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Learning Objectives
Recap –
Classification of Cash Flows
4
Direct Method
Indirect Method
6
MCQ – 1
Principal revenue generating activities of an enterprise are
called as –
MCQ – 2
Short term highly liquid investments that are readily convertible in
to known amounts of cash and which are subject to insignificant
risk of changes in value is known as –
MCQ – 3
MCQ – 4
Purchase of Machinery by means of issue of shares should
be ________________ from Cash Flow Statement
A. Included B. Excluded
Answer: B. Excluded
11
MCQ – 5
Unrealized gains and losses arising from foreign exchange
rates are –
MCQ – 6
Equity dividend paid should be classified as cash outflow
from –
Additional Information
1. Depreciation written off on Building ‐ Rs 20,000
2. The Company sold some Investment at a profit of Rs 10, 000, which
is credited to Capital Reserve
3. Income tax provided during the year Rs 55,000
4. Machinery purchased during the year for Rs 2,25, 000. They paid Rs
1,25,000 in cash and issue 10,000 equity shares of Rs 10 each at par.
You are required to prepare cash flow statement for the year ended
31st March 2011 as per AS‐3, by using indirect method
16
Calculation of
Income Tax Sales realization Depreciation
Net Profit
Paid Investment sales on Machinery
before tax
17
Working Note:1 (Rs. In 000)
Income Taxes Paid
Provision for Tax during the year 55
Add: Opening Provision for tax (31.03.2010) 50
105
Less: Closing Provision for tax (31.03.2011) 60
45
18
Working Note:2 (Rs. In 000)
Sales realisation from Investments
Opening Balance of Investment (31.03.2010) 100
Add: Profit on sale of Investment (Credited to
Capital Reserve) 10
110
Less: Closing Balance of Investment (31.03.2011) 50
60
19
Working Note:3 (Rs. In 000)
Depreciation on Machinery
Opening Balance of Machinery (31.03.2010) 750
Add: Cost of Machinery Purchased 225
975
Less: Closing Balance of Machinery (31.03.2011) 920
55
20
Working Note:4 (Rs. In 000)
Net Profit before tax and extraordinary items:
Profit for the Year after Tax provision 80
Add: Provision for Taxation 55
135
21
Adjustments for:
Depreciation Building 20
Depreciation Machinery 55
Operating profit before working capital changes 210
Adjustments for Working Capital Changes:
Add: Decrease in Inventories 20
Less: Increase in Receivables (20)
Less: Decrease in Sundry Creditors (100)
(100)
Cash Generation from Operations 110
Less: Income Tax Paid 45
Net Cash from Operating activities 65
22
Cash and Cash equivalents at the end
Cash in Hand 140
Cash at Bank 410 550
23
4. It was decided that stocks be valued at cost, whereas previously the practice
was to value stock at cost less 10 percent. The stock was Rs 2,59,200 as on
31.03.2005. The stock as at 31.03.06 was correctly valued at Rs 3,60,000
5. It was decided to write off Fixed Assets costing Rs 60,000 on which
depreciation amounting to Rs 48,000 has been provided.
6. Debentures are redeemed at Rs 105
Required: Prepare Cash Flow Statement
26
Purchase of
Fixed Opening
Assets, Stock
Sales of Revaluatio Calculation
Sales Payment
Fixed n and of Net Profit
Realizati towards
Assets, Opening before tax
on from Redempti
Fixed Assets Profit and and
Investme on of 9%
Written Off, Loss Extraordinar
nt Debenture
Depreciation (Adjustmen y Items
Account t for stock
revaluation
(Optional) )
27
Working Note:1 (Rs. In 000)
Fixed Assets Account
Particulars Rs Particulars Rs
To Purchases (Balancing By Fixed Assets Written Off
amount) 1020.00 A/c 60.00
By Balance c/d 4560.00
4860.00 4860.00
28
Working Note:2 (Rs. In 000)
Depreciation Account
Particulars Rs Particulars Rs
To Fixed Assets Written off By Profit & Loss a/c
A/c 48.00 (Depreciation Provision) 420.00
To Balance c/d 1392.00
1524.00 1524.00
29
(Rs. In
Working Note:3 000)
Sale of Fixed Assets Account
Particulars Rs Particulars Rs
To Fixed Assets a/c 240.00 By Depreciation a/c 84.00
By Cash 120.00
By Profit and Loss A/c ‐
Loss on Sales (Balancing
Amount) 36.00
240.00 240.00
30
Working Note:4 (Rs. In 000)
Fixed Assets Written Off Account
Particulars Rs Particulars Rs
By Profit and Loss A/c
(Balancing Amount) 12.00
60.00 60.00
31
Working Note:5 (Rs. In 000)
Investment Account
Particulars Rs Particulars Rs
By Cash (Balancing
To Balance b/d 480.00 Amount) 144.00
To Capital Reserve A/c
(Profit on sale) 48.00 By Balance c/d 384.00
528.00 528.00
32
Working Note:6 (Rs. In 000)
Opening Stock Revaluation Account
Particulars Rs Particulars Rs
To Balance b/d 259.20
To Profit & Loss A/c
(31.03.2005) 28.80 By Balance c/d 288.00
288.00 288.00
33
9% Debentures a/c
Particulars Rs Particulars Rs
To Cash (Balancing
Amount) 302.40 By Balance b/d 960.00
By Profit and Loss A/c ‐
Premium on
Redemption (Rs
To Balance c/d 672.00 288000*5%) 14.40
974.40 974.40
34
Adjustments for:
Depreciation 420.00
Operating profit before working capital changes 1299.60
Adjustments for Working Capital Changes:
Less: Increase in Other Current Assets (109.20)
Add: Increase Current Liabilities 48.00
(61.20)
Cash Generation from Operations 1238.40
Less: Tax Paid 432.00
Net Cash from Operating activities 806.40
36
Cash flows from Financing activities:
Issue of Shares 480.00
Redemption of 9% Debentures (302.40)
Dividend Paid (126.00)
Net Cash from Financing activities 51.60
Net increase / (Decrease) in Cash and Cash equivalents 102.00
Cash and Cash equivalents at the beginning 210.00
Cash and Cash equivalents at the end 312.00
37
Question 3
X Ltd has the following balances as on 01 April 2007
Rs in 000
Fixed Assets 1140
Less: Depreciation 399
741
Stocks and Debtors 475
Bank Balance 66.5
Creditors 114
Bills Payable 76
Capital (Shares of Rs 100 each) 570
39
Question 3 – Continued
The Company made the following estimates for the financial year 2007 ‐ 08
1. The company will pay a free of tax dividend of 10% and the rate of tax being 25%
2. The company will acquire fixed assets costing Rs 1,90,000 after selling one
machine for Rs 38,000 costing Rs 95,000 and on which depreciation provided
amounted to Rs 66,500
3. Stocks and Debtors, Creditors and Bills payables at the end of financial year are
expected to be Rs. 5,60,500, Rs 1,48,200 and Rs 98,800 respectively
4. Profit would be Rs 1,04,500 after depreciation of Rs 1,14,000
Prepare the projected cash from operations and ascertain the bank balances of X
Ltd at the end of the Financial year 2007 ‐ 08
40
Working Note:1 (Rs. In 000)
Profit on Sale of Fixed Assets:
Cost of sold Equipment 95.0
Accumulated Depreciation on Equipments sold 66.5
Written Down Value of Equipment
sold 28.5
Less: Sale value 38.0
9.5
42
Working Note:2 (Rs. In 000)
Dividend and Dividend Tax:
Dividend Tax 19.0
43
Adjustments for Working Capital Changes:
Less: Increase in Stocks and Debtors (85.5)
Add: Increase Creditors 34.2
Add: Increase Bills payable 22.8
(28.5)
Net Cash from Operating activities 180.5
44
Net increase / (decrease)in Cash and Cash equivalents (47.5)
Bank Balance at the beginning 66.5
Bank Balance on 31.03.2008 19.0
45
Required: Prepare Cash Flow Statement
48
Calculati
Net
Depreciati Transfer on of
Provision increas
on on to Net
for e in
Plant and General Profit
Taxation Current
Machinery reserve before
Assets
tax
49
Plant and Machinery Account
Particulars Rs Particulars Rs
To Bank 95.00
To Acquired from other
company 105.00 By Balance c/d 820.00
900.00 900.00
50
By Profit & Loss a/c
(Tax Provision) 170.00
To Balance c/d 180.00
320.00 320.00
51
General Reserve Account
Particulars Rs Particulars Rs
To Capital redemption
reserve 100.00 By Balance b/d 200.00
By Profit & Loss a/c 20.00
To Balance c/d 120.00
220.00 220.00
52
To Proposed Dividend 210.00
To Balance c/d 175.00
575.00 575.00
53
Net increase in Current Assets
Current Assets as on 31.03.2011 1141.00
Less: Stock acquired by issue of shares 25.00
1116.00
Less: Current Assets as on 31.03.2010 910.00
206.00
54
Adjustments for Working Capital Changes:
Less: Increase in Current Assets (206.00)
Add: Increase Current Liabilities 260.00 54.00
Cash Generation from Operations 600.60
Less: Tax Paid 140.00
Net Cash from Operating activities 460.60
55
Cash flows from Financing activities:
Issue of Shares @ 10% premium for cash 110.00
Redemption of Preference Share Capital (220.00)
Dividend Paid (160.00)
Net Cash from Financing activities ‐270.00
Net increase in Cash and Cash equivalents 15.60
Cash and Cash equivalents as on 31‐Mar‐2010 150.00
Cash and Cash equivalents as on 31‐Mar‐2011 165.60
56
Thank You