WORKSHEET- 7 ON CASH FLOW STATEMENT

From the following Balance Sheets of X Ltd., prepare the Cash Flow Statement.
Particulars Note 31.3.2018 31.3.2017
No.
1. EQUITY AND LIABILITIES
i. Shareholder’s funds
Share Capital 7,00,000 4,00,000
Reserve & Surplus (3,35,000) (50,000)
ii. Non- Current Liabilities:
Long Term Borrowings 4,00,000 2,00,000
iii. Current Liabilities:
Short Term Borrowings 1 22,000 30,000
Trade Payables 1,28,000 80,000
Other Current Liabilities 20,000 10,000
TOTAL 9,35,000 6,70,000

2. ASSETS
i. Non- current Assets
(a) Property, Plant & Equipment 5,00,000 3,00,000
(b) Non- Current Investments 1,40,000 2,00,000

ii. Current Assets

(a) Inventories 1,00,000 50,000
(b) Trade Receivables 1,70,000 1,00,000
(c) Cash & Cash Equivalents 25,000 20,000
9,35,000 6,70,000
 Notes to Accounts:
Particulars 31.3.2018 31.3.2017
1. Reserves & Surplus:
Profit & Loss Balance (3,35,000) (50,000)
2. Long-Term Borrowings:
9% Debentures 4,00,000 2,00,000
3. Short- Term Borrowings:
Cash Credit 22,000 30,000
4. Other Current Liabilities:
Outstanding Expenses 20,000 10,000

Additional information:
1. Included in the Property, Plant and Equipment was a piece of machinery costing Rs.
70,000 on which depreciation charged was Rs. 40,000 and it was sold for Rs. 30,000.
During the year Rs. 1, 40,000 depreciation was charged on Property, Plant and
Equipment.
2. Share Issue Expenses of Rs. 15,000 were incurred and written off from the Statement
of Profit & Loss in 2017-18.
Solution:
X Ltd.

CASH FLOW STATEMENT for the year ended 31.3.2018

Particulars Rs. Rs.

A. Cash Flows from Operating Activities:

Net Loss for the Current year (Note 1) (2,85,000)

Adjustments for non-cash and non-operating items:
Add: Dep. on Property, Plant and Equipment 1,40,000
Interest on long-Term borrowings 18,000
Share Issue Expenses written off 15,000 41,000
Operating Loss before Working Capital changes (1,12,000)
Add: Increase in Current Liabilities:
Trade Payables 48,000
Outstanding Expenses 10,000 58,000
(54,000)
Less: Increase in Current Assets:
Inventory (50,000)
Trade Receivables (70,000) (1,20,000)
Net Cash used in operating activities (1,74,000)
(1,74,000)

B. Cash Flows from Investing activities:

Purchase of Plant & Machinery (3,70,000)
Sale of Plant & Machinery 30,000
Sale of Non- Current Investments 60,000
Net Cash used in Investing Activities (2,80,000) (2,80,000)

C. Cash flows from Financing Activities:

Proceeds from Share Capital
3,00,000
Share Issue Expenses
(15,000)
Proceeds from Long-Term Borrowings 2,00,000
Interest Paid on Long-term Borrowings (18,000)
Decrease in Cash Credit (8,000)
Net Cash from Financing Activities 4,59,000 4,59,000
Net increase in Cash & Cash Equivalents (A+B+C) 5,000

Add: Cash & Cash Equivalents in the beginning of the year 20,000
Cash and Cash Equivalents at the end of the year 25,000

Notes:
Calculation of Net Profit before Tax:
Profit & Loss Balance on 31st March, 2018 (3,35,000)
Less: Profit & Loss Balance on 31st March, 2017 (50,000)
Net loss for the Current year (2,85,000)

PBITD
Less: Interest
PBT (This is our Destination) NET LOSS FOR THE CURRENT YEAR = RS. (2,85,000)
Less: Tax NIL
PAT NIL
Less: Preference Dividend NIL
Profit available to Equity NIL
Shareholders
+ (2,85,000)

Property, Plant and Equipment Account a/c

(On WDV)
Particulars Amount Particulars Amount
 To balance b/d (Given) 3,00,000 By Bank a/c 30,000
By Depreciation a/c 1,40,000
To bank a/c (Balancing 3,70,000 By balance c/d (Given) 5,00,000
figure, being purchase)
6,70,000 6,70,000

It has been assumed that new debentures amounting to Rs. 2, 00,000 have been issued at
the end of the accounting year, i.e., on 31st March, 2018.

LIST OF CURRENT LIABILITIES & CURRENT ASSETS AS PER COMPANY BALANCE SHEET

FOR WORKING CAPITAL CHANGES IN CFS

CURRENT LIABILITIES
Short term Borrowings Bank Overdraft and Cash Credit X
Trade Payables Sundry Creditors + Bills Payable
Other Current Liabilities Outstanding Expenses; Pre receive Income
Short term Provisions Provision for Taxation; Provision for Doubtful
Debts; Provision for Repairs X

CURRENT ASSETS
Current Investments Marketable Securities; X
Inventories
Trade Receivables Sundry Debtors + Bills Receivable
Cash and Cash Equivalents Cash in Hand; Cash at Bank X
Other Current Assets Prepaid Expenses; Accrued Income
 TREATMENT OF PRELIMINARY EXPENSES

Preliminary Expenditure is the expenditure incurred in connection with the

formation of the company.

As Per Companies Act, examples of Preliminary Expenses are: Legal or

Professional fees; Printing and registration fees, Stamp duty; logo designing
cost etc.

Full amount of Preliminary Expenses shall be written off from Securities

Premium (if it exists) or from General Reserve or from Surplus i.e. balance in
Statement of Profit and Loss under the head Reserves and Surplus, in the year
in which they occur.

Issue of Shares is subsequent to the formation of the Company. Therefore, it

does not form a part of the Preliminary Expenditure.

Share issue expenditure is ideally written off to Profit & Loss account in the
year it is incurred. But if the management is in a position to determine the
benefit derived out of such expenditure, it can be carried forward to be
written off over the period in which such a benefit is expected be derived.

For example:

Financial year- 1.4.2017 to 31.3.2018

Share Issue Expenses amounted to Rs. 10,000. The management expects to
derive benefit from such expenditure over the coming 5 years.

Then Journal entries are as follows:

31.3.2018 Share issue Expenses a/c………………..Dr 10,000

To Bank a/c 10,000
31.3.2018 Statement of P& L ………………Dr 2,000
To Share issue expenses (10,000 /5) 2,000

Again, Share Issue Expenses of Rs. 2,000 will be written off in the coming 12
months.

And remaining (Rs. 10,000 -2,000 -2,000) = Rs. 6,000 will be written off after 12
months. Hence, Share Issue Expenses will be recorded in the Balance Sheet as
under on 31.3.2018:

Particulars Note 31.3.2018

No.
1. EQUITY AND LIABILITIES
2. ASSETS
i. Non- current Assets
(a) Fixed Assets:
(i) Tangible Assets 1 1,70,000
(ii) Intangible Assets 2 67,000
(b) Long-term Investments 65,000
(c) Other non-current assets 3 6,000

ii. Current Assets

(a) Current Investments 15,000
(b) Inventories 90,000
(c) Other Current Assets 4 2,000
NOTES TO ACCOUNTS

Non- Current assets

3.Other Non- Current assets
Unamortized Expenses 6,000
(To be written off after 12 months from the date of Balance Sheet)
Current assets
4. Other Current assets
Unamortized Expenses 2,000
(To be written off within 12 months from the date of Balance Sheet)

POINT TO BE NOTED:

Full amount of Miscellaneous Expenditure such as Discount / Loss on Issue of Debentures,

Underwriting Commission, Preliminary expenses shall be written off from Securities
Premium reserve (if it exists) or from General Reserve or from Surplus i.e, Balance in
Statement of Profit & Loss under the head “Reserves and Surplus” in the year in which
they occur.