Chapter 6 Cash Flow Statement Solutions
Question - 11 : - Explain the major Cash Inflow and outflows from investing activities.
Answer - 11 : -
Investing activities consist of sales and purchase of fixed assets that are long term in nature, like building, land, furniture and plant and machinery etc. It also includes sale and purchase of items that are not cash equivalents. If any income is received from these assets it is regarded as a part of investing activities. The major cash inflows and outflows that are involved in investing activities are:
1. Cash receipts that are obtained when fixed assets are sold off and it includes intangible assets.
2. Acquiring fixed assets which also includes intangibles like goodwill using cash payments, the payments is for the research and development and assets that are self-constructed.
3. Acquiring shares, debt instruments or warrants using cash payments
4. Disposal of shares and warrants that yield cash receipts.
5. Loans and cash advances that are made to third parties (does not includes loans and advances made by financial enterprises.
6. Cash receipts obtained from any insurance company for a property that is involved in accident
7. Cash receipts that are obtained for repayment of loans and cash advances made to third parties.
8. Any type of income that is obtained from fixed assets like interest, dividend and rent (not in case of financial enterprises)
Question - 12 : - Explain the major Cash Inflows and outflows from financing activities.
Answer - 12 : -
In a firm, the financing activities are associated with capital or long term funds of the firm, the financing activities bring about change in capital and borrowed funds.
The following cash inflows and outflows as per AS3 can be mentioned here as:
1. Cash received from the issuing of shares and similar instruments causes cash inflow
2. Cash received from issuing of debentures, obtaining loans, bonds and similar instruments brings cash inflow.
3. Repayments of debentures, loans and bonds in form of cash is considered cash outflow
4. Buying back shares and debentures which were issued is also cash outflow
5. Interest payment for debentures, advances and loans.
6. Dividend payment to equity and preference shareholders.
Question - 13 : - Anand Ltd., arrived at a net income of ₹ 5, 00,000 for the year ended March 31, 2017. Depreciation for the year was ₹ 2, 00,000. There was a profit of ₹ 50,000 on assets sold which was transferred to Statement of profit and Loss account. Trade Receivables increased during the year ₹ 40,000 and Trade Payables also increased by ₹ 60,000. Compute the cash flow operating activities by the indirect approach.
Answer - 13 : -
| Cash Flow from Operating Activities as on March 31, 2017 |
| Particulars | Amount (₹) | Amount (₹) |
| Net Profit during the year | | 5,00,000 |
| Items to be adjusted: | | |
| Add: Depreciation | 2,00,000 | |
| Less: Gain on sale of assets | (50,000) | 1,50,000 |
| Operating Profit before Working Capital changes | | 6,50,000 |
| Add: Increase in Trade Payables | 60,000 | |
| Less: Increase in Trade Receivables | (40,000) | 20,000 |
| Net Cash from Operations | | 6,70,000 |
| | |
| Particulars | (₹) |
| Inventory in the beginning | 40,000 |
| Credit Purchases | 1,60,000 |
| Inventory in the end | 38,000 |
| Trade payables in the beginning | 14,000 |
| Trade payables in the end | 14,500 |
Answer - 14 : -
| Trade Payables Account |
| Dr. | | | | | | | Cr. |
| Date | Particulars | J.F. | Amount ₹ | Date | Particulars | J.F. | Amount ₹ |
| Cash (Balancing fig.) | | 1,59,500 | | Balance b/d | | 14,000 |
| Balance c/d | | 14,500 | | Purchases | | 1,60,000 |
| | | 1,74,000 | | | | 1,74,000 |
| | | | | | | |
Therefore the cashpaid for Inventory amounts to ₹ 1, 59,500
For each of the following transactions, calculate the resulting cash flow and state the nature of cash flow, viz., operating, investing and financing.
(a) Acquired machinery for ₹ 2, 50,000 paying 20% by cheque and executing a bond for the balance payable.
(b) Paid ₹ 2, 50,000 to acquire shares in Informa Tech. and received a dividend of ₹ 50,000 after acquisition.
(c) Sold machinery of original cost ₹ 2, 00,000 with an accumulated depreciation of ₹ 1, 60,000 for ₹
60,000.
Answer - 15 : -
(a)
Part payment ₹ 50,000 for acquiring machinery ₹ 2, 50,000 is related with Investing Activities
(b)
(b)
| ₹ |
| Amount paid for acquiring shares | (2,50,000) |
| Dividend received | 50,000 |
| Net Cash used in Investing Activities | (2,00,000) |
| |
Amount paid to acquire assets and dividend received is a part of Investing Activities.
(c) Inflow of cash of ₹ 60,000 on sale of machinery is a part Investing Activities.
Question - 16 : - The following is the Profit and Loss Account of Yamuna Limited: | Statement of Profit and Loss of Yamuna Ltd., for the Year ended March 31, 2017 |
| Particulars | Note No. | Amount (₹) |
| i) | Revenue from Operations | | 10,00,000 |
| ii) | Expenses | | |
| Cost of Materials Consumed | 1 | 50,000 |
| Purchase of Stock-in-trade | | 5,00,000 |
| Other Expenses | 2 | 3,00,000 |
| Total Expenses | | 8,50,000 |
| iii) | Profit before Tax (i – ii) | | 1,50,000 |
Additional information:
(i) Trade receivables decrease by ₹ 30,000 during the year.
(ii) Prepaid expenses increase by ₹ 5,000 during the year.
(iii) Trade payables increase by ₹ 15,000 during the year.
(iv) Outstanding expenses payable increased by ₹ 3,000 during the year.
(v) Other expenses included depreciation of ₹ 25,000.
Compute net cash from operations for the year ended March 31, 2017 by the indirect method.
Answer - 16 : -
| Cash Flow from Operating Activities of Yamuna Limited as on March 31, 2017 |
| Particulars | Amount ₹ | Amount ₹ |
| | |
| Net Profit earned during the year | | 1,50,000 |
| Items to be added: | | |
| | Depreciation | | 25,000 |
| Operating Profit before Working Capital changes | | 1,75,000 |
| Add: | Increase in Current Liabilities | | |
| | Outstanding Expenses | 3,000 | |
| Add: | Decrease in Current Assets | | |
| | Trade Receivables | 30,000 | |
| | Stock | 50,000 | 83,000 |
| Less: | Decrease in Current Liabilities | | |
| | Trade Creditors | (15,000) | |
| Less: | Increase in Current Assets | | |
| | Prepaid Expenses | (5,000) | (20,000) |
| Net Cash from Operations | | 2,38,000 |
Compute cash from operations from the following figures:
(i) Profit for the year 2016-17 is a sum of ₹. 10,000 after providing for depreciation of ₹. 2,000.
(ii) The current assets and current liabilities of the business for the year ended March 31, 2016 and 2015 are as follows:
| Particular | March
31, 2016
(₹) | March
31, 2017
(₹) |
| Trade Receivables | 14,000 | 15,000 |
| Provision for Doubtful Debts | 1,000 | 1,200 |
| Trade Payables | 13,000 | 15,000 |
| Inventories | 5,000 | 8,000 |
| Other Current Assets | 10,000 | 12,000 |
| Expenses payable | 1,000 | 1,500 |
| Prepaid Expenses | 2,000 | 1,000 |
| Accrued Income | 3,000 | 4,000 |
| Income received in advance | 2,000 | 1,000 |
Answer - 17 : -
| Cash Flow Statement for the Year Ending March 31, 2017 |
| Particulars | Details (₹) | Amount (₹) |
| Cash from Operating Activities | | |
| Net Profit | | 10,000 |
| Items to be added: | | |
| Depreciation | 2,000 | 2,000 |
| Operating Profit before Working Capital Adjustments | | 12,000 |
| Less: Increase in Current Assets | | |
| Trade Receivables | (1,000) | |
| Accrued Income | (1,000) | |
| Accrued Income | (2,000) | |
| Other Current Assets | (3,000) | |
| Inventories | | |
| Add: Increase in Current Liabilities | | |
| Provision for Doubtful Debts | 200 | |
| Trade Payables | 2,000 | |
| Expense Payable | 500 | |
| Add: Decrease in Current Assets | | |
| Prepaid Expenses | (1,000) | |
| Less: Decrease in Current Liabilities | | |
| Income received in advance | 1,000 | |
| | |
| Net Cash From Operating Activities | | 7,700 |
| | |
| Balance Sheet of Bharat Gas Ltd. as on 31 Mar. 2016 and 31 Mar. 2017 |
| Particulars | Note No. | Figures as the end of 2017
(₹) | Figures as at the
end of reporting 2016
(₹) |
| II) Assets | | | |
| 1. Non-current Assets | | | |
| a) Fixed assets | | | |
| i) Tangible assets | 1 | 12,40,000 | 10,20,000 |
| ii) Intangible assets | 2 | 4,60,000 | 3,80,000 |
| b) Non-current investments | 3 | 3,60,000 | 2,60,000 |
| Notes | 1 | Tangible assets = Machinery |
| 2 | Intangible assets = Patents |
| | | | | |
Notes
| Figures of current year | Figures of previous year |
| | |
| 1. Tangible Assets | | |
| Machinery | 12,40,000 | 10,20,000 |
| 2. Intangible Assets | | |
| Goodwill | 3,00,000 | 1,00,000 |
| Patents | 1,60,000 | 2,80,000 |
| 4,60,000 | 3,80,000 |
| 3. Non-current Investments | | |
| 10% long term investments | 1,60,000 | 60,000 |
| Investment in land | 1,00,000 | 1,00,000 |
| Shares of Amartex Ltd. | 1,00,000 | 1,00,000 |
| 3,60,000 | 2,60,000 |
| | |
Additional Information:
(a) Patents were written-off to the extent of ₹. 40,000 and some Patents were sold at a profit of ₹. 20,000.
(b) A Machine costing ₹. 1, 40,000 (Depreciation provided thereon ₹. 60,000) was sold for ₹. 50,000. Depreciation charged during the year was ₹. 1, 40,000.
(c) On March 31, 2016, 10% Investments were purchased for ₹. 1, 80,000 and some Investments were sold at a profit of ₹. 20,000. Interest on Investment was received on March 31, 2017.
(d) Amartax Ltd. paid Dividend @ 10% on its shares.
(e) A plot of Land had been purchased for investment purposes and let out for commercial use and rent received ₹. 30,000.
Answer - 18 : -
| Cash Flow from Investing Activities |
| Particulars | Amount ₹ | Amount ₹ |
| Cash Inflow | | |
| Proceeds from Sale of Patents | 1,00,000 | |
| Proceeds from Sale of Machinery | 50,000 | |
| Proceeds from Sale of 10% Long-term Investment | 1,00,000 | |
| Interest received on 10% Long-term Investment | 6,000 | |
| Dividend Received from Amartax Ltd. | 10,000 | |
| Rent Received | 30,000 | 2,96,000 |
| Cash Outflow | | |
| Purchase of Goodwill | (2,00,000) | |
| Purchase of Machinery | (4,40,000) | |
| Purchase of 10% Long-term Investment | (1,80,000) | (8,20,000) |
| Net Cash used in Investing Activities | | (5,24,000) |
| | | | |
| | | | |
| Patents Account |
| Dr. | | | | | | | Cr. |
| Date | Particulars | J.F. | Amount ₹ | Date | Particulars | J.F. | Amount ₹ |
| Balance b/d | | 2,80,000 | | Profit and Loss (written off) | | 40,000 |
| Profit and Loss (Profit on sale) | | 20,000 | | Bank (sale- Balancing figure) | | 1,00,000 |
| | | | | Balance c/d | | 1,60,000 |
| | | 3,00,000 | | | | 3,00,000 |
| | | | | | | |
| | | | | | | | | | | |
| Machinery Account |
| Dr. | | | | | | | Cr. |
| Date | Particulars | J.F. | Amount ₹ | Date | Particulars | J.F. | Amount ₹ |
| Balance b/d | | 10,20,000 | | Depreciation | | 1,40,000 |
| Bank (Purchases- Balancing figure) | | 4,40,000 | | Bank | | 50,000 |
| | | | | Profit and Loss | | 30,000 |
| | | | | Balance c/d | | 12,40,000 |
| | | 14,60,000 | | | | 14,60,000 |
| | | | | | | |
| 10% Long-term Investment Account |
| Dr. | | | | | | | Cr. |
| Date | Particulars | J.F. | Amount ₹ | Date | Particulars | J.F. | Amount ₹ |
| Balance b/d | | 60,000 | | Bank (Balancing figure) | | 1,00,000 |
| Bank | | 1,80,000 | | | | |
| Profit and Loss (Profit on sale) | | 20,000 | | Balance c/d | | 1,60,000 |
| | | | | | | |
| | | 2,60,000 | | | | 2,60,000 |
| | | | | | | |
| Balance Sheet of Mohan Ltd.,
as at 31st March 2016 and 31 March 2017 |
| Particulars | Note No. | March 31, 2017
(₹) | March 31, 2016
(₹) |
| I) Equity and Liabilities | | | |
| 1. Shareholders’ Funds | | | |
| a) Equity share capital | | 3,00,000 | 2,00,000 |
| b) Reserves and surplus | | 2,00,000 | 1,60,000 |
| 2. Non-current liabilities | | | |
| a) Long-term borrowings | 1 | 80,000 | 1,00,000 |
| 3. Current liabilities | | | |
| Trade payables | | 1,20,000 | 1,40,000 |
| Short-term provisions | 2 | 70,000 | 60,000 |
| Total | | 7,70,000 | 6,60,000 |
| II) Assets | | | |
| 1. Non-current assets | | | |
| Fixed assets | 3 | 5,00,000 | 3,20,000 |
| 2. Current assets | | | |
| a) Inventories | | 1,50,000 | 1,30,000 |
| b) Trade receivables | 4 | 90,000 | 1,20,000 |
| c) Cash and cash equivalents | 5 | 30,000 | 90,000 |
| Total | | 7,70,000 | 6,60,000 |
| | | |
Notes to accounts:
| 2017 | 2016 |
| 1. Long-term borrowings | | |
| Bank Loan | 80,000 | 1,00,000 |
| 2. Short-term provision | | |
| Proposed dividend | 70,000 | 60,000 |
| 3. Fixed assets | 6,00,000 | 4,00,000 |
| Less: Accumulated Depreciation | 1,00,000 | 80,000 |
| (Net) Fixed Assets | 5,00,000 | 3,20,000 |
| 4. Trade receivables | | |
| Debtors | 60,000 | 1,00,000 |
| Bills receivables | 30,000 | 20,000 |
| 90,000 | 1,20,000 |
| 5. Cash and cash equivalents | | |
| Bank | 30,000 | 90,000 |
| | |
Additional Information:
Machine Costing ₹. 80,000 on which accumulated depreciation was ₹. 50,000 was sold for ₹. 20,000.
Answer - 19 : -
| Cash Flow Statement of Mohan Ltd. |
| Particulars | Amount ₹ | Amount ₹ |
| A. | Cash Flow from Operating Activities | | |
| Profit as per the Balance Sheet (2,00,000 – 1,60,000) | 40,000 | |
| Proposed Dividend | 70,000 | |
| Net Profit before Taxation and Extraordinary items | | 1,10,000 |
| Adjustments: | | |
| | Depreciation | 70,000 | |
| | Loss on Sale of Machine | 10,000 | 80,000 |
| Operating Profit before Working Capital changes | | 1,90,000 |
| | Add: | Decrease in Current Assets | | |
| | | Debtors | 40,000 | 40,000 |
| | | | | 2,30,000 |
| | Less: | Increase in Current Assets | | |
| | | Inventories | (20,000) | |
| | | Bills Receivable | (10,000) | |
| | Less: | Decrease in Current Liabilities | | |
| | | Trade Payables | (20,000) | (50,000) |
| Net Cash from Operations | | 1,80,000 |
| B. | Cash Flow from Investing Activities | | |
| | Proceeds from Sale of Fixed Assets | | 20,000 |
| | Purchases of Fixed Assets | | (2,80,000) |
| | Net Cash outflow from Investing activity | | (2,60,000) |
| | | | | |
| C. | Cash Flow from Financing Activities | | |
| | Issue of Shares | | 1,00,000 |
| | Bank Loan Paid | | (20,000) |
| | Dividend Paid | | (60,000) |
| Net Cash from Financing Activities | | 20,000 |
| | | | | |
| D. | Net Decrease in Cash and Cash Equivalents (A+B+C) | | (60,000) |
| | Add: | Cash and Cash Equivalents in the beginning | | 90,000 |
| | | |
| E. | Cash and Cash equivalents at the end | | 30,000 |
| | | |
| Fixed Assets Account |
| Dr. | | | | | | | Cr. |
| Date | Particulars | J.F. | Amount ₹ | Date | Particulars | J.F. | Amount ₹ |
| Balance b/d | | 4,00,000 | | Bank | | 20,000 |
| Bank (Purchases- Balancing fig.) | | 2,80,000 | | Profit and Loss | | 10,000 |
| | | | | Accumulated Depreciation | | 50,000 |
| | | | | Balance c/d | | 6,00,000 |
| | | 6,80,000 | | | | 6,80,000 |
| | | | | | | |
| | | | | | | | | | | | | |
| Accumulated Depreciation Account |
| Dr. | | | | | | | Cr. |
| Date | Particulars | J.F. | Amount ₹ | Date | Particulars | J.F. | Amount ₹ |
| Fixed Assets | | 50,000 | | Balance b/d | | 80,000 |
| Balance c/d | | 1,00,000 | | Profit and Loss (Balance fig.) | | 70,000 |
| | | 1,50,000 | | | | 1,50,000 |
| | | | | | | |
| Balance Sheet of Tiger Super Steel Ltd.
as at 31st March 2014 and 31st March 2017 |
| Particulars | Note No. | March 31, 2017
(₹) | March 31, 2016
(₹) |
| I) Equity and Liabilities | | | |
| 1. Shareholders’ Funds | | | |
| a) Share capital | 1 | 1,40,000 | 1,20,000 |
| b) Reserves and surplus | 2 | 22,800 | 15,200 |
| 2. Current Liabilities | | | |
| a) Trade payables | 3 | 21,200 | 14,000 |
| b) Other current liabilities | 4 | 2,400 | 3,200 |
| c) Short-term provisions | 5 | 28,400 | 22,400 |
| Total | | 2,14,800 | 1,74,800 |
| II) Assets | | | |
| 1. Non-Current Assets | | | |
| a) Fixed assets | | | |
| i) Tangible assets | 6 | 96,400 | 76,000 |
| ii) Intangible assets | | 18,800 | 24,000 |
| b) Non-current investments | | 14,000 | 4,000 |
| 2. Current Assets | | | |
| a) Inventories | | 31,200 | 34,000 |
| b) Trade receivables | | 43,200 | 30,000 |
| c) Cash and Cash Equivalents | | 11,200 | 6,800 |
| Total | | 2,14,800 | 1,74,800 |
| | | |
Notesto accounts:
| 2017 | 2016 |
| 1. Share Capital | | |
| Equity share capital | 1,20,000 | 80,000 |
| 10% Preference share capital | 20,000 | 40,000 |
| 1,40,000 | 1,20,000 |
| 2. Reserves and surplus | | |
| General reserve | 12,000 | 8,000 |
| Balance in statement of profit and loss | 10,800 | 7,200 |
| 22,800 | 15,200 |
| 3. Trade payables | | |
| Bills payable | 21,200 | 14,000 |
| | |
| 4. Other current liabilities | | |
| Outstanding expenses | 2,400 | 3,200 |
| | |
| 5. Short-term provisions | | |
| Provision for taxation | 12,800 | 11,200 |
| Proposed dividend | 15,600 | 11,200 |
| 28,400 | 22,400 |
| 6. Tangible assets | | |
| Land and building | 20,000 | 40,000 |
| Plant | 76,400 | 36,000 |
| 96,400 | 76,000 |
| | |
Answer - 20 : -
| Cash Flow Statement of Tiger Super Steels Ltd |
| Particulars | Amount ₹ | Amount ₹ |
| A. | Cash Flow from Operating Activities | | |
| Profit as per the Balance Sheet (10,800 –7,200) | 3,600 | |
| General Reserve | 4,000 | |
| Proposed Dividend | 15,600 | |
| Provision for Taxation | 12,800 | |
| Net Profit before Taxation and Extraordinary | | 36,000 |
| Items to be added: | | |
| | Depreciation on Land and Building | 20,000 | |
| | Depreciation on Plant | 10,000 | |
| | Goodwill written off | 5,200 | 35,200 |
| Operating Profit before Working Capital changes | | 71,200 |
| | | |
| | Add: | Increase in Current Liabilities | | |
| | | Bills Payable | 7,200 | |
| | Add: | Decrease in Current Assets | | |
| | | Inventories | 2,800 | 10,000 |
| | | | | 81,200 |
| | Less: | Increase in Current Assets | | |
| | | Trade Receivables | (13,200) | |
| | Less: | Decrease in Current Liabilities | | |
| | | Outstanding Expenses | (800) | (14,000) |
| Cash Generated from Operating Activities | | 67,200 |
| | Less: | Income Tax paid | | (11,200) |
| Net Cash from Operating Activities | | 56,000 |
| | | | | |
| B. | Cash Flow from Investing Activities | | |
| | Purchases of Plant | | (40,400) |
| | Purchases of Investment | | (20,000) |
| Net Cash used in Investing Activities | | (60,400) |
| | | | | |
| C. | Cash Flow from Financing Activities | | |
| | Issue of Equity Shares | | 40,000 |
| | Dividend paid | | (11,200) |
| | Redemption of 10% Preference Shares | | (20,000) |
| Net Cash from Financing Activities | | 8,800 |
| | | | | |
| D. | Net Increase in Cash and Cash Equivalent | | 4,400 |
| | Add: | Cash and Cash Equivalent in the beginning | | 6,800 |
| E. | Cash and Cash Equivalents at the end | | 11,200 |
| | | |
WorkingNotes:
1.
| Plant Account |
| Dr. | | | | | | | Cr. |
| Date | Particulars | J.F. | Amount ₹ | Date | Particulars | J.F. | Amount ₹ |
| To Balance b/d | | 36,000 | | By Depreciation | | 10,000 |
| To Bank A/c (Purchases- Balancing figure) | | 50,400 | | By Balance c/d | | 76,400 |
| | | 86,400 | | | | 86,400 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
2.
| Net Profit before Tax | 3,600 |
| Profit and Loss Account | 12,800 |
| Less: | Provision for Tax | 16,400 |
| | |