
4. Tax deducted at source on dividends received (included in the tax expenses of ₹300 for the year) amounted to ₹40
5. During the period, the enterprise acquired fixed assets for ₹ The payment was made in cash.
6. Plant with original cost of ₹80 and accumulated depreciation of ₹60 was sold for ₹
7. Foreign exchange loss of ₹40 represents reduction in the carrying amount of a short-term investment in foreign currency designated bonds arising out of a change in exchange rate between the date of acquisition of the investments and the balance sheet
8. Sundry debtors and sundry creditors include amounts relating to credit sales and credit purchases

Solution:

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Illustration 14

Sumangal Ltd. finds on 31st December, 2020 that it is short of funds with which to implement its branch expansion programme. On 1st January, 2020, it had a bank balance of ₹1,80,000 in its current account. From the following information, prepare a statement of Cash Flow to show how the overdraft of ₹58,750 at 31st December, 2021 has arisen:

Sumangal Ltd.

Figures as per Balance Sheet (as on 31st December)

Particulars	2019 (₹)	2020 (₹)
PPE	7,50,000	11,00,000
Stock and stores	1,90,000	3,00,000
Debtors	3,80,000	3,65,000
Bank Balance/(Overdraft)	1,70,000	(58,750)
Trade Creditors	2,70,000	3,50,000
Share Capital (in shares of ₹10 each)	2,50,000	3,00,000
Bills Receivable	87,500	95,000

The profit for the year ended 31st December, 2020 before charging depreciation and taxation amounted to ₹2,50,000. The 5,000 shares were issued on 1st January, 2020 at a premium of ₹5 per share. ₹1,37,500 was paid in March 2020 by way of income tax including tax on distribution of dividend. Dividend was paid as follows: for 2020 (final) on the capital on 31-12-2019 @ 10% less tax 25%. For 2020 (interim) 5% on capital on 31st March, 2020 free of tax.

Solution:

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Illustration 15

From the following figures of LK Ltd. prepare a Cash Flow Statement:

Particulars	31.03.2020 (₹)	31.03.2021 (₹)
Equity Share Capital	12,00,000	16,00,000
10% Preference Share Capital	4,00,000	2,80,000
Capital Reserve		40,000
General Reserve	6,80,000	8,00,000
Profit and Loss Account	2,80,000	4,04,000
9% Debentures	4,00,000	2,80,000
Current Liabilities	4,80,000	5,36,000
Provision for Tax	3,60,000	3,40,000
Total Equity and Liabilities	38,00,000	42,80,000
Fixed Assets	32,00,000	38,00,000
Less Depreciation	9,20,000	11,60,000
Net Fixed Assets	22,80,000	26,40,000
Investments	4,00,000	3,20,000
Cash	10,000	10,000
Other Current Assets	11,10,000	13,10,000
Total Assets	38,00,000	42,80,000

Additional information:

1. The company sold one fixed asset for ₹1,00,000 the cost of which was ₹ 2,00,000 and the depreciation provided on it was ₹ 80,000.
2. The company also decided to right off another fixed asset costing ₹ 56,000 on which depreciation amounting to ₹ 40,000 has been provided.
3. Depreciation on fixed assets provided ₹3,60,000.
4. Company sold some investment at a profit of ₹ 40,000, which was credited to Capital
5. Debentures and preference share capital where redeemed at 5%
6. Company decided to value stock at cost, whereas previously, the practice was to Value stock at cost less 10%. The stock according to book on 31st March 2020 was ₹ 2,16,000. The stock as on 31st March 2021 was correctly valued at ₹ 3,00,000.                                                    

Solution:

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• Solved Case Study

Given below is the Statement of Profit and Loss Account of ABC Ltd. and relevant Balance Sheet information:

Statement of Profit and Loss for the year ended 31st March, 2021             (₹ in lakhs)

Particulars	Note No.	As at 31st March, 2021	As at 31st March, 2020
I Revenue from Operation		4,150
II Other Income		100
III TOTAL INCOME (I+II)		4,250
IV EXPENSES:
(a) Cost of material consumed
(b) Purchase of products for sale		2,400
(c) Changes in inventories of finished goods, work-in-progress and products for sale		(20)
(d) Employees cost/ benefits expenses		800
(e) Finance cost		60
(f) Depreciation and amortization expenses		100
(g) Other expenses		200
TOTAL EXPENSES		3,540
V PROFIT BEFORE EXCEPTIONAL ITEMS AND TAX (III-IV)		710
VI EXCEPTIONAL ITEMS		-
VII PROFIT BEFORE TAX FROM CONTINUING OPERATIONS (V-VI)		710
VIII Tax expenses:
(1) Current Tax		200
(2) Deferred Tax		-
IX PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS (VII-VIII)		510
X Profit (loss) from discontinued operations		-
XI Tax expenses from discontinued operations		-
XII Profit (loss) from discontinued operations (after tax) (X-XI)		-
XIII PROFIT (LOSS) FOR THE PERIOD (XI+XII)		510
XIV Other Comprehensive Income		--
XV Total Comprehensive Income (XIII+XIV)		510
XVI Earnings per equity share:
(1) Basic
(2) Diluted
Balance brought forward from previous year		50
Profit available for appropriation		560
Appropriation:
Dividend		300
Transfer to General Reserve		200
Total		500
Balance carried forward		60

Notes on Accounts

1. Revenue from operation	As at 31st March, 2021	As at 31st March, 2020
Sales (net of Excise Duty)	4,150
Total	4,150

 

2. Other Income		As at 31st March, 2021	As at 31st March, 2020
Interest and Dividend		100
Total		100

 

3. Employees Cost/ Benefits Expenses		As at 31st March, 2021	As at 31st March, 2020
Wages and Salaries		800
Total		800

 

4. Finance Expenses		As at 31st March, 2021	As at 31st March, 2020
Interest		60
Total		60

 

Relevant Balance Sheet Information	31-03-2021 (₹ in lakhs)	31-03-2020 (₹ in lakhs)
Debtors	400	250
Inventories	200	180
Creditors	250	230
Outstanding Wages	50	40
Outstanding Expenses	20	10
Advance Tax	195	180
Tax Provision	200	180

Prepare the Cash Flow from Operating Activities of the company under (a) Direct Method and (b) Indirect Method.

Solution:

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---

EXERCISE

A. Theorectical Questions

• Multiple Choice Questions

1. Which of the following items would be subtracted from net income when using the indirect method of calculating cash flows provided by operating activities?

1. Depreciation expense
2. Repayment of bonds payable
3. A gain on the sale of land
4. A loss on the sale of equipment

Answer: c. A gain on the sale of land

2. Which of the following would be considered a cash-flow item from a “financing” activity?

1. A cash outflow to the government for taxes
2. A cash outflow to repurchase the firm’s own common stock
3. A cash outflow to lenders as interest
4. A cash outflow to purchase bonds issued by another company

Answer: b. A cash outflow to repurchase the firm’s own common stock

3. The method for presenting Net cash provided by operating activities that starts with net income and adjusts it for items that affected reported net income but that did not affect cash is called as            .

1. Direct method
2. Working capital method
3. Indirect method
4. Cost-benefit method

Answer: c. Indirect method

4. Under which activites cash paid for preferred stock dividends should be shown on the statement of cash flows?

1. Investing activities
2. Financing activities
3. Noncash investing and financing activities
4. Operating activities

Answer: b. Financing activities

5. Which of the following would not be considered a cash flow from “operating” activities?

1. Payments for the inventory
2. Collection from customers
3. Tax payments
4. Payment of debt principle

Answer: d. Payment of debt principle

6. Under which of the following, a business must generate positive net cash flow for it to survive in the long run?

1. Investing activities
2. Financing activities
3. Operating activities
4. Non cash activities

Answer: c. Operating activities

7. Depreciation is added back to profit when arriving at the cash flow from operating activities as .

1. Depreciation is a non-cash expenditure
2. Depreciation does not affect profit
3. Depreciation only affects the balance sheet, not the profit and loss account
4. None of Above

Answer: a. Depreciation is a non-cash expenditure

8. Which of the following would not represent the cash outflows for the business?

1. Purchase of building for cash
2. The sale of land for cash
3. Retirement of long-term debt
4. The payment of cash for dividends

Answer: b. The sale of land for cash

9. The statement of cash flows does not include cash inflows and outflows for which of the following activities?

1. Financing activities
2. Investing activities
3. Operating activities
4. Revenue activities

Answer: d. Revenue activities

10. Sale of copyright is concerned with cash flow from .

1. Operating activities
2. Financing activities
3. Investing activities
4. Revenue activities

Answer: c. Investing activities

• Strate True or False

1. Dividend received by enterprise other than financial enterprise is shown as cash flow from investing activity. False 
2. Cash collection from customer is shown as a part of calculation of cash flow from operating activities under direct method. True 
3. Increase in the amount of bills receivable amounts to increase in cash flow from operating activities. False 
4. Payment of income tax is classified under cash flow from financing activity. False 
5. Interest paid by an investment company will come under cash flow from operating activity. True

• Fill in the blanks:

1. For a finance company interest income is a Cash Flow from Operating Activity. 
2. Investing and financing transactions that do not require the use of cash or cash equivalents shall be excluded from a statement of cash flows.
3. Income from dividend and interest is a part of Investing Activity. 
4. For a company other than a finance company payment of interest is a Financing activity.
5. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

• Short Essay Type Questions

1. State the benefits of cash flow

Answer: 

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2. How will you treat interest and dividend in cash flow statement?

Answer: 

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3. How will you treat taxes on income in cash flow statement?

Answer: 

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4. How will you treat foreign currency cash flow in cash flow statement?

Answer: 

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• Essay Type Questions

1.  State the difference between Ind AS 7 and AS 3 with respect to preparation and presentation of cash flow statement.

Answer: 

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2. State the disclosure requirements of Ind AS 7.

Answer: 

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B. Practical Questions

• Numerical Multiple-Choice Questions

1. Net profit for the year ₹15,000, interest received in advance on 1st January 2021 ₹2,000 and 31st December 2021 ₹3,000, cash from operation will be –

1. ₹16,000
2. ₹22,000
3. ₹13,000
4. ₹15,000

Answer: a. ₹16,000

2. X purchased machinery of ₹10,00,000 issuing a cheque of ₹2,50,000 and 105 Debentures of ₹7,50,000. In the cash flow statement, the transaction will be shown as                                     .

1. Outflow under investing activity ₹10,00,000, inflow under financing activity as receipt for debentures ₹7,50,000
2. Outflow under investing activity ₹2,50,000
3. Inflow of ₹7,50,000 as financing
4. None of the above

Answer: b. Outflow under investing activity ₹2,50,000

3. Given salary expenses ₹40,000, Outstanding in the beginning of the year ₹5,000 and outstanding at the end of the year ₹10,000. Cash outflow on salary will be .

1. ₹55,000
2. ₹45,000
3. ₹35,000
4. ₹15,000

Answer: c. ₹35,000

4. If the net profits earned during the year is ₹50,000 and the amount of debtors in the beginning and end of the year is ₹10,000 and ₹20,000 respectively, then the cash from operating activities will be equal to .

1. ₹30,000
2. ₹40,000
3. ₹50,000
4. ₹60,000

Answer: b. ₹40,000

5. If the net profits earned during the year is ₹50,000 and the bills receivables have decreased by ₹10,000 during the year then the cash flow from operating activities will be equal to                                         .

1. ₹30,000
2. ₹40,000
3. ₹50,000
4. ₹60,000

Answer: b. ₹40,000

• Comprehensive Numerical Problems

1. From the following information provided, prepare a Cash Flow Statement of XYZ as per Ind AS-7. 

Balance Sheet of XYZ Ltd.

Particulars	Note No.	As on 31.03.21	As on 31.03.20
I. Assets
1. Non-current Assets
(a) PPE	2	704,000	648,000
(b) Non-current Investment		296,000	440,000
2. Current Assets
(a) Inventories		424,000	328,000
(b) Trade Receivables		172,000	268,000
(c) Cash and Cash Equivalent		360,000	360,000
(d) Short term loan and advances (Prepaid Expenses)		8,000	4,000
Total		1,964,000	2,048,000
II. Equity and Liabilities
1. Equity
(a) Share Capital		920,000	920,000
(b) Other Equity	1	332,000	304,000
2. Liability
Non-Current Liability
(a) Long Term Borrowings (10% debentures)		280,000	360,000
Current Liabilities
(a) Trade Payables		384,000	412,000
(b) Short term Provisions (Provision for Tax)		48,000	52,000
Total		1,964,000	2,048,000

Notes to Accounts:

Particulars	As on 31.03.21	As on 31.03.20
1. Reserve & Surplus
Balance of Profit	92,000	64,000
General Reserve	240,000	240,000
Total	332,000	304,000
2. PPE
(a) Land	600,000	600,000
Machinery (Gross Block)	280,000	208,000
Provision for Depreciation	176,000	160,000
(b) Machinery (Net Block)	104,000	48,000
(a)+(b)	704,000	648,000

Additional information:

1. 10% dividend was paid during the
2. Machinery for ₹ 12,000 was purchased and old machinery costing ₹ 48,000 (accumulated depreciation ₹ 24,000) was sold for ₹ 16,000.
3. ₹ 80,000, 8% debentures were redeemed by purchase from open market at ₹96 for a Debenture of ₹100.
4. Investments worth ₹1,44,000 were sold at a loss of ₹4,000.
5. Actual income tax liability for the year amounted to ₹40,000.

Answer:

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2. The following are the summarized Balance Sheets of ABC Limited as on 31st March 2020 and 2021:

Liabilities		31.3.20 (₹)	31.3.21 (₹)	Assets		31.3.20 (₹)	31.3.21 (₹)
Share Capital		4,60,000	4,60,000	Land & Building		3,00,000	3,00,000
Profit & Loss Balance		32,000	46,000	Machinery		1,04,000	1,40,000
Reserve		1,20,000	1,20,000	Investments		2,20,000	1,48,000
8% Debentures		1,80,000	1,40,000	Stock		1,64,000	2,12,000
Depreciation Fund		80,000	88,000	Debtors		1,34,000	86,000
Creditors		2,06,000	1,92,000	Cash		1,80,000	1,80,000
Outstanding Expenses		26,000	24,000	Prepaid Expenses		2,000	4,000
Total		11,04,000	10,70,000	Total		11,04,000	10,70,000

Additional Information:

• 10% Dividend was paid during the
• Old Machinery costing ₹24,000 (accumulated depreciation ₹ 12,000) was sold for ₹ 8,000.
• 40,000 8% Debenture were redeemed by purchase from open market at ₹ 96 for a debenture of ₹ 100 on 03.2017.
• Investments worth ₹ 72,000 were sold at book
• Bad debt written off during the year ₹ 10,000.

Prepare a Statement of Cash flow for the year ended 31.03.21.

Answer:

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3. On the basis of the following information provided by X prepare a Cash Flow Statement for the year ended on 31st March 2021.

1. X sold all the goods for cash only and purchased the goods in credit only.
2. The company earned a Gross Profit of ₹4,00,000 with a Gross Profit Ratio of 25%.
3. The closing inventory was higher than the opening inventory by ₹20,000.
4. The company paid ₹4,50,000 as wages and ₹90,000 as office expenses during the
5. Balance of Suppliers accounts on 03.2020 were higher than the balance on 31.03.2021 by ₹30,000.
6. Tax paid by the company amounts to ₹80,000 while provision for taxation was ₹70,000.
7. The company repaid bank loan of ₹1,75,000 which included interest of ₹15,000.
8. Dividend paid during the year ₹50,000 (including dividend distribution tax).
9. X sold investments of ₹6,00,000 at a profit of ₹40,000.
10. Depreciation charged on fixed assets ₹1,20,000.
11. Furniture purchased during the year ₹2,00,000.
12. Cash and Cash Equivalents as on 03.2020 was ₹1,00,000.
13. Cash and Cash Equivalents as on 03.2021 was ₹4,95,000.

Answer:

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4. Following are the summarized Balance Sheets of Beta Ltd.

Liabilities		31.03.20	31.03.21	Assets		31.03.20	31.03.21
Equity Share Capital (₹ 10)		4,00,000	5,00,000	Land and Building		4,00,000	3,80,000
General Reserve		1,00,000	1,20,000	Plant and Machinery		3,00,000	3,38,000
Profit and Loss (Cr.)		61,000	61,200	Inventory		2,00,000	1,48,000
Bank Loan		1,40,000	-	Trade Receivable		1,60,000	1,28,400
Trade Payable		3,00,000	2,70,400	Cash in Hand		1,000	1,200
Provision for Taxation		60,000	70,000	Cash at Bank		-	16,000
				Goodwill		-	10,000
Total		10,61,000	10,21,600	Total		10,61,000	10,21,600

Additional Information:

1. Dividend paid during the year ₹46,000.
2. Net profit for the year ₹1,32,200.
3. Depreciation written off on building ₹20,000 and on machinery ₹28,000.
4. Income tax paid during the year ₹56,000.
5. The following assets of another company were purchased for a consideration of ₹1,00,000 and paid in Assets were: Inventory ₹40,000 and Machinery ₹50,000.
6. Further machinery was purchased for ₹50,000 during the year. You are required to prepare a Cash Flow Statement as per Ind AS 7.

Answer: 

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5. The following figures have been extracted from the books of M Limited for the year ended on 3.2021. You are required to prepare a Cash Flow Statement.

1. Net profit, before adjusting income tax but after taking into account the following items, was ₹10
   • Depreciation on Assets ₹2,50,000.
   • Discount on issue of Debentures written off ₹15,000.
   • Interest on Debentures paid ₹1,75,000.
   • Book value of investments ₹1,50,000 (Sold for ₹1,60,000).
   • Interest received on investments ₹30,000.
2. Income tax paid during the year ₹4,80,000.
3. 7,500 10% preference shares of ₹100 each were redeemed on 31.3.2021 at a premium of 5%. Further the company issued 25,000 equity shares of ₹10 each at a premium of 20% on 2.4.2020. Dividend on preference shares were paid at the time of redemption.
4. Dividends paid for the year 2019-20 ₹2,50,000 and interim dividend paid ₹ 1,50,000 for the year 2020-21.
5. Land was purchased on 2.4.2018 for ₹ 1,20,000 for which the company issued 10,000 equity shares of ₹10 each at a premium of 20% to the land owner as consideration.
6. Current assets and liabilities were as follows:

Particulars	31.03.2020 (₹)	31.03.2021 (₹)
Stock	6,00,000	6,59,000
Sundry Debtors	1,04,000	1,06,550
Cash in Hand	98,150	17,650
Bills Receivable	25,000	20,000
Bills Payable	22,500	20,000
Sundry Creditors	83,000	85,650
Outstanding Expenses	37,500	40,900

Answer: 

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• Unsolved Case

1. Balance Sheet of Y Ltd. as on 31.03.2021 and 31.03.2020 [Figures in ₹ ’000]

Particulars	Notes No.	31.03.2021	31.03.2020
I. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment	4	5,100	5,200
2. Current Assets
(a) Inventory		1,400	1,550
(b) Trade Receivables		800	650
(c) Cash and Cash Equivalent		400	600
(d) Other Current Assets	5	65	80
TOTAL		7,765	8,080
II. EQUITY AND LIABILITIES
1. Equity
(a) Equity Share Capital (₹10 each fully paid)		4,300	4,000
(b) Other Equity	1	640	980
2. Liabilities
Non-Current Liabilities
(a) Long-term Borrowing	2	2,050	2,200
Current Liabilities
(a) Trade Payables		650	800
(b) Short-term Provision	3	125	100
TOTAL		7,765	8,080

Notes to the Financial Statements (₹’000)

Particulars	31.03.2021	31.03.2020
1. Reserve & Surplus
(a) Profit and Loss	640	980
2. Long-term Borrowings
(a) 10% Debentures	2,050	2,200
3. Short-term Provision
(a) Provision for Taxation	125	100
4. Property, Plant and Equipment
(a) Building	1,900	2,000
(b) Machinery	1,700	1,400
(c) Land	1,500	1,800
Total	5,100	5,200
5. Other Current Asset
(a) Prepaid Expenses	65	80

The accountant of Y Ltd. has finalized the accounts and prepared its Balance Sheet with supporting Notes

given above. In addition, he has the following information.

1. Dividend paid during the year ₹4,50,000.
2. Land was sold for cash at a profit of ₹50,000.
3. Machinery costing ₹2,00,000 (W.D.V. ₹40,000) was sold for ₹30,000. Also costing ₹6,00,000 was
4. Amount transferred to provision for taxation during the year ₹1,60,000.
5. Depreciation Funds as on 3.2020 and 31.3.2021 on Building were ₹5,00,000 and ₹6,00,000 and on Machinery were ₹2,00,000 and ₹3,00,000.

Assist him in preparing a Cash Flow Statement for the year ended 31.03.2021 as per Ind AS 7.

Answer: 

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