9.

CH-9
CASH FLOW AND
FUND FLOW STATEMENT

Question 1. Write short notes on Cash, cash equivalents and cash flows. or
Distinguish between ‘Cash’ and ‘cash equivalents’.
Cash flow :- are inflows and outflows of cash and cash equivalent it means, movement of cash into the
organisation and movement of cash out of the organisation
Cash and Cash equivalent: Cash comprises cash in hand and demand deposit with banks. Cash equivalents are short term,
highly liquid investments are readily convertible into known amounts of cash and which are subjects to an insignificant risk
of change in value. An investment normally qualifies as a cash equivalent only when it has a short maturity of, say 3
months or less from the date of acquisition.

Examples of cash equivalent are:

(i) treasury bill;

(ii) commercial paper;

(iii) money market funds;

(iv) Investment in preference shares and redeemable within three months can also be taken as cash equivalent if there
is no risk of failure of the company.

Question 2. What are the benefits of cash flow statement? Mention the parties who are benefitted
OR
Discuss the significance of projected cash flow statement in decision making.

Significance of cash flow statement: Cash flow statement is a historical document which is generally used in
examination of short term financial changes. Though this statement is not published with financial statements but it
is very important document for the financial analyst of the firm the importance of cash flow statement can be
summarised as under :

1. Knowledge of cash movement: This statement provides information

regarding increase or decrease in cash and the because therefore.
2. Helpful in financial planning : The main background of financial planning is
also cash. The projected cash flow statement helps the financial manager to plan
well about the sources and application of cash, due to this, financial cost can be
reduced to minimum and solid financial statement can be obtained. This
statement is helpful in formulation of policies regarding Clearance of debts,
renewal of assets and capital budgeting etc.
3. Effective capital : This is an effective device of control for the
management. The difference between estimated and actual results can be
 9.2

known by comparing cash budget and cash flow statement.

4. Co-ordination in financial policies : This statement also brings Co-ordination in financial policies. How much cash
should a firm arrange from its internal sources and how much should be procured from outside can be decided
upon by the help of cash flow statement.
5. Other Importance : The other uses of this statement are as follows :
(a) Beneficial for bankers,
(b) Comparative study.
(c) Helpful in forecasting and
Measurement of efficiency of management

Parties benefited from preparing cash flow statement as follows:

(i) Shareholders

(ii) Centers Lenders

(iii) Employees

(iv) Suppliers

(v) Local bodies, etc.

Question 3. Distinguish between ‘cash flow’ and ‘fund flow’.

Point of difference Cash flow statement Fund flow statement

1 Meaning It is a statement of changes in the It is a statement changes in the

financial Position of business due to financial position of the business
due to inflow and outflow of
inflow and outflow of cash.
funds.

Statement of cash flow is required for

2 Planning Period short range planning. Fund flow statement is used for
long range planning.

Plans for more immediate future can

3 Reliability rely upon information supplied by cash Plans for more immediate
flow statement. future cannot rely upon the
information supplied by fund flow
statement.
It does not treat all current assets as
4 Treatment of current cash. It treat all current assets at far
with funds, although debts are
assets
collected within months and
stock is sold within 6 months.
 9.3

5 Treatment of current Increase in bank overdraft and increase increase in outstanding expenses
liabilities in outstanding expenses are treated are treated as increase in
separately. overdraft.
6 Cash/funds from While making cash flow statement cash While making funds flow
operation from operation is calculated statement, funds from operation is
calculated.

Question 4. What is cash flow statement ? How does it differ from a ‘cash budget’ and a ‘fund flow
statement’?
Cash flow statement: Cash flow statement are statement of changes in the financial position of the business due
to inflow and outflow of cash. Statement of cash flow is required for short range financial planning.

Cash flow statement are the summarised form of in flow of cash from different sources and the uses to which the
cash has been applied. Cash flow statements are useful for the management in assessing capability of business to
meet its short term commitments towards creditors for goods and expanses.

Difference between cash flow statement and cash budget:

Basis of difference Cash flow statement Cash budget

Time Objective This analysis the cash changes between Cash budget is the estimate
two historical periods
1. of future cash inflows and

outflows.

The objective of this statement is to

 9.4

Adjustment no 1) 2002 2003

Machinery Rs 2, 00,000 Rs 3, 00,000

(1) Depreciation during the year Rs 150,000.

(2) A m/c costing Rs 50,000 is sold for Rs 35,000, on which depreciation of Rs 20,000 had already been charged.

Adjustment no 2) 31-3-2006 31-3-2007

Land & building Rs 2, 00,000 Rs 3, 00,000

Less: Accumulated depreciation Rs 70,000 Rs 1,00,000

Adjustment no 3)

Liabilities 2005 2006 Assets 2005 2006

Rs Rs Rs Rs

Accumulated Machinery 2,00,000 3,00,000

Depreciation

on Machinery 70,000 1,00,000 Other assets 16,00,000 20,00,000

On Other assts 3,20,000 7,00,000

1) A machinery costing Rs 50,000 is sold for Rs 35,000 on which depreciation of Rs 20,000 had already been
charged.

2) A fixed assets costing Rs 20,000, accumulate depreciation of Rs 4,000 is discarded at Rs20,000 only.

Adjustment no 4) 2004 2005

Provision for taxation 195,000 1, 60,000

1) Income tax paid Rs 150,000.

Adjustment no 5) 2004 2005

Provision for taxation 195,000 1, 60,000

(1) Income tax liability for current year was estimated at Rs 1, 45,000.
 9.5

Adjustment no 6) 31-3-2005 31-3-2004

Provision for taxation 1, 00,000 70,000

(1) Income tax paid s 2, 00,000 for 2004-05, apart from payment of balance tax liability of Rs 50,000 for 2003-04.
(2) It transferred excess tax provision for 2003-04 to general reserve.
Adjustment no 7)

2002 2003

Proposed dividend Rs 1, 00,000 Rs 1,50,000

(1) Paid dividend for the year 2002 Rs 80,000.

(2) Paid Interim divined Rs 50,000

Question - 1 Prepare Cash flow statement from the following cash account.
Particulars Amount Particulars Amount
(Rs.) (Rs.)
Opening balance 10,000 Tax paid 27,000
Cash sales 1,50,000 Creditors 4,50,000
Sale of machinery 70,000 Purchase of land 1,00,000
Debtors 6,00,000 Interest paid 22,000
Dividend Received 10,000 Payment to hire vendor 14,000
(interest accrued during
the year 4,000)
Issue of shares 1,00,000 Royalty paid 13,000
Bank Loan 50,000 Payment to creditor for 51,000
plant
Sale of investment 12,000 Dividend paid 40,000
Brokerage received 25,000 Redemption of preference 1,00,000
shares
Purchase of investment 20,000
Buy back of shares 1,00,000
Closing balance 90,000
10,27,000 10,27,000
Solution:
Cash Flow Statement (As per AS-3)
Particulars Amount (Rs.) Amount (Rs.)
Opening cash and cash 10,000
equivalent
Cash from operating activities
Cash Sales 1,50,000
Receipt from debtors 6,00,000
Brokerage received 25,000
Less: Tax paid -27,000
Less: Creditors -4,50,000
Less: Royalty paid -13,000 2,85,000
Cash from investing activities
 9.6

Sale of machinery 70,000

Dividend received 10,000
Sale of investments 12,000
Less: Purchase of land -1,00,000
Less: Payment to hire vendor -10,000
Less: Payment to creditor for plant -51,000
Less: Purchase of investments -20,000 -89,000
Cash from financing activities
Issue of shares 1,00,000
Bank Loan 50,000
Less: Interest paid -22,000
Less: Interest paid to hire vendor -4,000
Less: Redemption of preference -1,00,000
shares
Less: Dividend paid -40,000
Less: Buy back of shares -1,00,000 -1,16,000
Closing cash and cash equivalents 90,000

Question - 2 Comparative Balance Sheets for 2008 and 2009 and Income statement
for 1999 of Meenakshi Corporation Ltd. is given below:
Balance Sheet as on 31 st December
Particulars 2009 (Rs.) 2008 (Rs.)
Assets:
Cash 9,000 12,000
Short term investments 2,000 1,000
Debtors 95,000 79,000
Provision for doubtful debts -3,000 -2,000
Inventory 1,03,000 92,000
Prepaid expenses 6,000 5,000
Land 69,000 66,000
Machinery and Equipment 1,72,000 1,56,000
Provision for depreciation -1,13,000 -1,02,000
3,40,000 3,07,000
Liabilities
Creditors 66,000 78,000
Dividends Payable 2,000 -
Income tax payable 3,000 5,000
Long term debt 75,000 42,000
Equity share capital 26,000 26,000
Profit and Loss Appropriation A/c 1,68,000 1,56,000
3,40,000 3,07,000

Income Statement
For the year ended 31 st Dec, 2009
Particulars Amount (Rs.)
 9.7

Net Sales Revenue 6,00,000

Cost of goods sold -5,00,000
Gross margin 1,00,000
Operating Expenses -66,000
Operating Income 34,000
Interest Expenses -4,000
Income before tax 30,000
Lawsuit Compensation 5,000
35,000
Income tax -17,000
Net Income 18,000
The following additional information is available:
(i) Dividends declared during 1999- Rs. 6,000.
(ii) Market price per share on 31 st December 1999 – Rs. 14.50.
(iii) Equipment worth Rs. 16,000 was acquired by the issuance of long term
note – Rs. 10,000 and by paying cash – Rs. 6,000.
(iv) Land was acquired for Rs. 3,000.
(v) There were no accruals and prepaid amounts for interest.
Required: Prepare statement of cash flows using (i) Indirect Method; (ii) Direct Method.
Solution: (i) Indirect Method:
Cash Flow Statement of Meenalshi Corporation Ltd.
For the year ended 31 st Dec. 2009
Particulars Amount (Rs.) Amount (Rs.)
Cash flow from Operating activities
Net Income 30,000
Adjustments for:
Depreciation 11,000
Interest expense 4,000
Provision for doubtful debts 1,000
Operating Profit before working capital 46,000
changes
Increase in Debtors -16,000
Increase in Inventories -11,000
Increase in Prepaid Expenses -1,000
Decrease in Creditors -12,000
Cash generated from operations 6,000
Taxes paid -19,000
-13,000
Cash flow before extraordinary items:
Law suit compensation 5,000
Net cash used in operating activities (A) -8,000
Cash flows from investing activities
Purchase of land -3,000
Purchase of equipment -6,000
Net Cash used in investing activities (B) -9,000
 9.8

Cash flow from financing activities

Proceeds from Long term borrowings 23,000
Dividends paid -4,000
Interest paid -4,000
Net Cash from financing activities (C) 15,000
Net decrease in cash and cash -2,000
equivalents (A)+(B)+(C)
Cash and Cash equivalents at the beginning 13,000
Cash and Cash equivalents at the end 11,000
Significant Non-cash Transaction: Purchase of Equipment for ling term Rs. 10,000.

(ii) Direct Method:

Cash Flow Statement of Meenakshi Corporation Ltd.
For the year ended 31 st Dec, 2009
Particulars Amount (Rs.) Amount (Rs.)
Cash flows from Operating Activities
Cash receipts from customers 5,84,000
Cash paid to suppliers and employees 5,78,000
Cash inflows from operations 6,000
Income tax paid -19,000
Cash flow from extraordinary items: -13,000
Law suit compensation 5,000
Net cash used in operating activities (A) -8,000
Cash flow from investing activities
Purchase of land -3,000
Purchase of equipment -6,000
Net cash used investing activities (B) -9,000
Proceeds from long-term borrowings 23,000
Dividend paid -4,000
Interest paid -4,000
Net cash from financing activities (C) 15,000
Net decrease in cash and cash -2,000
equivalents (A)+(B)+(C)
Cash and cash equivalents at the beginning 13,000
Cash and cash equivalents at the end 11,000
Significant Non-cash transaction: Purchase of equipment for long term Note Rs.
10,000.
Working notes:
(i) Cash receipts from customers
Rs.
Sales revenue 6,00,000
Add: Sundry debts at the
beginning 79,000
6,79,000
Less: Sundry debtors at the end -95,000
 9.9

5,84,000
(ii) Cash paid to supplier and employees (Rs.)
Cost of goods sold 5,00,000
Add: Operating expenses 54,000
[66,000-11,000 (Depreciation) - 1,000 (provision for bad
debts)]
5,54,000
Add: Creditors at the beginning 78,000
Prepayments at the end 6,000
Inventories at the end 1,03,000
7,41,000
Less: Creditors at the end -66,000
Prepayments at the beginning -5,000
Inventories at the beginning -92,000
5,78,000
(iii) Income Tax paid
Income tax expenses 17,000
Add: Income tax liability at the
beginning 5,000
22,000
Less: Income tax liability at the end -3,000
19,000

(iv) Dividend paid

Amount appropriated 6,000
Add: Liability at the beginning -
6,000
Less: Liability at the end -2,000
4,000

Question - 3 From the following balance of X Ltd. make out the statement of sources
and uses of cash.
Particulars 1998 (Rs.) 1999 (Rs.)
Liabilities
Equity share capital 3,00,000 4,00,000
8% redeemable preference share capital 1,50,000 1,00,000
General reserves 40,000 70,000
Profit and loss account 30,000 48,000
Proposed Dividend 42,000 50,000
Creditors 55,000 83,000
Bills payable 20,000 16,000
Provision for taxation 40,000 50,000
6,77,000 8,17,000
Assets
 9.10

Goodwill 1,15,000 90,000

Land and Buildings 2,00,000 1,70,000
Plant 80,000 2,00,000
Debtors 1,60,000 2,00,000
Stock 77,000 1,09,000
Bills payable 20,000 30,000
Cash in hand 25,000 18,000
6,77,000 8,17,000
Additional information:
a) Depreciation of Rs. 10,000 and Rs. 20,000 have been charged on plant and land &
buildings respectively in 2011.
b) An interim dividend of Rs. 20,000 has been paid in 2011.
c) Rs. 35,000 income tax was paid during the year 2011.
Solution:
Cash Flow Statement
Particulars Amount Amount Amount
(Rs.) (Rs.) (Rs.)
1. Cash flow from operating activities:
Fund from operations (As per adjusted P/L A/c) 2,18,000
Add: Increase in creditors 28,000 2,46,000
Less: Decrease in bills payable -4,000
Increase in debtors -40,000
Increase in stock -32,000
Increase in bills receivable -10,000
Tax paid -35,000 -1,21,000 1,25,000
2. Cash flow from investing activities:
Purchase of Plant -1,30,000
Less: Sale of land and building 10,000 -1,20,000
3. Cash flow from financing activities:
Proceeds from issue of share capital 1,00,000
Less: Interim dividend paid -20,000
Proposed dividend paid -42,000
Redemption of preference dividend -50,000 -1,12,000 -12,000
Net increase in cash and cash equivalent -7,000
(1)+(2)+(3)
Cash and Cash equivalent at the beginning of the 25,000
year
Cash and Cash equivalent at the end of the year 18,000

Question - 4 From the following details relating to the Accounts of Grow More Ltd.
prepare Cash Flow Statement:
Liabilities 31.03.2002 31.03.2001 (Rs.)
(Rs.)
 9.11

Share capital 10,00,000 8,00,000

Reserves 2,00,000 1,50,000
Profit and Loss Account 1,00,000 60,000
Debentures 2,00,000 -
Provision for taxation 1,00,000 70,000
Proposed dividend 2,00,000 1,00,000
Sundry Creditors 7,00,000 8,20,000
25,00,000 20,00,000
Assets
Plant and Machinery 7,00,000 5,00,000
Land and Building 6,00,000 4,00,000
Investments 1,00,000 -
Sundry Debtors 5,00,000 7,00,000
Stock 4,00,000 2,00,000
Cash on hand/Bank 2,00,000 2,00,000
25,00,000 20,00,000
a) Depreciation @ 25% was charged on the opening value of Plant and Machinery.
b) During the year one old machine costing 50,000 (WDV 20,000) was sold for Rs.
35,000;
c) Rs. 50,000 was paid towards income tax during the year;
d) Building under construction was not subject to any depreciation.
Prepare Cash flow statement.
Solution:
Cash Flow Statement
Particulars Amount Amount
(Rs.) (Rs.)
Cash Flow from Operating Activities
Net Profit 40,000
Proposed dividend 2,00,000
Provision for taxation 80,000
Transfer to GR 50,000
Depreciation 1,25,000
Profit on sale of Plant and Machinery -15,000
Operating profit before working capital changes 4,80,000
Increase in Stock -2,00,000
Decrease in debtors 2,00,000
Decrease in creditors -1,20,000
Cash generated from operations 3,60,000
Income tax paid -50,000
Net cash from operating activities 3,10,000
(A)
Cash Flows from Investing Activities
Purchase of fixed assets -3,45,000
Expenses on building -2,00,000
Increase in investments -1,00,000
Sale of old machine 35,000
 9.12

Net cash used in Investing activities (B) -6,10,000

Cash flows from financing activities
Proceeds from issue of shares 2,00,000
Proceeds from issue of debentures 2,00,000
Divided paid -1,00,000
Net cash used in financing activities 3,00,000
(C)
Net Increase in cash and cash equivalents Nil
(A)+(B)+(C)
Cash and Cash equivalent at the beginning of the 2,00,000
year
Cash and Cash equivalent at the end of the year 2,00,000

Working Notes
Provision for Taxation Account
Particulars Amount (Rs.) Particulars Amount (Rs.)
To Cash (paid) 50,000 By Balance b/d 70,000
To Balance By Profit and Loss A/c
c/d 1,00,000 (b/f) 80,000
1,50,000 1,50,000

Plant and Machinery Account

Particulars Amount (Rs.) Particulars Amount (Rs.)
To Balance b/d 5,00,000 By Depreciation 1,25,000
By C ash (sale of
To Cash (b/f) 3,45,000 machine) 20,000
By Balance c/d 7,00,000
8,45,000 8,45,000

Question - 5 The Balance Sheets of R and Co. Pvt Ltd. as at March 31,2011 and 2012
are presented as follows:
Particulars March 31
Assets 2011 (Rs.) 2012 (Rs.)
Cash 6,000 8,000
Debtors 7,000 12,000
Prepaid Rent 3,600 2,400
Stock 32,000 28,000
Investments 40,000 40,000
Fixed assets 70,000 88,000
1,58,600 1,78,400
Liabilities
Accumulated depreciation 20,000 21,500
Creditors 7,200 9,000
Taxes payable 6,000 6,000
 9.13

Bills payable 14,000 26,000

Debentures 35,000 35,000
Equity Capital 50,000 60,000
Profit and Loss A/c 26,400 20,900
1,58,600 1,78,400
Supplement Notes:
(i) Purchased a new fixed assets costing Rs. 25,000 and paid Rs. 13,000 cash and
given short term bills payable for the remainder.
(ii) Net Loss of Rs. 1,500 was reported for year ended 31 st March, 2012
(iii) Disposed off a fully depreciated asset having an original cost of Rs. 7,000 and no
salvage value.
Prepare cash flow statement as per AS-3 (Revised)
Solution:
Cash Flow statement of R and Co. Pvt. Ltd
For the year ended 31 st March, 2012
Particulars Amount (Rs.) Amount (Rs.)
Cash flows from operating activities
Net Profit before provision for taxation (6,000- 4,500
1,500)
Adjustment for depreciation 8,500
Operating profit before working capital changes 13,000
Increase in Creditors 1,800
Decrease in Prepaid rent 1,200
Decrease in Stock 4,000
Increase in Debtors -5,000
Cash generated from operations 15,000
Income tax paid -6,000
Net cash from operating activities (A) 9,000
Cash flow from investing activities
Purchase of fixed assets 13,000
Net cash used in Investing activities (B) -13,000
Cash Flows from Financing Activities
Issue of share capital 10,000
Dividends paid -4,000
Net cash from financing activities (C) 6,000
Net increase in cash and cash equivalents 2,000
(A)+(B)+(C)
Cash and Cash equivalent at the beginning of the 6,000
year
Cash and Cash equivalent at the end of the year 8,000
Working notes:
1. Fixed Assets
Particulars Amount (Rs.) Particulars Amount (Rs.)
Accumulated Depreciation
(for the assets disposed
Balance b/d 70,000 off) 7,000
 9.14

Cash 13,000 Balance c/d 88,000

Bills payable 12,000
95,000 95,000

2. Accumulated Depreciation
Particulars Amount (Rs.) Particulars Amount (Rs.)
Fixed Assets 7,000 Balance b/d 20,000
Income
Balance c/d 21,500 Statement 8,500
28,500 28,500
3. Since the asset disposed off is completely depreciated, there is neither loss nor gain on
it. But the accumulated depreciation will have to be transferred to the fixed assets
account in order to eliminate it from the said account.
4. There is no question of any cash-inflow on the disposal of a fixed asset since the asset
has no salvage value. It has been disposed off, that is, abandoned and not sold.
5. Net increase in bills payable due to purchase of fixed assets in exchange does not
involve any additional to cash from operations. Such net increase in bills payable is
effective for cash inflow when related to purchase of goods and not purchase of fixed
assets.
6. Payment of dividends has been calculated as under:
Rs.
Opening Balance of Profit and Loss Account 26,400
Less: Net Loss 1,500
24,900
Less: Closing Balance of Profit and Loss 20,900
Account
Payment of Dividends (b/f)
4,000

Question - 6 A Ltd. gives you the following information’s. Prepare Cash flow statement
using indirect method as per AS-3 for the year ended 31.03.2004:
Liabilities 31.03.2003 31.03.2004 Assets 31.03.2003 31.03.2004
(Rs.) (Rs.) (Rs.) (Rs.)
Share Capital 50,0,000 50,00,000 Plant and 27,30,000 40,70,000
Machinery
Retained earnings 26,50,000 36,90,000 Less: 6,10,000 7,90,000
Depreciation
Debentures - 9,00,000 21,20,000 32,80,000
Bank Loan 1,50,000 3,00,000 Debtors 23,90,000 28,30,000
Creditors 8,80,000 8,20,000 Less: Provision 1,50,000 1,90,000
Liability for 3,30,000 2,70,000 22,40,000 26,40,000
expenses
Dividend payable 1,50,000 3,00,000 Cash 15,20,000 18,20,000
Marketable 11,80,000 15,00,000
securities
Inventories 20,10,000 19,20,000
 9.15

Prepaid 90,000 1,20,000

Expenses
91,60,000 1,12,80,000 91,60,000 1,12,80,000

Additional information:
a) Net profit for the year ended 31st March, 2004, after charging depreciation Rs.
1,80,000 is Rs. 22,40,000.
b) Debtors of Rs. 2,30,000 were determined to be worthless and were written off
against the provision for doubtful debts account during the year.
c) A Ltd. declared dividend of Rs. 12,00,000 for the year 2003-2004.
Solution:
Cash Flow Statement of ABC Ltd.
For the year ended 31 st March, 2004
Particulars Amount Amount Amount
(Rs.) (Rs.) (Rs.)
Cash flows from operating activities
Net profit 22,40,000
Add: Adjustment for depreciation 1,80,000
(Rs. 7,90,000-Rs. 6,10,000)
Operating profit before working capital 24,20,000
changes
Add: Decrease in inventories 90,000
(Rs. 20,10,000-Rs. 19,20,000)
Increase in provision for doubtful debts 2,70,000
(Rs. 4,20,000-Rs. 1,50,000)
27,80,000
Less: Increase in Current Assets:
Debtors (Rs. 30,60,000-Rs. 23,90,000) 6,70,000
Prepaid expenses 30,000
(Rs. 1,20,000-Rs. 90,000)
Decrease in current liabilities:
Creditors (Rs. 8,80,000-Rs. 8,20,000) 60,000
Expenses outstanding 60,000 8,20,000
(Rs. 3,30,000-Rs. 2,70,000)
Net cash from operating activities (A) 19,60,000
Cash flows from Investing activities
Purchase of Plant and Equipment -13,40,000
(Rs. 40,70,000-Rs. 27,30,000)
Net cash used in investing activities (B) -13,40,000
Cash flows from Financing activities
Bank loan raised 1,50,000
(Rs. 3,00,000-Rs. 1,50,000)
Issue of debentures 9,00,000
Payment of dividend -10,50,000
(Rs. 12,00,000-Rs. 1,50,000)
Net cash used in financing activities (C) Nil
Net increase in cash during the year 6,20,000
(A)+(B)+(C)
 9.16

Add: Cash and cash equivalent as on 27,00,000

1.4.2003
(Rs. 15,20,000+Rs. 11,80,000)
Cash and cash equivalents as on 31.3.2004 33,20,000
(Rs. 18,20,000+Rs. 15,00,000)

Note: Bad debts amounting Rs. 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 debtors as on 31.03.2004. Alternatively,
the adjustment of writing off bad debts may be ignored and the solution can be given on
the basis of figures of debtors and provision for doubtful debts as appearing in the balance
sheet on 31.3.2004.

EXTRA QUESTIONS
Q.1 From the following Balance Sheet of KEROX Ltd., Prepare Funds Flow Statement for 2013
` ‘000
Liabilities 31-
31-3-12 31-
31-3-13 Assets 31-
31-3-12 31-
31-3-13
Equity Share Capital 150 200 Goodwill 50 40
9% Redeemable Preference Share capital 75 50 Land & Buildings 100 85
Capital Reserve — 10 Plant & Machinary 40 100
General Reserve 20 25 Investments 10 15
Profit & Loss Account 15 24 Sundry Debtors 70 85
Proposed Dividend 21 25 Stock 39 55
Sundry Creditors 13 24 Bills Receivable 10 15
Bills Payable 10 8 Cash in hand 7 5
Liability for Expenses 15 18 Cash at bank 5 4
Provision for tax 20 25 Preliminary Exp. 8 5
339 409 339 409

Additional information:
1. A part of land was sold out in 2013, and the profit was credited to Capital Reserve.
2. A machine has been sold for ` 5,000 (written down value of the machinery was ` 6,000).
Depreciation of ` 5,000 was charged on plant in 2013.
3. An interim dividend of ` 10,000 has been paid in 2013.
4. An Amount of ` 1,000 has been received as dividend on investment in 2013.

Q.2 The Balance Sheets of A, B, & C Co. Ltd. as at the end of 2011 and 2012 are given below:
LIABILITIES 2011(`
2011(`) 2012(`
2012(` ) ASSETS 2011(`
2011(`) 2012(`
2012(`)
Share Capital 1,00,000 1,50,000 Freehold land 1,00,000 1,00,000
Share premium - 5,000 Plant at cost 1,04,000 1,00,000
General Reserve 50,000 60,000 Furniture at cost 7,000 9,000
Profit & Loss Account 10,000 17,000 Investments 60,000 80,000
6% Debentures 70,000 50,000 Debtors 30,000 70,000
Provision for Depreciation on 50,000 56,000 Stock 60,000 65,000
Plant
Provision for Dep. on Furniture 5,000 6,000 Cash 30,000 45,000
Provision for taxation 20,000 30,000
Sundry Creditors 86,000 95,000
3,91,000 4,69,000 3,91,000 4,69,000
 9.17

A plant purchased for ` 4,000 (Depreciation ` 2,000) was sold for Cash for ` 800 on September 30, 2012.
On June 30, 2012 an item of furniture was purchased for ` 2,000. These were the only transactions
concerning fixed assets during 2012. A dividend of 22 ½% on original shares was paid. You are required
to prepare funds Flow Statement and verify the results by preparing a schedule of changes in Working
Capital.

Q.3 From the Balance Sheet of A Ltd., Make out:

A Statement of changes in the Working Capital
B. Funds Flow Statement.
BALANCE SHEET
31st March 31st March
LIABILITIES 2012 (`
(`) 2013 (`
(`) ASSETS 2012 (`
(`) 2013 (`
(`)
Equity Share Capital: 3,00,000 4,00,000 Goodwill 1,15,000 90,000
8% Preference share capital 1,50,000 1,00,000 Land & Buildings 2,00,000 1,70,000
P & L A/c 30,000 48,000 Plant 80,000 2,00,000
General Reserve 40,000 70,000 Debtors 1,60,000 2,00,000
Proposed Dividend 42,000 50,000 Stock 77,000 1,09,000
Creditors 55,000 83,000 Bills Receivable 20,000 30,000
Bills Payable 20,000 16,000 Cash in hand 15,000 10,000
Provision for Taxation 40,000 50,000 Cash at Bank 10,000 8,000
6,77,000 8,17,000 6,77,000 8,17,000

Following is the additional information available.

(i) Depreciation of ` 10,000 and ` 20,000 have been charged on Plant and Land and
Buildings respectively in 2013.
(ii) Interim dividend of ` 20,000 has been paid in 2013.
(iii) Income tax of ` 35,000 has been paid in 2013.

Q.4 From the following figures, prepare a statement showing the changes in the Working Capital
and Funds Flow Statement during the year 2012.
ASSETS: Dec.31, Dec.31,
Fixed Assets (net) ` 2011
5,10,000 2012
6,20,000
Investments 30,000 80,000
Current Assets 2,40,000 3,75,000
Discount on debentures 10,000 5,000
7,90,000 10,80,000
Liabilities:
Equity share capital 3,00,000 3,50,000
Preference share capital 2,00,000 1,00,000
Debentures 1,00,000 2,00,000
Reserves 1,10,000 2,70,000
Provision for doubtful debts 10,000 15,000
Current Liabilities 70,000 1,45,000
7,90,000 10,80,000

You are informed that during the year:

a. A machine costing ` 70,000 book value ` 40,000 was disposed of for ` 25,000.
b. Preference share redemption was carried out at a premium of 5% and
c. Dividend at 15% was paid on equity shares for the year 2011.
Further:
 9.18

1. The provision for depreciation stood at ` 1,50,000 on 31.12.11 and at ` 1,90,000 on

31.12.12; and
2. Stock which was valued at ` 90,000 as on 31.12.11; was written up to its cost, ` 1,00,000 for
preparing Profit and Loss account for the year 2012.

Q.5 The directors of Chintamani Ltd. present you with the Balance Sheets as on 30th June, 2011
and 2012 and ask you to prepare statements which will show them what has happened to the
money which came into the business during the year 2012.
(`)
(`)
Liabilities: 30.6.11 30.6.12
Authorised Capital 15,000 shares of ` 100 each 15,00,000 15,00,000
Paid up capital 10,00,000 14,00,000
Debentures (2012) 4,00,000 ---
General Reserve 60,000 40,000
P & L Appropriation A/c 36,000 38,000
Provision for the purpose of final dividends 78,000 72,000
Sundry Trade Creditors 76,000 1,12,000
Bank Overdraft 69,260 1,29,780
Bills Payable 40,000 38,000
Loans on Mortgage – 5,60,000
17,59,260 23,89,780
Assets
Land & Freehold Buildings 9,00,000 9,76,000
Machinery and Plant 1,44,000 5,94,000
Fixtures and Fittings 6,000 5,500
Cash in hand 1,560 1,280
Sundry Debtors 1,25,600 1,04,400
Bills Receivable 7,600 6,400
Stock 2,44,000 2,38,000
Prepayments 4,500 6,200
Share in other companies 80,000 2,34,000
Goodwill 2,40,000 2,20,000
Preliminary expenses 6,000 4,000
17,59,260 23,89,780

You are given the following additional information:

a. Depreciation has been charged (i) on Freehold Buildings @ 21/2% p.a. on cost ` 10,00,000.
(ii) on Machinery and Plant ` 32,000 (iii) on Fixtures and Fittings @5% on cost, ` 10,000. No
depreciation has been written off on newly acquired Building and Plant and Machinery.
b. A piece of land costing ` 1,00,000 was sold in 2012 for ` 2,50,000. The sale proceeds was
credited to Land and Buildings.
c. Shares in other companies were purchased and dividends amounting to ` 6,000 declared out
of profits made prior to purchase has received and used to write down the investment
(shares).
d. Goodwill has been written down against General Reserve.
e. The proposed dividend for the year ended 30th June 2011 was paid and, in additions, an
interim dividend, ` 52,000 was paid.

Q.6 The following is the Balance Sheets of the Andhra Industrial Corporation Ltd. as on 31st
December 2011 and 2012.
 9.19

BALANCE SHEET
(
`)
Assets: 2011 2012
Fixed Assets: Property 1,48,500 1,44,250
Machinery 1,12,950 1,26,200
Goodwill ---- 10,000
Current Assets: Stock 1,10,000 92,000
Trade Debtors 86,160 69,430
Cash at Bank 1,500 11,000
Pre-payments 3,370 1,000
4,62,480 4,53,880
Liabilities:
Shareholders funds: Paid up Capital 2,20,000 2,70,000
Reserves 30,000 40,000
Profit and Loss Account 39,690 41,220
Current Liabilities: Creditors 39,000 41,660
Bills Payable 33,790 11,000
Bank Overdraft 60,000 –
Provision for taxation 40,000 50,000
4,62,480 4,53,880
During the year ended 31st December, 2012, a divided of ` 26,000 was paid and assets of another
company were purchased for ` 50,000 payable in fully paid-up shares. Such assets purchased were:
Stock ` 21,640; Machinery ` 18,360; and Goodwill ` 10,000. In addition Plant at a cost of ` 5,650
was purchased during the year; depreci ation on Property ` 4,250; on Machinery ` 10,760. Income
tax during the year amounting to ` 28,770 was charged to provision for taxation. Net profit for the
year before tax was ` 76,300.
Prepare Funds Flow Statement for the year 2012.

Q.7 The following is the Balance Sheet of Gama Limited for the year ending March 31, 2011 and
March 31, 2011;
Balance Sheet as on March, 31
Particulars 2011 2012
` `
Capital and Liabilities
Share Capital 6,75,000 7,87,500
General Reserves 2,25,000 2,81,250
Capital Reserve (Profit on Sale of Investment) -- 11,250
Profit & Loss Account 1,12,500 2,25,000
15% Debentures 3,37,500 2,25,000
Accrued Expenses 11,250 13,500
Creditors 1,80,000 2,81,250
Provision for Dividends 33,750 38,250
Provision for Taxation 78,750 85,500
Total 16,53,750 19,48,500
Assets
Fixed Assets 11,25,000 13,50,000
Less: Accumulated depreciation 2,25,000 2,81,250
Net Fixed Assets 9,00,000 10,68,750
Long – Term Investments (at cost) 2,02,500 2,02,500
 9.20

Stock (at cost) 2,25,000 3,03,750

Debtors (net of provision for doubtful debts of ` 45,000 and `
56,250 respectively for 2011 and 2012 respectively) 2,53,125 2,75,625
Bills receivables 45,000 73,125
Prepaid Expenses 11,250 13,500
Miscellaneous Expenditure 16,875 11,250
Total 16,53,750 19,48,500

Additional Information:
1. During the year 2011-12, fixed assets with a net book value of ` 11,250 (accumulated
depreciation, ` 33,750) was sold for ` 9,000.
2. During the year 2011-12, Investments costing ` 90,000 were sold, and also Investments
costing ` 90,000 were purchased.
3. Debentures were retired at a Premium of 10%.
4. Tax of ` 61,875 was paid for 2010-11.
5. During the year 2011-12, bad debts of ` 15,750 were written off against the provision for
Doubtful Debt account.
6. The proposed dividend for 2003-04 was paid in 2011-12.
Required:
Prepare a Funds Flow Statement (Statement of changes in Financial Position on working capital
basis) for the year ended March 31, 2012.
Q.8 From the information contained in Income Statement and Balance Sheet of ‘A’ Ltd, prepare
Cash Flow Statement.
Income Statement for the year ended March 31, 2012
(`)
Net Sales (A) 2,52,00,000
Less:
Cash cost of sales 1,98,00,000
Depreciation 6,00,000
Salaries and Wages 24,00,000
Operating Expenses 8,00,000
Provision for Taxation 8,80,000
(B) 2,44,80,000
Net Operating Profit (A – B) 7,20,000
Non-recurring Income – Profits on sale of equipment 1,20,000
8,40,000
Retained earnings and Profits brought forward 15,18,000
23,58,000
Dividends declared and paid during the year 7,20,000
Profit and Loss A/c balance as on March 31, 2012 16,38,000

Balance Sheet as on
(`)
Assets March 31 March 31
2011 2012
Fixed Assets:
Land 4,80,000 9,60,000
Buildings and Equipment 36,00,000 57,60,000
Current Assets:
 9.21

Cash 6,00,000 7,20,000

Debtors 16,80,000 18,60,000
Stock 26,40,000 9,60,000
Advances 78,000 90,000
90,78,000 1,03,50,00

Balance Sheet as on
(`)

Liabilities and Equity March 31 March 31

2011 2012
Share Capital 36,00,000 44,40,000
Surplus in Profit and Loss A/c 15,18,000 16,38,000
Sundry Creditors 24,00,000 23,40,000
Outstanding Expenses 2,40,000 4,80,000
Income – Tax payable 1,20,000 1,32,000
Accumulated Depreciation on
Buildings and Equipment 12,00,000 13,20,000
90,78,000 1,03,50,00

The original cost of equipment sold during the year 2011-12 was ` 7,20,000.

Q.9 The Balance Sheet of JK Limited as on 31st March, 2011 and 31st March, 2012 are given below:

Balance Sheet as on
(` ‘000’)
Liabilities 31.03.11 31.03.12 Assets 31.03.11 31.03.12
Share Capital 1,440 1,920 Fixed Assets 3,840 4,560
Capital Reserve -- 48 Less: Depreciation 1,104 1,392
General Reserve 816 960 Net Fixed Asset 2,736 3,168
Profit and Loss A/c 288 360 Investment 480 384
9% Debenture 960 672 Cash 210 312
Current Liabilities 576 624 Other Current Assets
Proposed Dividend 144 174 (including Stock) 1,134 1,272
Provision for Tax 432 408 Preliminary Expenses 96 48
Unpaid Dividend -- 18
4,656 5,184 4,656 5,184

Additional Information:
1. During the year 2011-2012, Fixed Assets with a book value of ` 2,40,000 (accumulated
depreciation ` 84,000) was sold for ` 1,20,000.
2. Provided ` 4,20,000 as depreciation.
3. Some investments are sold at a profit of ` 48,000 and profit was credited to Capital Reserve.
4. It decided that stocks be valued at cost, whereas previously the practice was to value stock
at cost less 10 per cent. The stock was ` 2,59,200 as on 31.03.11. The stock as on 31.03.12
was correctly valued at ` 3,60,000.
5. It decided to write off Fixed Assets costing ` 60,000 on which depreciation amounting to `
48,000 has been provided.
 9.22

6. Debentures are redeemed at ` 105.

Required:
Prepare a Cash Flow Statement.

Q.10 Balance Sheets of a company as on 31st March, 2011 and 2012 were as follows:
Liabilities 31.03.11 31.03.12 Assets 31.03.11 31.03.12
Equity share capital 10,00,000 10,00,000 Good will 1,00,000 80,000
8% Pref. Share capital 2,00,000 3,00,000 Land and Building 7,00,000 6,50,000
General Reserve 1,20,000 1,45,000 Plant and Machinery 6,00,000 6,60,000
Securities Premium -- 25,000 Investments
Profit & Loss A/c. 2,10,000 3,00,000 (non trading) 2,40,000 2,20,000
11% Debentures 5,00,000 3,00,000 Stock 4,00,000 3,85,000
Creditors 1,85,000 2,15,000 Debtors 2,88,000 4,15,000
Provision for tax 80,000 1,05,000 Cash and Bank 88,000 93,000
Proposed Dividend 1,36,000 1,44,000 Prepaid Expenses 15,000 11,000
Premium on Redemption
of debenture
-- 20,000
24,31,000 25,34,000 24,31,000 25,34,000

Additional Information:
1. Investments were sold during the year at a profit of ` 15,000.
2. During the year an old machine costing ` 80,000 was sold for ` 36,000. Its written down
value was ` 45,000.
3. Depreciation charged on Plant and Machinery @ 20% on the opening balance.
4. There was no purchase or sale of Land and Building.
5. Provision for tax made during the year was ` 96,000.
6. Preference shares were issued for consideration of cash during the year.
You are required to prepare:
a. Cash Flow Statement as per AS-3.
b. Schedule of changes in Working Capital.

Q.11 The Balance Sheets of a company as on 31st March, 2011 and 2012 are given below:
`
Liabilities 31.03.11
31.03.11 31.03.12 Assets 31.03.11 31.03.12
Equity Share Capital 14,40,000 19,20,000 Fixed Assets 38,40,000 45,60,000
Capital Reserve -- 48,000 Less: Depreciation (11,04,000) (13,92,000)
General Reserve 8,16,000 9,60,000 27,36,000 31,68,000
Profit & Loss A/c 2,88,000 3,60,000 Investment 4,80,000 3,84,000
9% Debentures 9,60,000 6,72,000 Sundry Debtors 12,00,000 14,00,000
Sundry Creditors 5,50,000 5,90,000 Stock 1,40,000 1,84,000
Bills Payable 26,000 34,000 Cash in hand 4,000 --
Proposed Dividend 1,44,000 1,72,800 Preliminary 96,000 48,000
Provision for tax 4,32,000 4,08,000 Expenses
Unpaid dividend -- 19,200
46,56,000 51,84,000 46,56,000 51,84,000

Additional Information:
During the year ended 31st March, 2012 the company:
 9.23

1. Sold a machine for ` 1,20,000; the cost of machine was ` 2,40,000 and depreciation
provided on it was ` 84,000.
2. Provided ` 4,20,000 as depreciation on fixed assets.
3. Sold some investment and profit credited to capital reserve.
4. Redeemed 30% of the debenture @ 105.
5. Decided to write off fixed assets costing ` 60,000 on which depreciation amounting to `
48,000 has been provided.
You are required to prepare Cash Flow Statement as per AS-3.

Q.12 The summarized Balance Sheet of XYZ Limited as at 31st March, 2011 and 2012 are given
below:
Liabilities 2010 (`
(`) 2011 (`
(`) Assets 2011 (`
(`) 2012 (`
(`)
Preference share Plant and Machinery 7,00,000 8,20,000
capital 4,00,000 2,00,000 Long term investment 3,20,000 4,00,000
Equity share capital 4,00,000 6,60,000 Goodwill -- 30,000
Share Premium A/c 40,000 30,000 Current Assets 9,10,000 11,41,000
Capital Redemption Short term 50,000 84,000
Reserve -- investment
1,00,000 (less than 2 months)
General Reserve 2,00,000 1,20,000 Cash and Bank 1,00,000 80,000
P & L A/c 1,30,000 1,75,000 Preliminary Expenses 40,000 20,000
Current Liabilities 6,40,000 9,00,000
Proposed Dividend 1,60,000 2,10,000
Provision for tax 1,50,000 1,80,000
21,20,000 25,75,000 21,20,000 25,75,000

Additional Information:
During the year 2012 the company:
1. Preference share capital was redeemed at a premium of 10% partly out of proceeds issue of
10,000 equity shares of ` 10 each issued at 10% premium and partly out of profits otherwise
available for dividends.
2. The company purchased plant and machinery for ` 95,000. It also acquired another
company stock ` 25,000 and plant and machinery ` 1,05,000 and paid ` 1,60,000 in Equity
share capital for the acquisition.
3. Foreign exchange loss of ` 1,600 represents loss in value of short term investment.
4. The company paid tax of ` 1,40,000.
You are required to prepare Cash Flow Statement.