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, , 4.78, , ACCOUNTING, , 4, , UNIT 2: CASH FLOW STATEMENTS, LEARNING OUTCOMES, After studying this unit, you will be able to–, , , Define cash flow statement as per AS 3 “Cash Flow, Statements”., , , , Differentiate operating, investing and financing activities., , , , Learn the various elements of cash and cash equivalents., , , , Prepare cash flow statement both by direct method and, indirect method., , © The Institute of Chartered Accountants of India

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FINANCIAL STATEMENTS OF COMPANIES, , Definition &, Significance of, cash flow, statement, , Difference, between, operating,, investing and, financing, activities., , Meaning of Cash, & cash, equivalents and, Cash flow, , 4.79, , Preparation of, Cash Flow, Statement, as per AS 3., , 2.1 INTRODUCTION, Information about the cash flows of an enterprise is useful in providing users of, financial statements with a basis to assess the ability of the enterprise to generate, cash and cash equivalents and the needs of the enterprise to utilise those cash, flows. The economic decisions that are taken by users require an evaluation of the, ability of an enterprise to generate cash and cash equivalents and the timing and, certainty of their generation., The Standard deals with the provision of information about the historical changes, in cash and cash equivalents of an enterprise by means of a cash flow statement, which classifies cash flows during the period from operating, investing and, financing activities., This statement provides relevant information in assessing a company’s liquidity,, quality of earnings and solvency., , cash receipts, Cash, Flow, Statement, is, summary of, , Cash, payments, , © The Institute of Chartered Accountants of India

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4.80, , ACCOUNTING, , Benefits:, (a), , Cash flow statement provides information about the changes in cash and cash, equivalents of an enterprise., , (b), , Identifies cash generated from trading operations., , (c), , The operating cash surplus which can be applied for investment in fixed, assets., , (d), , Portion of cash from operations is used to pay dividend and tax and the other, portion is ploughed back., , (e), , Very useful tool of planning., , Purpose:, Cash flow statements are prepared to explain the cash movements between two, points of time., , Sources of Cash:, 1., , Issue of shares and debentures and raising long-term loan., , 2., , Sale of investments and other fixed assets., , 3., , Cash from operations (Net Operating Profit)., , Applications of Cash, 1., , Redemption of preference shares and debentures and repayment of longterm loan., , 2., , Purchase of investments and other fixed assets., , 3., , Payment of tax., , 4., , Payment of dividend., , 5., , Loss on Operation (Net Operating Loss), , Note – Cash includes Bank Account also. Increase in cash or decrease in cash is put, in the applications and the sources respectively just to balance the cash flow, statement. At this juncture, you may note that changes in all balance sheet items, are to be taken into consideration separately in cash flow statement for explaining, movement of cash., , © The Institute of Chartered Accountants of India

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FINANCIAL STATEMENTS OF COMPANIES, , 4.81, , 2.2 ELEMENTS OF CASH, As per AS 3, issued by the Council of the ICAI,, ‘Cash’ include:, (a), , Cash in hand,, , (b), , Demand deposits with banks, and, , Cash equivalents include:, (a), , (b), , Components, , , Short term highly liquid investments that are readily convertible into, known amounts of cash and which are subject to an insignificant risk of, changes in value, , , , Securities with short maturity period of, say, three months or less from, the date of acquisition, , Objective, , , (c), , Deploy, for a short period, idle cash required to meet short-term cashcommitments., , Examples, , , Acquisition of preference shares, shortly before their specified, redemption date, bank deposits with short maturity period, etc., , Conclusion: Thus, cash flow statement deals with flow of cash funds but does not, consider the movements among cash, bank balance payable on demand and, investment of excess cash in cash equivalents. Examples are cash withdrawn from, current account, cash deposited in bank for 60 days, etc., , 2.3 CLASSIFICATION OF CASH FLOW ACTIVITIES, AS 3 provides explanation for changes in cash position of the business entity. As, per Accounting Standard 3, cash flows during the period are classified as Operating;, Investing and Financing activities., , © The Institute of Chartered Accountants of India

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4.82, , ACCOUNTING, , Cash Flow Activities, , Inflow of Activities, , Outflow of Activities, , Cash increase, , Cash decrease, , Classification of Cash Flow Activities, Operating activities, (principle revenue, generating), , Investing activities, , (acquisition and, disposal of longterm assets and, other investments), , Financing activities, (changes in the size, and composition of, the owner’s capital, and borrowings), , 2.3.1 Operating Activities, 1., , Definition: These are the principal revenue generating activities of the, enterprise., , 2., , Net Impact: Net impact of operating activities on flow of cash is reported as, ‘Cash flows from operating activities’ or ‘cash from operations’., , 3., , Key Indicator: The amount of cash flows from operating activities is a key, indicator of the extent to which the operations of the enterprises have, generated sufficient cash flows to:, (a), , Maintain the operating capability of the enterprise;, , (b), , Pay dividends, repay loans; and, , (c), , Make new investments without recourse to external sources of, financing., , 4., , Information Provided: It provides useful information about financing through, working capital., , 5., , Benefits: Information about the specific components of historical operating, cash flows is useful, in conjunction with other information, in forecasting, future operating cash flows., , © The Institute of Chartered Accountants of India

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FINANCIAL STATEMENTS OF COMPANIES, , 4.83, , Cash flows arising from operating activities, Example, , Key indicator of the extent to, , which the operations of the, , entity have generated sufficient, cash flows to, •, •, , repay loans, maintain, , rendering of services, , the, , operating, , capability of the entity, •, •, , pay dividends, make, , without, , external, , new, , Primarily, principal, , investments, , recourse, , financing, , (a) Cash receipts from the sale of goods and the, , sources, , derived, , from, , to, of, , the, , revenue-producing, , (b), , Cash receipts from royalties, fees, commissions,, and other revenue, , (c), , Cash payments to suppliers for goods and, services, , (d), , Cash payments to and on behalf of employees, , (e), , Cash receipts and cash payments of an, insurance entity for premiums and claims,, annuities, and other policy benefits, , (f), , Cash payments or refunds of income taxes, unless they can be specifically identified with, financing and investing activities, , (g), , cash receipts and payments relating to futures, contracts, forward contracts, option contracts, and swap contracts when the contracts are held, for dealing or trading purposes., , (h), , Cash flows arising from the purchase and sale, of dealing or trading securities, , (i), , Cash advances and loans made by financial, institutions since they relate to their main, revenue-producing activity, , activities of the entity, , Generally,, , result, , from, , the, , transactions and other events, that, , have, , role, , in, , the, , determination of net profit or, loss, , 2.3.2 Investing activities, 1., , Definition: These are the acquisition and disposal of long-term assets and, other investments not included in cash equivalents., , 2., , Separate Disclosure: Separate disclosure of cash flows arising from investing, activities is important because the cash flows represent the extent to which, the expenditures have been made for resources intended to generate future, incomes and cash flows., , © The Institute of Chartered Accountants of India

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4.84, , ACCOUNTING, , Cash flows arising from investing activities, , Represent, which, , the, , extent, , expenditures, , to, , Examples, , have, , been made for resources, , intended to generate future, income and cash flows, , (a), , cash payments to acquire fixed assets (including, intangibles). These payments include those relating to, capitalised research and development costs and selfconstructed fixed assets;, , (b), , cash receipts from sales of property, plant and, equipment, intangibles and other long-term assets;, , (c), , cash payments to acquire equity or debt instruments of, other entities and interests in joint ventures (other than, payments for those instruments considered to be cash, equivalents or those held for dealing or trading, purposes);, , (d), , cash receipts from sales of equity or debt instruments, of other entities and interests in joint ventures (other, than receipts for those instruments considered to be, cash equivalents and those held for dealing or trading, purposes);, , (e), , cash advances and loans made to other parties (other, than advances and loans made by a financial, institution);, , (f), , cash receipts from the repayment of advances and loans, made to other parties (other than advances and loans, of a financial institution);, , (g), , cash payments for futures contracts, forward contracts,, option contracts and swap contracts except when the, contracts are held for dealing or trading purposes, or, the payments are classified as financing activities; and, , (h), , cash receipts from futures contracts, forward contracts,, option contracts and swap contracts except when the, contracts are held for dealing or trading purposes, or, the receipts are classified as financing activities., , © The Institute of Chartered Accountants of India

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4.85, , FINANCIAL STATEMENTS OF COMPANIES, , 2.3.3 Financing activities, 1., , Definition: These are the activities that result in changes in the size and, composition of the owner’s capital (including preference share capital) and, borrowings of the enterprise., , 2., , Separate Disclosure: The separate disclosure of cash flows arising from, financing activities is important because it is useful in predicting claims on, future cash flows by providers of funds (both capital and borrowings) to the, enterprise., , Cash flows arising from financing activities, , useful in predicting claims, on future cash flows by, providers of capital to the, entity, , Examples, , (a) cash proceeds from issuing shares or, other equity instruments;, (b) cash payments to owners to acquire or, redeem the entity’s shares;, (c), , cash proceeds from issuing debentures,, loans, notes, bonds, mortgages and other, short-term or long-term borrowings;, , (d) cash repayments of amounts borrowed;, and, (e) cash payments by a lessee for the, reduction of the outstanding liability, relating to a finance lease., , 2.4 CALCULATION OF CASH, OPERATING ACTIVITIES, 1., , FLOWS, , FROM, , Components: Cash flows from operating activities result from the transactions, and other events that enter into the determination of net profit or loss., , © The Institute of Chartered Accountants of India

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4.86, 2., , ACCOUNTING, , Methods: An enterprise can determine cash flows from operating activities, using either:, Methods, Direct Method, , Indirect Method, , (a), , Direct Method: The direct method, whereby major classes of gross cash, receipts and gross cash payments are considered; or, , (b), , Indirect Method: The indirect method, whereby net profit or loss is, adjusted for the effects of transactions of a non-cash nature, deferrals, or accruals of past or future operating cash receipts or payments, and, items of income or expense associated with investing or financing, activities., , 2.4.1 Direct Method, 1., , Information Required, (a), , Gross receipts and gross cash payments may be obtained from the, accounting records to ascertain cash flows from operating activities., , (b), , For example,, , (c), , (i), , information about cash received from trade receivables,, , (ii), , payment to trade payables, cash expenses etc., which may be, obtained by an analysis of cash book., , In actual practice, the relevant information is obtained by adjusting, sales, cost of sales and other items in the profit and loss accounts for:, , , Changes during the period in inventories and operating, receivables and payables;, , , , Other non-cash items such as depreciation on fixed assets,, goodwill written off, preliminary expenses written off, loss or gain, on sale of fixed assets etc.; and, , , , Other items for which the cash effects are investing or financing, cash flows. Examples are interest received and paid, dividend, received and paid etc., which are related to financing or investing, activities and are shown separately in the cash flow statement., , © The Institute of Chartered Accountants of India

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FINANCIAL STATEMENTS OF COMPANIES, , 4.87, , 2., , The direct method provides information which may be useful in estimating, future cash flows and which is not available under the indirect method and is,, therefore, considered more appropriate than the indirect method., , 3., , However, indirect method of determining the cash from operating activities, is more popular in actual practice., , 2.4.2 Indirect Method, Under the indirect method, the net cash from operating activities is determined by, adjusting net profit or loss instead of individual items appearing in the profit and, loss account. Net profit or loss is also adjusted for the effect of:, (a), , changes during the period in inventories and operating receivables and, payables;, , (b), , non-cash items such as depreciation; and, , (c), , all other items for which the cash effects are financing or investing cash flows., , 2.4.3 Conclusion, 1., , It is worth noting that both direct and indirect methods adjust current assets, and current liabilities related to operating activities to determine cash from, operating activities., , 2., , But direct method adjust individual items of profit and loss account and, indirect method adjusts overall net profit (or loss) to determine cash from, operation., , 3., , Therefore, indirect method fails to provide break-up of cash from operations., , Proforma of ‘Cash Flow from Operating Activities’ by indirect method, , `, Net Profit for the year, , Add: Non-Cash and Non-Operating Expenses:, Depreciation, , Loss on Sale of Assets, , Provision for taxation, etc., , Less: Non-Cash and Non-Operating Incomes:, Profit on Sale of Assets, , Net Profit after Adjustment for Non-Cash Items, © The Institute of Chartered Accountants of India, , -, , -, , -, , (-)

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4.88, , Cash from operation, , ACCOUNTING, , =, , Net Profit (after adjustment for Non-cash Items), , +, , Decrease in Current Assets, , -, , +, -, , Increase in Current Assets, , Increase in Current Liabilities, , Decrease in Current Liabilities, , 2.5 CALCULATION OF CASH, INVESTING ACTIVITIES, , FLOWS, , FROM, , 1., , These activities are related to the acquisition and disposal of long-term assets,, non-operating current assets and investments which results in outflow of cash., , 2., , Disposal of the aforesaid assets results in inflow of cash., , 3., , Thus, inflows and outflows related to acquisition and disposal of assets, other, than those related to operating activities, are shown under this category., , 1., , 2.6 CALCULATION OF CASH, FINANCING ACTIVITIES, , FLOWS, , FROM, , These activities are basically related to the changes in capital and borrowing, of the enterprise which affect flow of cash., , 2., , Redemption of shares and repayment of borrowings results in outflow of cash., , 3., , Thus inflows and outflows related to the amount of capital and borrowings, of the enterprise are shown under this head., , Note: Students are advised to refer full text of Accounting Standard on Cash Flow, Statements (AS 3) for the better understanding of the chapter., , 2.7 ILLUSTRATIONS, , Illustration 1, , Intelligent Ltd., a non-financial company has the following entries in its Bank, Account. It has sought your advice on the treatment of the same for preparing Cash, Flow Statement., (i), , Loans and Advances given to the following and interest earned on them:, (1), , to suppliers, , © The Institute of Chartered Accountants of India

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FINANCIAL STATEMENTS OF COMPANIES, , (ii), , (2), , to employees, , (3), , to its subsidiaries companies, , 4.89, , Investment made in subsidiary Smart Ltd. and dividend received, , (iii) Dividend paid for the year, (iv), , TDS on interest income earned on investments made, , (v), , TDS on interest earned on advance given to suppliers, , (vi), , Insurance claim received against loss of fixed asset by fire, , Discuss in the context of AS 3 Cash Flow Statement., Solution, (i), , (ii), , Loans and advances given and interest earned, (1), , to suppliers, , Operating Cash flow, , (2), , to employees, , Operating Cash flow, , (3), , to its subsidiary companies, , Investing Cash flow, , Investment made in subsidiary company and dividend received, Investing Cash flow, , (iii), , Dividend paid for the year, Financing Cash Outflow, , (iv), , TDS on interest income earned on investments made, Investing Cash Outflow, , (v), , TDS on interest earned on advance given to suppliers, Operating Cash Outflow, , (vi), , Insurance claim received of amount loss of fixed asset by fire, Extraordinary item to be shown under a separate heading as ‘Cash inflow from, investing activities’., , © The Institute of Chartered Accountants of India

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4.90, , ACCOUNTING, , Illustration 2, Following are extracts of the Balance Sheets of Ajay Ltd.:, Particulars, , Notes, , 31.3.20X1 31.3.20X2, , `, , `, , Equity and Liabilities, (a), (b), (a), (a), , Shareholder’s funds, Share capital, , Reserve & surplus, Non-current liabilities, , Long-term borrowings, Current liabilities, , Other current liabilities, , 1, , 5,00,000, , 5,00,000, , 3, , 5,00,000, , 7,50,000, , 4, , ---, , 5,000, , 5, , 2,05,000, , 1,80,000, , 2, , 50,000, , 90,000, , Assets, (a), , Non-current assets, Intangible assets, , Notes to accounts, , 1, , Share Capital, 50,000 Equity Shares of `10 each, , 2, , Reserve & surplus, Profit & Loss A/c, , 3, , Long-term borrowings, , 4, , Other current liabilities, , 5, , Intangible assets, Goodwill, , 10% Debentures, Unpaid interest, , 31.3.20X1, , 31.3.20X2, , `, , `, , 5,00,000, , 5,00,000, , 50,000, , 90,000, , 5,00,000, , 7,50,000, , ---, , 5,000, , 2,05,000, , 1,80,000, , You are required to show the related items in Cash Flow Statement., , © The Institute of Chartered Accountants of India

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FINANCIAL STATEMENTS OF COMPANIES, , 4.91, , Solution, An Extract of Cash Flow Statement for the year ending 31.3.20X2, , `, , Cash flows from operating activities:, Closing balance as per Profit & Loss A/c, , 90,000, , Less: Opening balance as per Profit & Loss Alc, Add: Goodwill amortisation, , (50,000), 25,000, , Net Cash from Operating Activities, , 1,40,000, , Add: Interest on Debentures (Refer Note 1), , 75,000, , Note 1: Interest has been computed on the closing balance of debentures as on, 31.3.20X2 assuming that all the additions/ deletions were made, if any, at the, beginning of the year., Cash flows from financing activities:, Proceeds from debentures (Refer Working Note), , 2,50,000, , Net Cash from Financing Activities, , 1,80,000, , Interest paid on Debentures [less unpaid], , (70,000), , Working Note:, 10% Debentures Account, Particulars, To Balance c/d, , ` Particular, , `, , 7,50,000 By Balance b/d, By Bank A/c (Bal. fig.), , 5,00,000, 2,50,000, , 7,50,000, , 7,50,000, , Illustration 3, From the following information, calculate cash flow from operating activities:, Summary of Cash Account, for the year ended March 31, 20X1, Particulars, , Particulars, , `, , `, , To Balance b/d, , 1,00,000, , By Cash Purchases, , 1,20,000, , To Cash sales, , 1,40,000, , By Trade payables, , 1,57,000, , © The Institute of Chartered Accountants of India

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4.92, , ACCOUNTING, , To Trade receivables, , 1,75,000, , By Office & Selling Expenses, , 75,000, , To Trade Commission, , 50,000, , By Income Tax, , 30,000, , To Sale of Investment, , 30,000, , By Investment, , 25,000, , By Repayment of Loan, , 75,000, , By Interest on loan, , 10,000, , To Loan from Bank, To Interest & Dividend, , 1,00,000, 1,000, , By Balance c/d, , 1,04,000, , 5,96,000, , 5,96,000, , Solution, Cash Flow Statement of ……, for the year ended March 31, 20X1(Direct Method), Particulars, , Operating Activities:, , Cash received from sale of goods, , Cash received from Trade receivables, Trade Commission received, Less: Payment for Cash Purchases, Payment to Trade payables, Office and Selling Expenses, , Payment for Income Tax, , Net Cash Flow used in Operating Activities, , `, , `, , 1,40,000, , 1,75,000, 50,000, 1,20,000, 1,57,000, , 75,000, 30,000, , 3,65,000, , (3,82,000), , (17,000), , Illustration 4, The following summary cash account has been extracted from the company’s, accounting records:, Summary Cash Account, (` ’000), , Balance at 1.3.20X1, , 35, , Receipts from customers, , 2,783, , Issue of shares, , 300, , Sale of fixed assets, Payments to suppliers, © The Institute of Chartered Accountants of India, , 128, , 2,047, , 3,246

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4.93, , FINANCIAL STATEMENTS OF COMPANIES, Payments for property, plant & equipment, , 230, , Taxation, , 243, , Payments for overheads, Wages and salaries, Dividends, , Repayments of bank loan, Balance at 31.3.20X2, , 115, 69, 80, , 250, , (3,034), 212, , Prepare Cash Flow Statement of this company Hills Ltd. for the year ended 31st, March, 20X2 in accordance with AS-3 (Revised)., The company does not have any cash equivalents., Solution, Hills Ltd., Cash Flow Statement for the year ended 31st March, 20X2, (Using direct method), Cash flows from operating activities, Cash receipts from customers, Cash payments to suppliers, Cash paid to employees, , Other cash payments (for overheads), Cash generated from operations, Income taxes paid, , (` ’000), 2,783, , (2,047), , (69), , (115), 552, , (243), , Net cash from operating activities, Cash flows from investing activities, Payments for purchase of fixed assets, Proceeds from sale of fixed assets, , 309, (230), 128, , Net cash used in investing activities, Cash flows from financing activities, , Proceeds from issuance of share capital, Bank loan repaid, , © The Institute of Chartered Accountants of India, , (102), 300, , (250)

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4.94, , ACCOUNTING, , Dividend paid, , (80), , Net cash used in financing activities, , (30), , Net increase in cash and cash equivalents, , 177, , Cash and cash equivalents at end of period, , 212, , Cash and cash equivalents at beginning of period, , 35, , Illustration 5, Prepare cash flow statement of M/s MNT Ltd. for the year ended 31 st March, 20X1, with the help of the following information:, (1), , Company sold goods for cash only., , (2), , Gross Profit Ratio was 30% for the year, gross profit amounts to ` 3,82,500., , (3), , Opening inventory was lesser than closing inventory by ` 35,000., , (4), , Wages paid during the year ` 4,92,500., , (5), , Office and selling expenses paid during the year ` 75,000., , (6), , Dividend paid during the year ` 30,000., , (7), , Bank loan repaid during the year ` 2,15,000 (included interest ` 15,000)., , (8), , Trade payables on 31st March, 20X0 exceed the balance on 31st March, 20X1 by, ` 25,000., , (9), , Amount paid to trade payables during the year ` 4,60,000., , (10) Tax paid during the year amounts to ` 65,000 (Provision for taxation as on, 31.03.20X1` 45,000)., (11) Investments of ` 7,00,000 sold during the year at a profit of ` 20,000., (12) Depreciation on fixed assets amounts to ` 85,000., (13) Plant and machinery purchased on 15 th November, 20X0 for ` 2,50,000., (14) Cash and Cash Equivalents on 31st March, 20X0` 2,00,000., (15) Cash and Cash Equivalents on 31st March, 20X1` 6,07,500., , © The Institute of Chartered Accountants of India

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FINANCIAL STATEMENTS OF COMPANIES, , 4.95, , Solution, M/s MNT Ltd., Cash Flow Statement for the year ended 31st March, 20X1, (Using direct method), Particulars, , `, , `, , Cash flows from Operating Activities, Cash sales (` 3,82,500/.30), Less: Cash payments for trade payables, Wages Paid, Office and selling expenses, , 12,75,000, (4,60,000), (4,92,500), (75,000) (10,27,500), , Cash generated from operations before taxes, , 2,47,500, , Income tax paid, , (65,000), , Net cash generated from operating activities (A), , 1,82,500, , Cash flows from investing activities, Sale of investments (7,00,000 + 20,000), Payments for purchase of Plant & machinery, , 7,20,000, (2,50,000), , Net cash used in investing activities (B), , 4,70,000, , Cash flows from financing activities, Bank loan repayment (including interest), Dividend paid, Net cash used in financing activities (C), , (2,15,000), (30,000), (2,45,000), , Net increase in cash (A+B+C), , 4,07,500, , Cash and cash equivalents at beginning of the period, , 2,00,000, , Cash and cash equivalents at end of the period, , 6,07,500, , © The Institute of Chartered Accountants of India

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4.96, , ACCOUNTING, , Illustration 6, Ryan Ltd provides you the following information at the year-end, March 31, 20X1:, , `, Sales, , 6,98,000, , Cost of Goods Sold, , (5,20,000), 1,78,000, , Operating Expenses, , (including Depreciation Expense of ` 37,000), Other Income / (Expenses):, Interest Expense paid, Interest Income received, , Gain on Sale of Investments, Loss on Sale of Plant, , (1,47,000), 31,000, , (23,000), 6,000, , 12,000, (3,000), , 16,000, , Information available:, , Less: Accumulated Depreciation, Investments (Long term), Inventory, , Trade receivables, Cash, , Prepaid expenses, Share Capital, , Reserves and surplus, © The Institute of Chartered Accountants of India, , (8,000), 23,000, (7,000), , Income tax, , Plant, , `, , 31st March, 20X1, , 31st March, 20X0, , `, , `, , 7,15,000, , 5,05,000, , 6,12,000, , 4,37,000, , 1,44,000, , 1,10,000, , (1,03,000), 1,15,000, 47,000, 46,000, , 1,000, , 4,65,000, 1,40,000, , (68,000), , 1,27,000, 55,000, 15,000, , 5,000, , 3,15,000, 1,32,000

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4.97, , FINANCIAL STATEMENTS OF COMPANIES, Bonds, , Trade payables, Outstanding liabilities, Income taxes payable, , 2,95,000, , 2,45,000, , 3,000, , 5,000, , 50,000, 12,000, , 43,000, 9,000, , Analysis of selected accounts and transactions during 20X0-X1, 1., , Purchased investments for ` 78,000., , 2., , Sold investments for ` 1,02,000. These investments cost ` 90,000., , 3., , Purchased plant assets for ` 1,20,000., , 4., , Sold plant assets that cost `10,000 with accumulated depreciation of ` 2,000, for ` 5,000., , 5., , Issued ` 1,00,000 of bonds at face value in an exchange for plant assets on, 31st March, 20X1., , 6., , Repaid ` 50,000 of bonds at face value at maturity., , 7., , Issued 15,000 shares of ` 10 each., , 8., , Paid cash dividends ` 8,000., , Prepare Cash Flow Statement as per AS-3 (Revised), using indirect method., Solution, Ryan Ltd., Cash Flow Statement, for the year ending 31st March, 20X1, , `, Cash flows from operating activities, Net profit before taxation, , 23,000, , Adjustments for:, Depreciation, , 37,000, , Gain on sale of investments, , (12,000), , Loss on sale of plant assets, , 3,000, , Interest expense, , 23,000, , Interest income, , (6,000), , © The Institute of Chartered Accountants of India, , `

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4.98, , ACCOUNTING, , Operating profit before working capital changes, Decrease in trade receivables, Increase in inventory, , 68,000, 8,000, (34,000), , Decrease in prepaid expenses, , 4,000, , Increase in trade payables, , 7,000, , Increase in outstanding liabilities, , 3,000, , Cash generated from operations, , 56,000, , Income taxes paid*, , (9,000), , Net cash generated from operating activities, , 47,000, , Cash flows from investing activities, Purchase of plant, Sale of plant, , (1,20,000), 5,000, , Purchase of investments, , (78,000), , Sale of investments, , 1,02,000, , Interest received, , 6,000, , Net cash used in investing activities, , (85,000), , Cash flows from financing activities, Proceeds from issuance of share capital, , 1,50,000, , Repayment of bonds, , (50,000), , Interest paid, , (23,000), , Dividends paid, , (8,000), , Net cash from financing activities, , 69,000, , Net increase in cash and cash equivalents, , 31,000, , Cash and cash equivalents at the beginning of the, period, , 15,000, , Cash and cash equivalents at the end of the period, , 46,000, , © The Institute of Chartered Accountants of India

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FINANCIAL STATEMENTS OF COMPANIES, , 4.99, , *Working Note:, , `, Income taxes paid:, Income tax expense for the year, , 7,000, , Add: Income tax liability at the beginning of the year, , 5,000, 12,000, , Less: Income tax liability at the end of the year, , (3,000), 9,000, , Illustration 7, The balance sheets of Sun Ltd. as at 31st March 20X1 and 20X0 were as:, Particulars, 1, , 2, , (a), (b), (a), (b), (c), , 1, , 2, , (a), , (a), (b), (c), (d), , Equity and Liabilities, Shareholder’s funds, Share capital, Reserve & surplus, Current liabilities, Trade Payables, Other, current, liabilities, Short term provision, (provision for tax), Total, Assets, Non-current assets, Property, Plant &, Equipment, Current assets, Current investments, Inventories, Trade receivables, Cash & cash, equivalents, , © The Institute of Chartered Accountants of India, , Notes, , 20X1, , 20X0, , `, , `, , 1, 2, , 60,000, 5,000, , 50,000, 4,000, , 3, , 4,000, -, , 2,500, 1,000, , 1,500, , 1,000, , 70,500, , 58,500, , 4, , 39,500, , 29,000, , 5, , 2,000, 17,000, 8,000, 4,000, , 1,000, 14,000, 6,000, 8,500, , 70,500, , 58,500

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4.100, , ACCOUNTING, , Notes to accounts, 20X1, , 20X0, , `, , `, , 1 Share Capital, Equity Shares of `10 each, , 60,000, , 50,000, , 2 Reserve & surplus, Profit and Loss Account, , 5,000, , 4,000, , -, , 1,000, , 10,000, 17,000, 12,500, 39,500, , 10,000, 11,000, 8,000, 29,000, , 4,000, , 8,500, , 3 Other current liabilities, Dividend Payable, 4 Property, plant and equipment (at WDV), Building, Fixtures, Vehicles, Total, 5 Cash and cash equivalents, Cash and Bank, , The profit and loss statement for the year ended 31st March, 20X1 disclosed:, Profit before tax, , Particulars, , `, 4,500, , Tax expense: Current tax, , (1,500), , Profit for the year, Declared dividend, , 3,000, (2,000), , Retained Profit, , 1,000, , Further information is available:, , Depreciation for the year, , Disposals:, Proceeds on disposal of vehicles, © The Institute of Chartered Accountants of India, , Fixtures, , Vehicles, , `, , `, , 1,000, , 2,500, , —, , 1,700

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FINANCIAL STATEMENTS OF COMPANIES, Written down value, Profit on disposal, , 4.101, , —, , (1,000), 700, , Prepare a Cash Flow Statement for the year ended 31st March, 20X1., Solution, Sun Ltd., Cash Flow Statement, for the year ended 31st March, 20X1, , `, Cash flows from operating activities, Net Profit before taxation, , 4,500, , Depreciation, , 3,500, , Operating profit before working capital changes, , 7,300, , Adjustments for:, , Profit on sale of vehicles (1,700 – 1,000), Increase in Trade receivables, Increase in inventories, , Increase in Trade payables, Cash generated from operations, Income taxes paid (W.N.1), , (700), , (2,000), (3,000), 1,500, 3,800, , (1,000), , Net cash generated from operating activities, Cash flows from investing activities, Sale of vehicles, , 2,800, 1,700, , Purchase of current investments, , (1,000), , Purchase of fixtures (W.N.3), , (7,000), , Purchase of vehicles (W.N.3), , (8,000), , Net cash used in investing activities, Cash flows from financing activities, Issue of shares for cash, , Dividends paid (W.N.2), Net cash generated from financing activities, © The Institute of Chartered Accountants of India, , `, , (14,300), 10,000, , (3,000), 7,000

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4.102, , ACCOUNTING, , Net decrease in cash and cash equivalents, , (4,500), , Cash and cash equivalents at beginning of, period (See Note), , 8,500, , (See Note), , 4,000, , Cash and cash equivalents at end of period, Note to the Cash Flow Statement, Cash and Cash Equivalents, , 31.3.20X1, , 31.3.20X0, , Bank and Cash, , 4,000, , 8,500, , Cash and cash equivalents, , 4,000, , 8,500, , Working Notes:, `, 1., , Income taxes paid, , Income tax expense for the year, , 1,500, , Add: Income tax liability at the beginning of the year, , 1,000, 2,500, , Less: Income tax liability at the end of the year, 2., , (1,500), 1,000, , Dividend paid, , Declared dividend for the year, , 2,000, , Add: Amount payable at the beginning of the year, , 1,000, 3,000, , Less: Amount payable at the end of the year, 3., , Property, plant and equipment acquisitions, , W.D.V. at 31.3.20X1, Add back:, , Depreciation for the year, , © The Institute of Chartered Accountants of India, , -, , 3,000, Fixtures, , Vehicles, , `, , `, , 17,000, , 12,500, , 1,000, , 2,500

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4.103, , FINANCIAL STATEMENTS OF COMPANIES, , Disposals, Less: W.D.V. at 31.12.20X0, , Acquisitions during 20X0-20X1, , —, , 18,000, , (11,000), 7,000, , 1,000, , 16,000, , (8,000), 8,000, , Note: Current investments may not be readily convertible to a known amount of, cash and may not be subject to an insignificant risk of changes in value as per the, requirements of AS 3 and hence those have been considered as investing activities., Illustration 8, Ms. Jyoti of Star Oils Limited has collected the following information for the, preparation of cash flow statement for the year ended 31 st March, 20X1:, (` in lakhs), Net Profit, , 25,000, , Dividend paid, , 8,535, , Provision for Income tax, , 5,000, , Income tax paid during the year, , 4,248, , Loss on sale of assets (net), Book value of the assets sold, Depreciation charged to the Statement of Profit and Loss, Profit on sale of Investments, Carrying amount of Investment sold, Interest income received on investments, , 40, 185, 20,000, 100, 27,765, 2,506, , Interest expenses of the year, , 10,000, , Interest paid during the year, , 10,520, , Increase in Working Capital (excluding Cash & Bank Balance), , 56,081, , Purchase of Fixed assets, , 14,560, , Investment in joint venture, Expenditure on construction work in progress, Proceeds from calls in arrear, Receipt of grant for capital projects, Proceeds from long-term borrowings, © The Institute of Chartered Accountants of India, , 3,850, 34,740, 2, 12, 25,980

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4.104, , ACCOUNTING, , Proceeds from short-term borrowings, , 20,575, , Opening cash and bank balance, , 5,003, , Closing cash and bank balance, , 6,988, , Prepare the Cash Flow Statement for the year ended 31 March 20X1 in accordance, with AS 3. (Make necessary assumptions), Solution, Star Oils Limited, Cash Flow Statement, for the year ended 31st March, 20X1, (` in lakhs), Cash flows from operating activities, , Net profit before taxation (25,000 + 5,000), , 30,000, , Depreciation, , 20,000, , Adjustments for :, , Loss on sale of assets (Net), , Profit on sale of investments, , 40, , (100), , Interest income on investments, , (2,506), , Operating profit before working capital changes, , 57,434, , Interest expenses, , Changes in working capital (Excluding cash and bank, balance), Cash generated from operations, Income taxes paid, , 10,000, , (56,081), 1,353, , (4,248), , Net cash used in operating activities, , Cash flows from investing activities, Sale of assets (W.N.1), , Sale of investments (27,765 + 100), , Receipt of grant for capital projects, Interest income on investments, Purchase of fixed assets, , © The Institute of Chartered Accountants of India, , (2,895), 145, , 27,865, , 12, , 2,506, , (14,560)

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4.105, , FINANCIAL STATEMENTS OF COMPANIES, , Investment in joint venture, , (3,850), , Expenditure on construction work-in progress, , (34,740), , Net cash used in investing activities, , (22,622), , Cash flows from financing activities, Proceeds from calls in arrear, , 2, , Proceeds from long-term borrowings, , 25,980, , Proceed from short-term borrowings, , 20,575, , Interest paid, , (10,520), , Dividend (including dividend tax) paid, , (8,535), , Net increase in cash and cash equivalents, , Cash and cash equivalents at the beginning of the, period, , 27,502, 1,985, 5,003, , Cash and cash equivalents at the end of the period, , 6,988, , Working note:, 1., , Book value of the assets sold, , 185, , Less : Loss on sale of assets, , (40), , Proceeds on sale, , 145, , Illustration 9, From the following Summary Cash Account of X Ltd. prepare Cash Flow Statement, for the year ended 31st March, 20X1 in accordance with AS 3 (Revised) using the, direct method. The company does not have any cash equivalents., Summary Cash Account for the year ended 31.3.20X1, Balance on 1.4.20X0, , Issue of Equity Shares, , Receipts from Customers, Sale of Fixed Assets, , `’000, , 50 Payment to Suppliers, , 300 Purchase of Fixed Asset, , 2,800 Overhead expense, , 100 Wages and Salaries, Taxation, , © The Institute of Chartered Accountants of India, , `’000, 2,000, , 200, 200, 100, 250

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4.106, , ACCOUNTING, , Dividend, , Repayment of Bank Loan, 3,250, , Balance on 31.3.20X1, , 50, , 300, 150, , 3,250, , Solution, X Ltd., Cash Flow Statement for the year ended 31st March, 20X1, (Using direct method), , ` ’000, Cash flows from operating activities, Cash receipts from customers, Cash payments to suppliers, Cash paid to employees, , Cash payments for overheads, Cash generated from operations, Income tax paid, , 2,800, , (2,000), , (100), (200), 500, , (250), , Net cash generated from operating activities, Cash flows from investing activities, Payments for purchase of fixed assets, Proceeds from sale of fixed assets, , 250, (200), 100, , Net cash used in investing activities, Cash flows from financing activities, , Proceeds from issuance of equity shares, Bank loan repaid, Dividend paid, , ` ’000, , (100), 300, , (300), , (50), , Net cash used in financing activities, , (50), , Net increase in cash, , 100, , Cash at the end of the year, , 150, , Cash at the beginning of the year, , © The Institute of Chartered Accountants of India, , 50

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4.107, , FINANCIAL STATEMENTS OF COMPANIES, Illustration 10, , Given below are the relevant extracts of the Balance Sheet and the Statement of Profit, and Loss of ABC Ltd. along with additional information:, Extract of Balance sheet, Particulars, , Notes, , Equity and Liabilities, 1, , 31.3.20X1, , 31.3.20X0, , (` in lakhs), , (` in lakhs), , 250, , 230, , Current liabilities, (a), , Trade Payables, , (b), , Short term Provisions, , 1, , 200, , 180, , (c), , Other current liabilities, , 2, , 70, , 50, , Assets, 1, , Current assets, (a), , Inventories, , 200, , 180, , (b), , Trade Receivables, , 400, , 250, , (c), , Other current assets, , 195, , 180, , 3, , Statement of Profit and Loss of ABC Ltd., for the year ended 31st March, 20X1, Particulars, I, , Revenue from operations, , II, , Other income, , III, , Total income (I + II), Expenses:, , Purchases of Stock-in-Trade, , Change in inventories of finished goods, Employee benefits expense, Depreciation expense, , © The Institute of Chartered Accountants of India, , Notes, , ` in lakhs, 4,150, , 4, , 100, 4,250, 2,400, , (20), 800, 100

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4.108, , ACCOUNTING, , Finance cost, IV, , Other expenses, , 5, , 60, , 200, , Total expenses, , 3,540, , V, , Profit before tax (III – IV), , 710, , VI, , Tax expense:, Current tax, , 200, , VII, , Profit for the year from, continuing operations, , 510, , Appropriations, Balance of Profit and Loss account brought forward, , 50, , Transfer to general reserve, , 200, , Dividend paid, , 330, , Notes to accounts:, 20X1, (` in lakhs), , 20X0, (` in lakhs), , 200, , 180, , 50, 20, 70, , 40, 10, 50, 180, , 1, , Short term Provisions:, Provision for Tax, , 2, , Other current liabilities:, Outstanding wages, Outstanding expenses, Total, , 3, , Other current assets:, Advance tax, , 195, , 4, , Other income:, Interest and dividend, , 100, , 5, , Finance cost:, Interest, , 60, , Compute cash flow from operating activities using both direct and indirect method., , © The Institute of Chartered Accountants of India

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

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4.110, , ACCOUNTING, , Illustration 11, Prepare Cash flow for Gamma Ltd., for the year ending 31.3.20X1 from the following, information:, (1), , Sales for the year amounted to ` 135 crores out of which 60% was cash sales., , (2), , Purchases for the year amounted to ` 55 crores out of which credit purchase, was 80%., , (3), , Administrative and selling expenses amounted to ` 18 crores and salary paid, amounted to ` 22 crores., , (4), , The Company redeemed debentures of ` 20 crores at a premium of 10%., Debenture holders were issued equity shares of ` 15 crores towards redemption, and the balance was paid in cash. Debenture interest paid during the year was, ` 1.5 crores., , (5), , Dividend paid during the year amounted to ` 11.7 crores., , (6), , Investment costing ` 12 crores were sold at a profit of ` 2.4 crores., , (7), , ` 8 crores was paid towards income tax during the year., , (8), , A new plant costing ` 21 crores was purchased in part exchange of an old plant., The book value of the old plant was ` 12 crores but the vendor took over the, old plant at a value of ` 10 crores only. The balance was paid in cash to the, vendor., , (9), , The following balances are also provided:, , ` in crores, Debtors, Creditors, Bank, , 1.4.20X0, 45, 21, 6, , ` in crores, , 31.3.20X1, 50, 23, 18.2, , Solution, Gamma Ltd., Cash Flow Statement for the year ended 31st March, 20X1, (Using direct method), Particulars, , Cash flows from operating activities, , © The Institute of Chartered Accountants of India, , ` in crores, , ` in crores

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4.111, , FINANCIAL STATEMENTS OF COMPANIES, Cash sales (60% of 135), , 81, , Cash receipts from Debtors, , 49, , [45+ (135x40%) - 50], , Cash purchases (20% of 55), , (11), , [21+ (55x80%) – 23], Cash paid to employees, , (22), , Cash payments to suppliers, , (42), , Cash payments for overheads (Adm. and selling), , (18), , Cash generated from operations, Income tax paid, , 37, (8), , Net cash generated from operating activities, Cash flows from investing activities, Sale of investments (12+ 2.40), , 29, , 14.4, , Payments for purchase of fixed assets (21 – 10), , (11), , Net cash generated from investing activities, Cash flows from financing activities, Redemption of debentures (22-15), Interest paid, , 3.4, , (7), (1.5), , Dividend paid, Net cash used in financing activities, , (11.7), , Net increase in cash, , (20.2), 12.2, , Cash at beginning of the period, , 6.0, , Cash at end of the period, , 18.2, , Question 12, From the following information of Mr. Zen, prepare a Cash flow statement as per AS3 for the year ended 31.3.20X1:, Ledger balances of Mr. Zen as of 20X0 and 20X1, , Zen’s Capital A/c, Trade payables, Mrs. Zen’s loan, , © The Institute of Chartered Accountants of India, , As on 1.4.20X0, , As on 1.4.20X1, , `, , `, , 10,00,000, , 12,24,000, , 2,00,000, , --, , 3,20,000, , 3,52,000

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4.112, , ACCOUNTING, , Loan from Bank, , 3,20,000, , 4,00,000, , Plant and Machinery, , 6,40,000, , 4,40,000, , Land, , 6,00,000, , Inventories, , 8,80,000, , 2,80,000, , Trade receivables, , 2,00,000, , 2,40,000, , Cash, , 4,00,000, , 80,000, , 56,000, , Additional information:, A machine costing ` 80,000 (accumulated depreciation there on `24,000) was sold, for ` 40,000. The provision for depreciation on 1.4.20X0 was ` 2,00,000 and 31.3.20X1, was ` 3,20,000. The net profit for the year ended on 31.3.20X1 was ` 3,60,000., Solution, Cash Flow Statement of Mr. Zen as per AS 3, for the year ended 31.3.20X1, , `, (i), , Cash flow from operating activities, Net Profit (given), , Adjustments for, Depreciation on Plant & Machinery (W.N.2), Loss on Sale of Machinery (W.N.1), Operating, changes, , Profit, , before, , working, , capital, , Decrease in inventories, , Increase in trade receivables, Increase in trade payables, (ii), , Net cash generated from operating activities, Cash flow from investing activities, Sale of Machinery (W.N.1), , Purchase of Land (8,80,000 – 6,00,000), Net cash used in investing activities, , (iii) Cash flow from financing activities, Repayment of Mrs. Zen’s Loan, Drawings (W.N.3), , © The Institute of Chartered Accountants of India, , 3,60,000, 1,44,000, , 16,000, , 1,60,000, , 5,20,000, , 80,000, , (1,60,000), 32,000, , (48,000), , 4,72,000, , 40,000, , (2,80,000), , (2,00,000), (1,36,000), , (2,40,000)

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4.113, , FINANCIAL STATEMENTS OF COMPANIES, Loan from Bank, , Net cash used in financing activities, , 80,000, , Net decrease in cash, , Opening balance as on 1.4.20X0, , (2,56,000), , (24,000), 80,000, , Cash balance as on 31.3.20X1, , 56,000, , Working Notes:, 1., , Plant & Machinery A/c, , `, To Balance b/d, , (6,40,000 + 2,00,000), , 8,40,000, , 8,40,000, 2., , `, By Cash – Sales, By Provision for, Depreciation A/c, By Profit & Loss A/c –, Loss on Sale (80,000 –, 64,000), By Balance c/d, (4,40,000+3,20,000), , 24,000, 16,000, , 7,60,000, 8,40,000, , Provision for depreciation on Plant and Machinery A/c, , `, To Plant and Machinery, A/c, To Balance c/d, , 24,000 By Balance b/d, 3,20,000 By Profit & Loss A/c, (Bal. fig.), 3,44,000, , 3., , 40,000, , `, 2,00,000, 1,44,000, 3,44,000, , To find out Mr. Zen’s drawings:, , `, Opening Capital, Add: Net Profit, Less: Closing Capital, Drawings, , 10,00,000, 3,60,000, 13,60,000, , (12,24,000), 1,36,000, , Note: Students may note that in case there is an increase in the amount of, © The Institute of Chartered Accountants of India

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4.114, , ACCOUNTING, , debentures/ loans during the year and the interest is required to be computed,, then in such a case, students may choose either to compute interest on the closing, balance of the debentures or may compute interest on opening balance for full, year (in case of no repayment) and proportionate interest on additions. Suitable, note for assumption may be given in the solution for this., , SUMMARY, •, •, •, , Cash flow statement dealt under AS 3., , Benefits include providing information relating to changes in cash and cash, equivalents of an enterprise., , Cash include:, , (a), , •, , •, , •, •, •, , •, , Cash flow activities may be classified as inflow and outflow but as per AS-3, they are classified as Operating Activities, Investing activities, Financing, activities., Operating activities are principal revenue generating activities., , Investing Activities relate to acquisition and disposal of long-term assets and, other investments., , Financing Activities include the ones which result in changes in the size and, composition of the owner’s capital (including preference share capital) and, borrowings of the enterprise., , Methods to calculate cash flow from operating activities include:, (b), , •, , Demand deposits with banks, , Cash equivalents are short term, highly liquid investments that are readily, convertible into known amounts of cash and which are subject to an, insignificant risk of changes in value., , (a), , •, , Cash in hand and (b), , Direct Method, , Indirect Method, , In order to calculate cash flow from investing activities inflows and outflows, related to acquisition and disposal of assets, other than those related to, operating activities, are shown under this category., In order to calculate cash flow from financing activities inflows and outflows, related to the amount of capital and borrowings of the enterprise are shown, under this head., , © The Institute of Chartered Accountants of India

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FINANCIAL STATEMENTS OF COMPANIES, , 4.115, , TEST YOUR KNOWLEDGE, MCQ, 1., , 2., , 3., , 4., , 5., , While preparing cash flow statement, conversion of debt to equity, (a), , Should be shown as a financing activity., , (b), , Should be shown as an investing activity., , (c), , Should not be shown as it is a non-cash transaction., , Which of the following would be considered a ‘cash-flow item from an, “investing" activity’?, (a), , Cash outflow to the government for taxes., , (b), , Cash outflow to purchase bonds issued by another company., , (c), , Cash outflow to shareholders as dividends., , All of the following would be included in a company’s operating activities, except:, (a), , Income tax payments, , (b), , Collections from customers or Cash payments to suppliers, , (c), , Dividend payments., , Hari Uttam, a stock broking firm, received ` 1,50,000 as premium for forward, contracts entered for purchase of equity shares. How will you classify this, amount in the cash flow statement of the firm?, (a), , Operating Activities., , (b), , Investing Activities., , (c), , Financing Activities., , As per AS 3 on Cash Flow Statements, cash received by a manufacturing, company from sale of shares of ABC Company Ltd. should be classified as, (a), , Operating activity., , (b), , Financing activity., , (c), , Investing activity., , © The Institute of Chartered Accountants of India

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4.116, 6., , 7., , 8., , 9., , 10., , 11., , ACCOUNTING, , Which of the following activities would generally be regarded as a financing, activity in preparing a cash flow statement?, (a), , Dividend distribution., , (b), , Proceeds from the sale of shares of other companies., , (c), , Loans made by the financial enterprise to other businesses entities., , All of the following are examples of cash flows arising from investing activities, except, (a), , Cash payments to acquire fixed assets., , (b), , Cash receipts from disposal of fixed assets., , (c), , Cash payments to suppliers for goods and services., , Cash repayments of amounts borrowed will be disclosed in the cash flow, statement as, (a), , An operating activity., , (b), , A financing activity, , (c), , An investing activity., , In the cash flow statement, ‘cash and cash equivalents’ include, (a), , Bank balances and Cash balances., , (b), , Short-term investments readily convertible into Cash are subject to an, insignificant risk of changes in value., , (c), , Both (a) and (b)., , While preparing a Cash Flow Statement using the Indirect method as required, under AS 3, which of the following will be deducted from the Net Profit to, arrive at the “Cash flow from Operating activities”?, (a), , Interest income, , (b), , Gain on sale of a Fixed asset.., , (c), , Both (a) and (b), , XYZ Co. Ltd is a financial Institute and has given loans and advances to its, subsidiary and earned interest of ` 5 lacs on that loan. Interest earned by XYZ, Co. Ltd is shown as, (a), , Operating Cash Flow., , © The Institute of Chartered Accountants of India

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FINANCIAL STATEMENTS OF COMPANIES, (b), , Investing Cash Flow., , (c), , Financing Cash Flow., , 4.117, , Theoretical Questions, 1., , What is the significance of cash flow statement? Explain in brief., , 2., , Explain the difference between direct and indirect methods of reporting cash, flows from operating activities with reference to AS 3., , Practical Questions, Question 1, Classify the following activities as (a) Operating activities, (b) Investing activities (c), Financing activities (d) Cash equivalents with reference to AS 3 (Revised)., (a), , Brokerage paid on purchase of investments, , (b), , Underwriting commission paid, , (c), , Trading commission received, , (d), , Proceeds from sale of investment, , (e), , Purchase of goodwill, , (f), , Redemption of preference shares, , (g), , Rent received from property held as investment, , (h), , Interest paid on long-term borrowings, , (i), , Marketable securities (having risk of change in value), , (j), , Refund of income tax received, , Question 2, How will you disclose following items while preparing Cash Flow Statement of, Gagan Ltd. as per AS-3 for the year ended 31st March, 20X2?, (i), , 10% Debentures issued:, , As on 01-04-20X1 ` 1,10,000, As on 31-03-20X2 ` 77,000, , (ii), , Debentures were redeemed at 5% premium at the end of the year. Premium, was charged to the Profit & Loss Account for the year., , (iii), , Unpaid Interest on Debentures:, , © The Institute of Chartered Accountants of India, , As on 01-04-20X1 ` 275

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4.118, , ACCOUNTING, As on 31-03-20X2 ` 1,175, , (iv), , Debtors of ` 36,000 were written off against the Provision for Doubtful Debts, A/c during the year., , (v), , 10% Bonds (Investments):, , As on 01-04-20X1 ` 3,50,000, As on 31-03-20X2 ` 3,50,000, , (vi), , Accrued Interest on Investments: As on 31-03-20X2 ` 10,500, , Question 3, From the following Balance sheet of Grow More Ltd., prepare Cash Flow Statement, for the year ended 31st March, 20X1 :, Particulars, , 1, , 2, 3, , A, B, , A, C, , 2, , 31st March,, 20X1, , 31st March,, 20X0, , 10,00,000, , 8,00,000, , 2,00,000, , -, , 7,00,000, , 8,20,000, , 1,00,000, , 70,000, , Equity and Liabilities, , B, , 1, , Notes, , Shareholders’ funds, Share capital, , Reserves and Surplus, , 1, , Long term borrowings, , 2, , Non-current liabilities, Current liabilities, Trade Payables, , Other current liabilities, , Short term provision, (provision for tax), Assets, , A, B, A, B, , Non-current assets, Property,, plant, Equipment, , 3, , Total, , and, , Non-Current Investments, , 4, , Current assets, Inventories, , Trade receivables, , © The Institute of Chartered Accountants of India, , 3,00,000, , -, , 2,10,000, , 1,00,000, , 23,00,000, , 20,00,000, , 13,00,000, , 9,00,000, , 1,00,000, , -, , 4,00,000, , 2,00,000, , 5,00,000, , 7,00,000

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4.119, , FINANCIAL STATEMENTS OF COMPANIES, C, , Cash, and, equivalents, , Cash, , -, , 2,00,000, , Total, , 23,00,000, , 20,00,000, , Notes to accounts, No. Particulars, 1, , 31st March, 20X1, , 31st March, 20X0, , 2,00,000, , 1,50,000, , 3,00,000, , 2,10,000, , 2,00,000, , --, , -, , 1,00,000, , 7,00,000, , 5,00,000, , 13,00,000, , 9,00,000, , Reserves and Surplus, Revenue reserve, , Profit and Loss account, , 1,00,000, , Total, 2, , Long term borrowings, , 3., , Other current liabilities, , 4, , Property,, equipment, , Debentures (issued at end of, year), , Dividend payable, , plant, , 60,000, , and, , Plant and machinery, Land and building, , Net carrying value, , 6,00,000, , 4,00,000, , (i), , Depreciation @ 25% was charged on the opening value of Plant and, Machinery., , (ii), , At the year end, one old machine costing ` 50,000 (WDV ` 20,000) was sold, for ` 35,000. Purchase was also made at the year end., , (iii), , ` 50,000 was paid towards Income tax during the year., , (iv), , Construction of the building got completed on 31.03.20X1 and hence no, depreciation may be charged on the same., , Prepare Cash flow Statement., , © The Institute of Chartered Accountants of India

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4.120, , ACCOUNTING, , Question 4, From the following Balance Sheets and information, prepare Cash Flow Statement, of Ryan Ltd. by Indirect method for the year ended 31st March, 20X1:, Particulars, , 1, , 2, 3, , A, B, , Shareholders’ funds, Share capital, , 31st March, 20X0, , `, , `, , 1, , 6,00,000, , 7,00,000, , 3, , 2,00,000, , -, , 1,15,000, , 1,10,000, , Short term provision (provision for, tax), , 95,000, , 60,000, , Total, , 14,60,000, , 12,50,000, , 9,15,000, , 7,00,000, , 95,000, , 90,000, , Reserves and Surplus, , 2, , Non-current liabilities, , Long term borrowings, , Current liabilities, , A Trade Payables, C, , 2, , 31st March, 20X1, , Equity and Liabilities, , B, , 1, , Notes, , Other current liabilities, , Assets, A, B, , A, B, , C, , D, , 4, , Non-current assets, , Property, plant and Equipment, , Non-Current Investments, , Current assets, Inventories, , 5, , 4,20,000, , 30,000, , 50,000, , 3,00,000, , 80,000, , 80,000, , Trade receivables, , 2,50,000, , 2,25,000, , Other Current assets, , 1,00,000, , 65,000, , Cash and Cash equivalents, , 50,000, , Total, , © The Institute of Chartered Accountants of India, , 14,60,000, , 90,000, , 12,50,000

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4.121, , FINANCIAL STATEMENTS OF COMPANIES, , Notes to accounts, No., 1., , Share capital, , Equity share capital, , 10% Redeemable Preference share, capital, 2, , Total, Reserves and Surplus, , Capital redemption reserve, Capital reserve, General reserve, , 3, , 4., , Profit and Loss account, Total, , Long term borrowings, 9% Debentures, Other current liabilities, Dividend payable, , Liabilities for expenses, Total, 5, , Property, plant and equipment, Plant and machinery, Land and building, Net carrying value, , 31st March,, 20X1, , 31st March,, 20X0, , 6,00,000, , 5,00,000, , --, , 2,00,000, , 6,00,000, , 7,00,000, , 1,00,000, 70,000, , -, , 1,50,000, , 2,50,000, , 1,00,000, 4,20,000, , 50,000, 3,00,000, , 2,00,000, , --, , -, , 60,000, , 30,000, 30,000, , 20,000, 80,000, , 7,65,000, , 5,00,000, , 1,50,000, 9,15,000, , 2,00,000, 7,00,000, , Additional Information:, (i), , A piece of land has been sold out for `1,50,000 (Cost – `1,20,000) and the, balance land was revalued. Capital Reserve consisted of profit on revaluation, of land., , (ii), , On 1st April, 20X0 a plant was sold for `90,000 (Original Cost – `70,000 and, W.D.V. – ` 50,000) and Debentures worth `1 lakh were issued at par as part, consideration for plant of `4.5 lakhs acquired., , © The Institute of Chartered Accountants of India

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4.122, , ACCOUNTING, , (iii), , Part of the investments (Cost – `50,000) was sold for `70,000., , (iv), , Pre-acquisition dividend received `5,000 was adjusted against cost of investment., , (v), , Interim dividend was declared and paid @ 15% during the current year., , (vi), , Income-tax liability for the current year was estimated at `1,35,000., , (vii) Depreciation @ 15% has been charged on Plant and Machinery but no, depreciation has been charged on Building., Question 5, The Balance Sheet of New Light Ltd. as at 31st March, 20X1 and 20X0 (for the years, ended) are as follows:, , 1, , 2, 3, , 1, , 2, , A, B, , A, B, , A, B, A, B, C, , Reserves and Surplus, Non-current liabilities, , Long term borrowings, Current liabilities, Other current liabilities, Short term provision, (provision for tax), , 1, 2, , 16,00,000, 8,40,000, , 18,80,000, 11,00,000, , 3, , 4,00,000, , 2,80,000, , 4, , 6,00,000, , 5,20,000, , 3,60,000, 38,00,000, , 3,40,000, 41,20,000, , 22,80,000, , 26,40,000, , 4,00,000, , 3,20,000, , 10,000, 2,16,000, 8,94,000, , 10,000, 3,00,000, 8,50,000, , Total, , Assets, Non-current assets, Property,, plant, and, Equipment, Non-Current Investments, Current assets, Cash and Cash equivalents, Inventory, Other Current assets, Total, , © The Institute of Chartered Accountants of India, , `, , 31 March, 20X1, , Equity and Liabilities, Shareholders’ funds, Share capital, , `, , 31 March, 20X0, , Notes, , 5, , st, , 38,00,000, , st, , 41,20,000

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4.123, , FINANCIAL STATEMENTS OF COMPANIES, , Notes to accounts, No., , Particulars, , 1., , Share capital, , Equity share capital, , 10% Preference share capital, 2, , Total, , Reserves and Surplus, General reserve, , Profit and Loss account, 3, , 4., , Total, , Long term borrowings, 9% Debentures, Total, , Other current liabilities, Dividend payable, , Current Liabilities, 5, , 31st March,, 20X0, , 31st March,, , 12,00,000, , 16,00,000, , 16,00,000, , 18,80,000, , 6,00,000, , 7,60,000, , 8,40,000, , 11,00,000, , 4,00,000, , 2,80,000, , 4,00,000, , 2,40,000, , 20X1, , 2,80,000, , 3,40,000, , 4,00,000, , 2,80,000, , 1,20,000, , -, , 4,80,000, , 5,20,000, , Total, , 6,00,000, , 5,20,000, , Property, plant and equipment, , 32,00,000, , 38,00,000, , Property, plant and equipment, Less: Depreciation, , Net carrying value, , (9,20,000), , 22,80,000, , (11,60,000), , 26,40,000, , Additional information:, (i), , The company sold one property, plant and equipment for ` 1,00,000, the cost, of which was ` 2,00,000 and the depreciation provided on it was `80,000., , (ii), , The company also decided to write off another item of property, plant and, equipment costing ` 56,000 on which depreciation amounting to ` 40,000 has, been provided., , (iii), , Depreciation on property, plant and equipment provided ` 3,60,000., , © The Institute of Chartered Accountants of India

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4.124, , ACCOUNTING, , (iv), , Company sold some investment at a profit of ` 40,000., , (v), , Debentures and preference share capital redeemed at 5% premium., , (vi), , Company decided to value inventory at cost, whereas previously the practice, , Debentures were redeemed at the year end., , was to value inventory at cost less 10%. The inventory according to books on, , 31.3.20X0 was ` 2,16,000. The inventory on 31.3.20X1 was correctly valued at, , ` 3,00,000., , Prepare Cash Flow Statement as per revised Accounting Standard 3 by indirect, method., , Question 6, ABC Ltd. gives you the Balance sheets as at 31st March 20X0 and 31st March 20X1., , You are required to prepare Cash Flow Statement by using indirect method as per, AS 3 for the year ended 31st March 20X1:, Particulars, , 1, , 2, 3, , Notes, , `, , `, , 31 March, 20X0, , 31 March, 20X1, , 50,00,000, , 50,00,000, , -, , 9,00,000, , Short-term borrowings, , 1,50,000, , 3,00,000, , Trade payables, , 8,80,000, , 8,20,000, , 91,60,000, , 1,09,80,000, , st, , st, , Equity and Liabilities, A, B, , Shareholders’ funds, Share capital, , Reserves and Surplus, , 26,50,000, , Non-current liabilities, , Long term borrowings, , A, B, , C, , 1, , Current liabilities, (Bank loan), , Other current liabilities, , 2, Total, , © The Institute of Chartered Accountants of India, , 4,80,000, , 36,90,000, , 2,70,000

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4.125, , FINANCIAL STATEMENTS OF COMPANIES, , 1, , 2, , Assets, A, , A, B, C, , Non-current assets, Property,, plant, Equipment, , and, , Current assets, Current Investments, Inventory, Trade receivables, , D Cash and Cash equivalents, E Other Current assets (Prepaid, expenses), Total, , 3, , 4, , 21,20,000, , 32,80,000, , 11,80,000, 20,10,000, , 15,00,000, 19,20,000, , 15,20,000, 90,000, , 15,20,000, 1,20,000, , 22,40,000, , 91,60,000, , 26,40,000, , 1,09,80,000, , Notes to accounts, No. Particulars, 1, , Long term borrowings, 9% Debentures (issued at the end, of year), Total, , 2., , Other current liabilities, Dividend payable, Liabilities for expenses, , 3, , 20X1, , -, , 9,00,000, , -, , 9,00,000, , 1,50,000, , -, , 3,30,000, , 2,70,000, , Total, , 4,80,000, , 2,70,000, , Property, plant and equipment, Plant and machinery, , 27,30,000, , 40,70,000, , Less: Depreciation, , Net carrying value, 4, , `20X0, , Trade receivables, Gross amount, , Less: Provision for doubtful debts, © The Institute of Chartered Accountants of India, , (6,10,000), , (7,90,000), , 21,20,000, , 32,80,000, , 23,90,000, , 28,30,000, , (1,50,000), , (1,90,000)

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4.126, , ACCOUNTING, , Total, , 22,40,000, , 26,40,000, , Additional Information:, (i), , Net profit for the year ended 31st March, 20X1, after charging depreciation, ` 1,80,000 is ` 10,40,000., , (ii), , Trade receivables of ` 2,30,000 were determined to be worthless and were, written off against the provisions for doubtful debts account during the year., , ANSWERS/ HINTS, MCQ, 1., 7., , (c), (c), , 2., 8., , (b), (b), , 3., 9., , (c), (c), , 4., 10., , (a), (c), , 5., 11., , (c), (a), , 6., , (a), , Theoretical Questions, 1., , Cash flow statement provides information about the changes in cash and cash, equivalents of an enterprise. It identifies cash generated from trading, operations and is very useful tool of planning., , 2., , As per Para 18 of AS 3 (Revised) on Cash Flow Statements, an enterprise, should report cash flows from operating activities using either:, (a), , The direct method, whereby major classes of gross cash receipts and, gross cash payments are disclosed; or, , (b), , the indirect method, whereby net 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 flows., , Practical Questions, Answer 1, Classification of activities with reference to AS 3, a., , Brokerage paid on purchased of investments, , Investing Activities, , c., , Trading Commission received, , Operating Activities, , b., d., e., , Underwriting Commission paid, , Proceeds from sale of investment, Purchase of goodwill, , © The Institute of Chartered Accountants of India, , Financing Activities, Investing Activities, Investing Activities

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4.127, , FINANCIAL STATEMENTS OF COMPANIES, f., , Redemption of Preference shares, , h., , Interest paid on long term borrowings, , Financing Activities, , Refund of Income tax received, , Operating activities, , g., , i., j., , Rent received, investment, , from, , property, , held, , Financing Activities, , as Investing Activities, , Marketable securities, , Not a Cash equivalent, , Answer 2, Cash Flow Statement of M/s Gagan Ltd. for the year ended March 31, 20X2, A, , Cash Flow from Operating Activities, Net Profit as per Profit & Loss A/c, , xxxxx, , Add: Premium on Redemption of Debentures, , 1,650, , Add: Interest on 10% Debentures, B, C, , 11,000, , Less: Interest on 10% Investments, , (35,000), , Cash Flow from Investing Activities, , Interest on Investments [35,000-10,500], , 24,500, , Cash Flow from Financing Activities, , Interest on Debentures paid [11,000 - (1,175 - 275)] outflow, Redemption of Debentures [(1,10,000 - 77,000) at 5%, premium] - outflow, , (10,100), (34,650), , Note: Debtors written off against provision for doubtful debts does not require any, further adjustment in Cash Flow Statement., Answer 3, Cash Flow Statement of Grow More Ltd, for the year ended 31st March, 20X1, Cash Flow from Operating Activities, `, Increase in balance of Profit and Loss Account, (1,00,000 – 60,000), , 40,000, , Provision for taxation (W.N.1), , 80,000, , © The Institute of Chartered Accountants of India

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4.128, , ACCOUNTING, , Transfer to General Reserve (2,00,000 – 1,50,000), , 50,000, , Depreciation (W.N.2), , 1,25,000, , Profit on sale of Plant and Machinery, , (15,000), , Operating Profit before Working Capital changes, , 2,80,000, , Increase in Inventories, Decrease in Trade receivables, Decrease in Trade payables, , (2,00,000), 2,00,000, (1,20,000), , Cash generated from operations, , 1,60,000, , Income tax paid, , (50,000), , Net Cash generated from operating activities, , 1,10,000, , Cash Flow from Investing Activities, Purchase of fixed assets, , (3,45,000), , Expenses on building (6,00,000 – 4,00,000), , (2,00,000), , Increase in investments, , (1,00,000), , Sale of old machine, , 35,000, , Net Cash used in investing activities, , (6,10,000), , Cash Flow from Financing activities, Proceeds from issue of shares, , 2,00,000, , Proceeds from issue of debentures, , 2,00,000, , (10,00,000 – 8,00,000), Dividend paid, , Net cash generated from financing activities, Net increase in cash or cash equivalents, Cash and Cash equivalents at the beginning of the, year, Cash and Cash equivalents at the end of the year, , © The Institute of Chartered Accountants of India, , (1,00,000), 3,00,000, NIL, 2,00,000, Nil

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4.129, , FINANCIAL STATEMENTS OF COMPANIES, , Working Notes:, 1., , Provision for taxation account, , `, To, To, , Cash (Paid), , 50,000, , Balance c/d, , 1,00,000, , 1,50,000, 2., , `, By, By, , Balance b/d, , 70,000, , Profit and Loss, A/c, , 80,000, , (Balancing, figure), , 1,50,000, , Plant and Machinery account, , `, To, To, To, , Balance b/d, Profit and Loss A/c, (profit on sale of, machine), , Cash (Balancing figure), , `, , 5,00,000, 15000, , By Depreciation, , 3,45,000, , (sale, By Cash, machine), , _______, , 8,60,000, , 1,25,000, , of, , By Balance c/d, , 35,000, 7,00,000, 8,60,000, , Answer 4, Cash Flow Statement of Ryan Limited, For the year ended 31st March, 20X1, , `, Cash flow from operating activities, Net Profit before taxation (W.N.1), Adjustment for, , 2,75,000, , Depreciation (W.N.3), , 1,35,000, , Profit on sale of investments (W.N.4), , (20,000), , Profit on sale of land, Profit on sale of plant (W.N.3), , © The Institute of Chartered Accountants of India, , (30,000), (40,000), , `

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4.130, , ACCOUNTING, , Interest on debentures (2,00,000 X 9%), , 18,000, , Operating profit before working capital changes, , 3,38,000, , Increase in trade receivables, , (25,000), , Increase in inventory, , Increase in Other current assets (W.N.9), Increase in Trade payables, , Increase in liabilities for expenses, Cash generated from operations, Income taxes paid (W.N.8), , (5,000), , (35,000), 5,000, , 10,000, , 2,88,000, , (1,00,000), , Net cash generated from operating activities, Cash flow from investing activities, , Proceeds from sale of land (W.N.2), , Proceeds from sale of plant (W.N.3), , Proceeds from sale of investments (W.N.4), Purchase of plant (W.N.3), , Purchase of investments (W.N.4), , Pre-acquisition dividend received (W.N.4), , 1,88,000, 1,50,000, , 90,000, 70,000, , (3,50,000), , (25,000), 5,000, , Net cash used in investing activities, Cash flow from financing activities, , Proceeds from issue of equity shares, (6,00,000 – 5,00,000), Proceeds from issue of debentures, (2,00,000 – 1,00,000), Redemption of preference shares, Dividends paid, , Interest paid on debentures, Net cash used in financing activities, Net decrease in cash and cash equivalents, , Cash and cash equivalents at the beginning of the year, Cash and Cash equivalents at the end of the year, © The Institute of Chartered Accountants of India, , (60,000), 1,00,000, 1,00,000, (2,00,000), , (1,50,000), (18,000), , (1,68,000), (40,000), 90,000, , 50,000

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4.131, , FINANCIAL STATEMENTS OF COMPANIES, , Working Notes:, 1., , `, Net profit before taxation, , Retained profit, Less: Balance as on 31.3.20X0, , 1,00,000, (50,000), 50,000, 1,35,000, , Provision for taxation, Dividend, 2., , 90,000, , 2,75,000, Land and Building Account, , `, To, , Balance b/d, , To, , Capital reserve, (Revaluation profit), , To, , Profit and Loss A/c (Profit, on sale), , `, , 2,00,000 By, 30,000 By, , Cash (Sale), , Balance c/d, , 1,50,000, , 70,000, 3,00,000, , 3., , 1,50,000, , 3,00,000, , Plant and Machinery Account, , `, , `, , To, , Balance b/d, , 5,00,000 By Cash (Sale), , To, , Debentures, , 1,00,000 By Balance c/d, , To, To, , Profit and loss account, Bank, , 40,000 By Depreciation, , 3,50,000, 9,90,000, , 4., , 90,000, , 1,35,000, 7,65,000, 9,90,000, , Investments Account, , `, To, , Balance b/d, , 80,000 By, , © The Institute of Chartered Accountants of India, , `, Cash (Sale), , 70,000

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4.132, , To, To, , ACCOUNTING, , Profit and loss account, Bank (Balancing figure), , 20,000 By, 25,000, , Dividend, (Pre-acquisition), , By, , Balance c/d, , 1,25,000, 5., , 5,000, , 50,000, 1,25,000, , Capital Reserve Account, , `, To, , Balance c/d, , `, Profit on revaluation of, land, , 70,000 By, 70,000, , 6., , 70,000, 70,000, , General Reserve Account, , `, To, To, , Capital, reserve, , redemption, , Balance c/d, , `, , 1,00,000 By, , Balance b/d, , 1,50,000, , 2,50,000, 7., , 2,50,000, , 2,50,000, , Dividend payable Account, , `, To, To, , Bank, figure), , (Balancing, , `, , 1,50,000 By, , Balance b/d, , - By, , Profit and, account, , Balance c/d, , 1,50,000, 8., , 60,000, loss, , 90,000, 1,50,000, , Provision for Taxation Account, , `, To, To, , Bank (Balancing figure), Balance c/d, , 1,00,000 By, 95,000 By, , 1,95,000, , © The Institute of Chartered Accountants of India, , `, Balance b/d, Profit and loss, account, , 60,000, , 1,35,000, 1,95,000

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FINANCIAL STATEMENTS OF COMPANIES, , © The Institute of Chartered Accountants of India, , 4.133

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4.134, , 9., , ACCOUNTING, , Other Current Assets Account, , `, To, To, , Balance b/d, , Bank (Balancing figure), , `, , 65,000, , 35,000 By Balance c/d, , 1,00,000, , 1,00,000, , 1,00,000, , Answer 5, New Light Ltd., Cash Flow Statement for the year ended 31st March, 20X1, A., , Cash Flow from operating activities, , `, , Profit after appropriation, Increase in profit and loss A/c after inventory, , adjustment [`3,40,000 – (`2,40,000 + `24,000)], , 76,000, , Transfer to general reserve, , 1,60,000, , Provision for tax, , 3,40,000, , Net profit before taxation and extraordinary item, , 5,76,000, , Adjustments for:, Depreciation, , 3,60,000, , Loss on sale of property, plant and equipment, , 20,000, , Decrease in, equipment, , 16,000, , value, , of, , property,, , plant, , and, , Profit on sale of investment, , Premium on redemption of preference share, capital, Interest on debentures, Premium on redemption of debentures, Operating profit before working capital changes, Increase in current liabilities, (`5,20,000 –`4,80,000), , © The Institute of Chartered Accountants of India, , (40,000), 6,000, , 36,000, 6,000, 9,80,000, 40,000, , `

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FINANCIAL STATEMENTS OF COMPANIES, , Increase in other current assets, , [`11,50,000 – (` 11,10,000 + `24,000)], , 4.135, , (16,000), , Cash generated from operations, , 10,04,000, , Income taxes paid, , (3,60,000), , Net Cash generated from operating activities, B., , 6,44,000, , Cash Flow from investing activities, Purchase of property, plant and equipment, (W.N.3), , (8,56,000), , Proceeds from sale of property, plant and, equipment (W.N.3), , 1,00,000, , Proceeds from sale of investments (W.N.2), , 1,20,000, , Net Cash used in investing activities, C., , (6,36,000), , Cash Flow from financing activities, Proceeds from issuance of share capital, , 4,00,000, , Redemption of preference share capital, , (1,26,000), , Redemption of debentures (` 1,20,000 + ` 6,000), , (1,26,000), , Dividend paid, , (1,20,000), , (`1,20,000 + `6,000), , Interest on debentures, , (36,000), , Net Cash generated from financing activities, Net increase/decrease in cash and cash equivalent, during the year, , Nil, , Cash and cash equivalent at the beginning of the, year, , 10,000, , Cash and cash equivalent at the end of the year, , 10,000, , Working Notes:, 1., , (8,000), , Revaluation of inventory will increase opening inventory by ` 24,000., , © The Institute of Chartered Accountants of India

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4.136, , ACCOUNTING, , 2,16,000/90 x 10 = ` 24,000, Therefore, opening balance of other current assets would be as follows:, ` 11,10,000 + ` 24,000 = ` 11,34,000, Due to under valuation of inventory, the opening balance of profit and loss, account be increased by ` 24,000., The opening balance of profit and loss account after revaluation of inventory, will be ` 2,40,000 + ` 24,000 = ` 2,64,000, 2., , Investment Account, , `, To, To, , Balance b/d, Profit and Loss A/c, , (Profit on sale of, investment), , `, , 4,00,000, , By, , 40,000, , By, , Bank A/c, (balancing, figure, being, investment, sold), , 1,20,000, , 3,20,000, , Balance c/d, , 4,40,000, 3., , 4,40,000, , Property, Plant and Equipment Account, , `, To Balance b/d, To Bank A/c, (balancing figure, being, assets, purchased), , `, , 32,00,000 By Bank A/c (sale of, assets), , 8,56,000 By Accumulated, depreciation A/c, By Profit and loss, A/c(loss, on sale of assets), By Accumulated, depreciation A/c, , By Profit and loss A/c, (assets, written, off), 40,56,000, , By Balance c/d, , © The Institute of Chartered Accountants of India, , `, , 1,00,000, , 80,000, 20,000, , 2,00,000, , 40,000, 16,000, , 56,000, 38,00,000, 40,56,000

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4.137, , FINANCIAL STATEMENTS OF COMPANIES, , 4., , Accumulated Depreciation Account, , `, To, To, To, , Property, plant, and equipment, A/c, Property, plant, and equipment, A/c, Balance c/d, , `, , 80,000, , By, , Balance b/d, , 9,20,000, , 40,000, , By, , Profit and loss A/c, (depreciation for the, year), , 3,60,000, , 11,60,000, 12,80,000, , 12,80,000, , Answer 6, Cash Flow Statement of ABC Ltd. for the year ended 31.3.20X1, Cash flows from Operating Activities, , `, , Net Profit, , Add: Adjustment For Depreciation (`7,90,000 –, `6,10,000), Add: Adjustment for Provision for Doubtful Debts, (` 4,20,000 – `1,50,000), , Operating Profit Before Working Capital Changes, Add: Decrease in Inventories, (` 20,10,000 – ` 19,20,000), , (` 30,60,000 – `23,90,000), , Prepaid Expenses (` 1,20,000 – `90,000), , 1,80,000, 2,70,000, , 14,90,000, 90,000, , 6,70,000, , Decrease in Current Liabilities:, , Trade Payables (` 8,80,000 – ` 8,20,000), Expenses Outstanding, (` 3,30,000 – ` 2,70,000), , Net Cash generated from Operating Activities, © The Institute of Chartered Accountants of India, , 10,40,000, , 15,80,000, , Less: Increase in Current Assets, Trade Receivables, , `, , 30,000, 60,000, 60,000, , (8,20,000), 7,60,000

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4.138, , ACCOUNTING, , Cash Flows from Investing Activities, Investment in Current Investments, Purchase of Plant & Machinery, (` 40,70,000 – ` 27,30,000), , (3,20,000), (13,40,000), , Net Cash Used in Investing Activities, Cash Flows from Financing Activities, , Bank Loan Raised (` 3,00,000 – ` 1,50,000), Issue of Debentures, , Payment of Dividend, , Net Cash Used in Financing Activities, Net Increase in Cash During the Year, , (16,60,000), 1,50,000, 9,00,000, , (1,50,000), , 9,00,000, -, , Add: Cash and Cash Equivalents as on 1.4.20X0, , 15,20,000, , Cash and Cash Equivalents as on 31.3.20X1, , 15,20,000, , Note:, 1., , Bad debts amounting ` 2,30,000 were written off against provision for, doubtful debts account during the year. In the above solution, Bad debts, have been added back in the balances of provision for doubtful debts and, trade receivables as on 31.3.20X1. Alternatively, the adjustment of writing off, bad debts may be ignored and the solution can be given on the basis of, figures of trade receivables and provision for doubtful debts as appearing in, the balance sheet on 31.3.20X1., , 2., , Current investments (i.e. Marketable securities) may not be readily convertible, to a known amount of cash and be subject to an insignificant risk of changes, in value as per the requirements of AS 3 and hence those have been, considered as investing activities., , © The Institute of Chartered Accountants of India