Depreciation A/c 5000 ​NOTIONAL Entry

To Machinery A/c 5000

To Purchases 40 By Dividend 10
received
To Expenses 10 By Sales 70
To Depreciation 5 By Profit on sale of 20
furniture
To Interest 10
TO N/P 35
100 100

Book Profit = 45
Cash Profit= 50

*Statement of changes in Working capital

Particulars 2019 2020 Inc Dec Effect
on
WC
Creditors(CL) 100 150 50 +
Debtors(CA) 200 170 30 +
Stock (CA) 250 290 40 -
 Provision(CL) 130 100 30 -

​ Illustration 1
Charles Ltd., made a profit of Rs 1,00,000 after charging
depreciation of Rs 20,000 on assets and a transfer to general
reserve of Rs 30,000. The goodwill amortised was Rs 7,000 and
gain on sale of machinery was Rs 3,000. Other information
available to you ( changes in the value of current assets and
current liabilities) are trade receivables showed an increase of
Rs 3,000; trade payables an increase of Rs 6,000; prepaid
expenses an increase of Rs 200; and outstanding expenses a
decrease of Rs 2,000. Ascertain cash flow from operating
activities.

Solution:

Particulars Rs
N/P before tax and Extraordinary Items*(WN1) 1,30,000
Adjustment for non cash and Non Operating
items:
+ Depreciation 20,000
+ Goodwill amortised 7,000
- Gain on sale of machinery ​ ​ (3,000)

Operating profit before Working Capital ​1,54,000

Adjustment for Working capital Changes:(WN2)

- Increase in Trade receivables (3000)
+ Increase in Trade payables 6,000
- Increase in prepaid expenses (200)
- Decrease in Outstanding Expenses (​ 2,000)

Net Cash from operating Activity ​1,54,800

*Working Note 1:
N/P 1,00,000
+Transfer to general Reserve ​+30,000
1,30,000

2. Working capital Changes

Particulars Inc Dec Effect on

WC
trade receivables 3,000 -
trade payables 6,000 +
prepaid expenses 200 -
outstanding expenses 2,000 -

Problem 2:
Solution:
Cash Flow from Operating Activity
Particulars Amount
Net profit before Tax and Extraordinary 42,000
Items( Note 1)
Adjustment for non cash and Non
Operating items:
+Depreciation 20,000
Operating profit before Working 62,000
Capital
Adjustment for Working capital
Changes:(Note 2)
Trade receivables (3,000)
Trade Payables (2,000)
Inventory (5,000)
Outstanding Employees Benefits 1,000
Prepaid expenses (500)

Cash Generated from operations 52,500

Income Tax paid (11,000)
Net Cash from operating Activity 41,500

Note 1: Calculation of PBT

PAT = 32000
Tax = 10000
PBT= PAT + Tax = 32000+10000=42000
Note 2: Working capital Changes
(Income tax outstanding though it is a CL it will not
appear in the WC changes statement)

Particulars Opening Closing Effect on

Balance Balance WC
Trade receivables 33,000 36,000 (3,000)
Trade Payables 17,000 15,000 (2,000)
Inventory 22,000 27,000 (5,000)
Outstanding Employees 2,000 3,000 1,000
Benefits
Prepaid expenses 5,000 5,500 (500)

Problem 3:

Welprint Ltd. has given you the following information:​(Rs)

Machinery as on April 01, 2012 50,000
Machinery as on March 31, 2013 60,000
Accumulated Depreciation on April 01, 2012 25,000
Accumulated Depreciation on March 31, 2013 15,000
During the year, a Machine costing Rs 25,000 with Accumulated Depreciation of
Rs 15,000 was sold for Rs 13,000.
Calculate cash flow from Investing Activities on the basis of the above

Solution 3:
Cash flow from Investing Activities
Sale of machinery 13,000
Purchase of Machinery ​ (35,000)
 Net Cash used in Investing Activities ​ (22,000)

Working capital:

Machinery A/c
Particulars Amt Particulars Amt

To Bal B/d 50,000 By Cash 13,000

To Profit 3,000 By Accumulated 15,000
To Cash (Purchased *35,000 Depreciation
Machinery) *Missing fig By Bal c/d 60,000

88,000 88,000

Accumulated Depreciation A/c

Particulars Amt Particulars Amt

To machinery A/c 15,000 By Bal b/d 25,000

To Bal c/d 15,000 By P&L A/c* Missing Fig *5,000

30,000 30,000

Depreciation A/c 5000

To Machinery 5000 CP=25000-15000
10000
SP= 13000
Profit =3000
P& L A/c 5000
To Depreciation 5000

Problem 4:
From the following information, calculate cash flows
from financing activities:
April 1, March 31,
 2014 2015
(Rs) (Rs)
Long-term Loans 2,00,000 2,50,000
During the year, the company repaid a loan of Rs
1,00,000.

Solution 4:
Cash flow from financing activity:
Proceeds from long term borrowings: 1,50,000
Repayment of long term borrowings: (1,00,000)
Net cash flow from financing activities: 50,000

Long term loan A/c

Particulars Amt Particulars Amt

To bank 1,00,000 By Bal b/d 2,00,000

By Bank(*Missing Fig) *1,50,000

To bal c/d 2,50,000

3,50,000 3,50,000

Take loan:
Bank A/c 1,00,000
To Long term loan A/c 1,00,000

Repay loan:
Long term loan A/c 1,00,000
To Bank A/c 1,00,000
Problem 5:
Solution 5:
Cash Flow Statement
Particulars Amount
I. Cash flow from Operating Activities:
Net profit before taxation and
Extraordinary Items:(WN1) 3,95,000
Adjustment for non cash and Non
Operating items:
+ Depreciation 40,000
+ Goodwill written off 20,000
- Profit on sale of Land (15,000)
Operating Profit before working capital 4,40,000
changes:
Adjustment for Working capital
Changes:
- Decrease in trade payables (10,000)
- Increase in Inventories (80,000)
- Increase in Trade Receivables (50,000)
Cash generated from operations 3,00,000
- Income tax paid (WN2) 65,000
(A)Cash Inflows from Operating Activity 2,35,000
II. Cash flow from Investing Activities
Proceeds from Sale of L&B 1,65,000
Purchase of investment (6,00,000)
(B) Cash used in Investing Activity (4,35,000)
III. Cash flow from Financing Activity
 Proceeds from issue of E share 5,00,000
Redemption of Debentures (2,00,000)
Proceeds from bank loan 1,00,000
Dividend Paid (1,50,000)
Dividend Tax paid (15,000)
(C ) Cash flow from financing activity 2,35,000
Net increase in cash and cash 35,000
equivalents(A+B+C)
Cash and Cash equivalent at the 3,40,000
Beginning
Working Note 1:
Net profit before tax and Extraordinary Items
N/P= 1,50,000
tax + 95,000
Dividend+ ​1,50,000
​ 3,95,000

Working Note 2:
Total tax paid during the year =80,000
- Dividend tax ​(15,000)
Income Tax paid ​ 65,000

Working Note 3:

Land and Building A/c

Particulars Amt Particulars Amt
To Bal b/d 8,00,000 By cash 1,65,000
To P& L A/c 15,000 By Bal c/d 6,50,000
8,15,000 8,15,000

Plant and Machinery A/c

Particulars Amt Particulars Amt
To Bal b/d 4,00,000 By Depreciation 40,000
By Bal c/d 3,60,000
4,00,000 4,00,000

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