SRI BALAJI UNIVERSITY PUNE (SBUP)

BIMM
SEMESTER-I-BATCH -2020-22
MANAGEMENT ACCOUNTING

ASSIGNMENT – 3(UNIT-3)

(a)  Name of Student: - Manish Chauhan

(b)  Reg. No: - 09-1128
(c)  Specialization: - Marketing
(d)  Batch: - 2020-2022
(e)  Institute: - Balaji Institute of Modern Management
(f)  Semester: - Semester 1
(g)  Subject Name: - Management Accounting
(h)  Assignment No: - 3
(i)  Submission Date: -23/11/2020
(j)  Total no. of pages written: - 13
 ANSWER1.
a. Cash Flow Statement:
Cash flow statement is a statement showing the changes in financial position of a business
concern during different intervals of time in terms of cash and cash equivalents. The Revised
Accounting Standard-3 has made it mandatory for all listed companies to prepare and present
a cash flow statement along with other financial statements on annual basis.
Cash Flows:
Cash flows are inflows and outflows of cash and cash equivalent. It implies movement-in and
movement-out of cash and cash equivalents. Receipt of cash from a non-cash item is termed
as ‘cash inflow’, while cash payment in respect of such item is termed as ‘cash outflow’.
Cash
Cash comprises of cash in hand and demand deposits with the bank.
Cash Equivalents 
Cash equivalents are ‘short-term highly liquid investments that are readily convertible into
known amount of cash and which are subjected to an insignificant risk of change in value’.
Cash Flow from Operating Activities 
The operating activities on the CFS include any sources and uses of cash from business
activities. In other words, it reflects how much cash is generated from a company's products
or services.
In the case of a trading portfolio or an investment company, receipts from the sale of loans,
debt, or equity instruments are also included. When preparing a cash flow statement under
the indirect method, depreciation, amortization, deferred tax, gains or losses associated with a
noncurrent asset, and dividends or revenue received from certain investing activities are also
included. However, purchases or sales of long-term assets are not included in operating
activities.
Cash Inflow
1. Cash sales.
2. Cash received from debtors.
3. Cash received from commission and fees.
4. Royalty.
5. Cash received for interest and dividends. (For Finance company)
6. Cash paid for interest. (For Finance company)
7. Premiums and claims received. (For Insurance company)
8. Premiums and claims paid. (For Insurance company)
Cash Outflow
1. Cash purchases.
2. Payment to creditors.
3. Cash operating expenses.
 4. Payment of wages.
5. Income tax.
6. Sale of securities. (For Finance company)
7. Purchase of securities. (For Finance company)
8. Rent received. (For Infrastructure company)
9. Rent paid. (For Infrastructure company)
Cash Flow from Investing Activities 
Investing activities include any sources and uses of cash from a company's investments. A
purchase or sale of an asset, loans made to vendors or received from customers, or any
payments related to a merger or acquisition is included in this category. In short, changes in
equipment, assets, or investments relate to cash from investing.3
Usually, cash changes from investing are a "cash out" item, because cash is used to buy new
equipment, buildings, or short-term assets such as marketable securities. However, when a
company divests an asset, the transaction is considered "cash in" for calculating cash from
investing.
Cash inflow
1. Sale of fixed assets.
2. Sale of investments.
3. Interest received.
4. Dividends received.
5. Rent received.
Cash Outflow
1. Purchase of fixed assets.
2. Purchase of investments
Cash from Financing Activities
Cash from financing activities includes the sources of cash from investors or banks, as well as
the uses of cash paid to shareholders. Payment of dividends, payments for stock repurchases,
and the repayment of debt principal (loans) are included in this category.
Changes in cash from financing are "cash in" when capital is raised, and they're "cash out"
when dividends are paid. Thus, if a company issues a bond to the public, the company
receives cash financing; however, when interest is paid to bondholders, the company is
reducing its cash.
Cash Inflow
1. Issue of shares in cash.
2. Issue of debentures in cash.
3. Proceeds from long-term borrowings.
4. Securities premium received.
5. Increase in balance of bank overdraft or cash credit account.
Cash Outflow
 1. Payment of loans.
2. Redemption of preference shares, debentures.
3. Buy-back of equity shares.
4. Payment of dividends.
5. Payment of interest.
6. Premium paid on redemption of preference shares, debentures.
7. Decrease in balance of bank overdraft or cash credit account

b. Cash and Cash Equivalents (CCE):

Cash and cash equivalents refer to the line item on the balance sheet that reports the value of
a company's assets that are cash or can be converted into cash immediately. Cash equivalents
include bank accounts and marketable securities, which are debt securities with maturities of
less than 90 days.1 However, oftentimes cash equivalents do not include equity or stock
holdings because they can fluctuate in value.
Examples of cash equivalents include commercial paper, Treasury bills, and short-term
government bonds with a maturity date of three months or less. Marketable securities and
money market holdings are considered cash equivalents because they are liquid and not
subject to material fluctuations in value.
Types of Cash and Cash Equivalents
Cash and cash equivalents help companies with their working capital needs since these liquid
assets are used to pay off current liabilities, which are short-term debts and bills.
Cash
Cash is money in the form of currency, which includes all bills, coins, and currency notes. A
demand deposit is a type of account from which funds may be withdrawn at any time without
having to notify the institution. Examples of demand deposit accounts include checking
accounts and savings accounts. All demand account balances as of the date of the financial
statements are included in cash totals.
Foreign Currency
Companies holding more than one currency can experience currency exchange risk. Currency
from foreign countries must be translated to the reporting currency for financial reporting
purposes. The conversion should provide results comparable to those that would have
occurred if the business had completed operations using only one currency. Translation losses
from the devaluation of foreign currency are not reported with cash and cash equivalents.
These losses are reported in the financial reporting account called "accumulated other
comprehensive income.
Cash Equivalent
Cash equivalents are investments that can readily be converted into cash. The investment
must be short term, usually with a maximum investment duration of three months or less. If
an investment matures in more than three months, it should be classified in the account
named "other investments." Cash equivalents should be highly liquid and easily sold on the
market. The buyers of these investments should be easily accessible.
The dollar amounts of cash equivalents must be known. Therefore, all cash equivalents must
have a known market price and should not be subject to price fluctuations. The value of the
cash equivalents must not be expected to change significantly before redemption or maturity.
Certificates of deposit may be considered a cash equivalent depending on the maturity date.
Preferred shares of equity may be considered a cash equivalent if they are purchased shortly
before the redemption date and not expected to experience material fluctuation in value.
Cash and Cash Equivalents Do Not Include
There are some exceptions to short-term assets and current assets being classified as cash and
cash equivalents.
Credit Collateral
Exceptions can exist for short-term debt instruments such as Treasury-bills if they're being
used as collateral for an outstanding loan or line of credit. Restricted T-bills must be reported
separately. In other words, there can be no restrictions on converting any of the securities
listed as cash and cash equivalents.
Inventory
Inventory that a company has in stock is not considered a cash equivalent because it might
not be readily converted to cash. Also, the value of inventory is not guaranteed, meaning
there's no certainty in the amount that'll be received for liquidating the inventory.
 Answer2.
1. Objectives of Cash Flow Statement
The Cash Flow Statement is prepared because of number of merits, which are offered by it.
Such merits are also termed as its objectives. The important objectives are as follows:
 To Help the Management in Making Future Financial Policies:
Cash Flow statement is very helpful to the management. The management can make its future
financial policies and is in a position to know about surplus or deficit of cash.
 Helpful in Declaring Dividends etc.:
Cash Flow Statement is very helpful in declaring dividends etc. This statement can supply
necessary information to understand the liquidity.
 Cash Flow Statement is Different than Cash Budget:
Cash budget is prepared with the help of inflow and outflow of cash. If there is any variation,
the same can be corrected.
 Helpful in devising the cash requirement:
Cash flow statement is helpful in devising the cash requirement for repayment of liabilities
and replacement of fixed assets.
 Helpful in finding reasons for the difference:
Cash Flow Statement is also helpful in finding reasons for the difference between
profits/losses earned during the period and the availability of cash whether cash is in surplus
or deficit.
 Helpful in predicting sickness of the business:
Cash flow is helpful in predicting sickness of the business. A sound cash position is a true
indicator of sound financial position.
2. Limitations of Cash Flow Statement:
Though the Cash Flow Statement is a very useful tool of financial analysis, it has its
limitations which must be kept in mind at the time of its use. These limitations are:
 Non-cash Transactions are ignored:
The Cash Flow Statement shows only inflows and outflows of cash. It does not show non-
cash transactions like the purchase of buildings by the issue of shares or debentures to the
vendors or issue of bonus shares.
 Not a substitute for an Income Statement:
An income statement shows both cash and non-cash items. The income statement shows the
net income of the firm whereas the Cash Flow Statement shows only the net cash inflows or
outflows which do not represent the net profits or losses of the enterprise.
 Historical in Nature:
It rearranges the existing information available in the income statement and the balance sheet.
It will become more useful if it is accompanied by the projected Cash Flow Statement.
 Ignorance:
It ignores basic accounting concept, i.e., accrual concept.
 What is Cash:
It is difficult to precisely define the term ‘cash’. There are controversies over a number of
items like cheques, stamps, postal orders, etc. to be included in cash.
 Does not reveal true liquidity position:
A Cash flow statement reveals the inflow and outflow of cash but the exclusion of near cash
items from cash obscures the true reporting of the firm’s liquidity position.
 Working Capital ignored:
Working Capital being a wider concept of funds, a funds flow statement presents a more
complete picture than cash flow statement.

Answer3.
Particulars Rs. Rs.
I. Cash flows from Operating Activities:
Net profit 1,50,000
Provision for taxation 50,000
Proposed dividend 70,000
Depreciation on equipment 15,000
Depreciation on furniture 30,000
Patents written-off 5,000
Loss on sale of equipment 5,000
Operating profit before working capital adjustment 3,25,000
Less: Decrease in Trade payables (- 5,000)
Add: Increase in Outstanding rent 2,000
Less: Increase in Trade receivables (- 40,000)
Less: Increase in inventories (- 80,000)
Cash generated from Operating activities 2,02,000
Less: Tax paid (- 30,000)
 A. Cash Inflows from Operating Activities 1,72,000
II. Cash flows from Investing Activities:
Proceeds from sale of equipment 30,000
Less: Purchase of new equipment (- 80,000)
Less: Purchase of Investments (- 1,00,000)

B. Cash used in Investing Activities (- 1,50,000)

III. Cash flows from Financing Activities:
Add: Issues of equity share capital 2,00,000
Less: Repayment of bank loan (- 50,000)
Less: Payment of dividend (- 50,000)

C. Cash Inflows from Financing Activities 1,00,000

Net increase in Cash & Cash Equivalents (A+B+C) 1,22,000
Add: Cash and Cash Equivalents in the beginning 2,05,000
Cash and Cash Equivalents in the end 3,27,000
Working Notes:
1. Equipment Account

Debit Side Credit Side.

Particulars J.F. Amount (Rs) Particulars J.F. Amount (Rs)
To, Balance b/d 2,00,000 By, Bank 30,000

To, Cash 80,000 By, Statement of Profit & 5,000

Loss (Loss on sale)
By, Depreciation 15,000
(balancing figure)
By, Balance c/d 2,30,000

2,80,000 2,80,000

2. Patents of Rs 5.000 (i.e.. Rs 1.00.000 - Rs 95.000) were written-off during the year,
and depreciation on furniture Rs 30.000. (Rs 3.00.000 - Rs 2.70.000)
 Answer4.
(a).
Particulars Rs. Rs.
I. Cash flows from Operating Activities:
Net profit 15,000
Less: Decrease in Trade payables (- 66,000)
Add: Decrease in Trade receivables 13,500
Add: Decrease in inventories 1,500
A. Cash Inflows from Operating Activities (- 36,000)
II. Cash flows from Investing Activities:
Less: Purchase of Fixed assets (- 47,500)
Less: Purchase of Investments (- 3,000)
B. Cash used in Investing Activities (-50,500)
III. Cash flows from Financing Activities:
Add: Issues of equity share capital 50,000
C. Cash Inflows from Financing Activities 50,000
Net increase in Cash & Cash Equivalents (A+B+C) (- 36,000) + (- 36,500)
(-50,500) +
50,000
Add: Cash and Cash Equivalents in the beginning 33,500 + 1,17,500
84,000
Cash and Cash Equivalents in the end 81,000
Working note:
1. Cash and cash equivalent at beginning = cash and cash equivalent + current
marketable investments. = 33,500 + 84,000 = 1,17,500.
A4 (b).
Particulars Rs. Rs.
I. Cash flows from Operating Activities:
Net profit 90,000
Depreciation on tangible assets 2,00,000
Loss on sale of machinery 15,000
Operating profit before working capital adjustment 3,05,000
Add: Increase in Trade payables 5,000
Add: Decrease in Trade receivables 8,000
Less: Increase in inventories (- 10,000)
A. Cash Inflows from Operating Activities 3,08,000
II. Cash flows from Investing Activities:
Proceeds from sale of machinery 65,000
Less: Purchase of new machinery (- 5,80,000)
B. Cash used in Investing Activities (- 5,15,000)
III. Cash flows from Financing Activities:
Add: Issues of equity share capital 1,00,000
Add: Long term borrowing 1,00,000
C. Cash Inflows from Financing Activities 2,00,000
Net increase in Cash & Cash Equivalents (A+B+C) (- 7,000)
Add: Cash and Cash Equivalents in the beginning 35,000
Cash and Cash Equivalents in the end 28,000
Working Notes:
Machinery account:

Debit Side Credit Side.

Particulars J.F. Amount (Rs) Particulars J.F. Amount (Rs)
To, Balance b/d 8,00,000 By, Bank 65,000

To, Bank (purchases 5,80,000 By, Depreciation 2,00,000

balancing amount)
By, Statement of Profit & 15,000
Loss (Loss on sale)
By, Balance c/d 11,00,000

Answer5.
Basis Cost Accounting Management Financial
Accounting Accounting
Meaning Cost accounting is a Managerial accounting Financial accounting
form of managerial is the practice of is a specific branch of
accounting that aims identifying, measuring, accounting involving
 to capture a analysing, interpreting, a process of
company's total cost and communicating recording,
of production by financial information to summarizing, and
assessing the variable managers for the reporting the myriad
costs of each step of pursuit of an of transactions
production as well as organization's goals. It resulting from
fixed costs, such as varies from financial business operations
a lease expense accounting because the over a period of time.
intended purpose of These transactions are
managerial accounting summarized in the
is to assist users internal preparation of
to the company in financial statements,
making well-informed including the balance
business decisions. sheet, income
statement and cash
flow statement, that
record the company's
operating
performance over a
specified period.
Analysis Generally, the profit is It presents accounting Income, expenditure
analysed for a information in a form and profit are
particular product job, that enables the analysed together for
batch or process. management, investors, a particular period of
and creditors to analyse the whole entity.
the financial statements.
Users Cost accounting Financial reports are Financial reports are
reports are useful to exclusively used by the used by the
the management as management only. management of a
well as the company,
shareholders and shareholders,
creditors of a concern. creditors, and
financial institutions.
Time Period Details provided by The reports are Financial statements
cost accounting are prepared as per the need are reported at the
frequently prepared and requirements of the end of the accounting
and reported to the organization. period, which is
management. normally 1 year.
Restrictions It is flexible since it is GAAP does not apply, GAAP (Generally
wide variety of but information should Accepted Accounting
purpose the basis of be restricted to strategic Principles), FASB
measurement of and operational needs. (Financial
operations may be Accounting Standard
monitory or physical. Board) and SEC
(Securities and
Exchange
Commission).
Objective The main objective of The primary objective Recognition,
cost accounting is to of management classification,
assist the management accounting is to provide recording of financial
in cost control and necessary information transactions on actual
decision-making. to the management in basis, and preparation
the process of its of financial statement
planning, controlling, are the main functions
and performance of financial
evaluation, and accounting.
decision-making.