Cash Flow Statement

Cash Flow Statement

INTRODUCTION
Cash plays a very important role in the entire economic life of a business. A firm needs cash to make
payments to its suppliers, to incur day-to-day expenses arid to pay salaries. Wages, interest and dividend,
etc. In fact, what blood is to a human body, cash is to a business enterprise, it is very essential for a business
to maintain an adequate balance of cash. But many a times, a concern operates profitably and yet it
becomes very difficult to pay taxes and dividend. This may be because (i) although huge profits have been
earned yet cash may not have been received or (ii) even if cash has been received, it may have drained out
(used) for some other purposes. This movement of cash is of vital importance to the management.

MEANING
Cash Flow Statement is a statement which describes the inflows (sources) and outflows (uses) of cash and
cash equivalents in an enterprise during a specified period of time. Such a statement enumerates net effects
of various business transactions on cash and its equivalents and takes into account receipts and
disbursements of cash. A cash flow statement summarises the causes of changes in cash position of a
business enterprise between dates of two balance sheets. According to AS-3 (Revised), an enterprise should
prepare a cash flow Statement and should present it for each period for which financial statements are
prepared. The terms cash, cash equivalents and cash flows are used in this statement with the following
meanings:
1. Cash comprises cash on hand and demand deposits with banks.
2. Cash equivalents are short term, highly liquid investments that are readily convertible into known
amounts of cash and which are subject to an insignificant risk of changes in value. Cash equivalents are
held for the purpose of meeting short-term cash commitments rather than for investment or other
purposes. For an investment to qualify as a cash equivalent, it must be readily convertible to a known
amount of cash and be subject to an insignificant risk of change in value. Therefore, an investment
normally qualifies as a cash equivalent only when it has a short-maturity, of say, three months or less
from the date of acquisition. Investments in shares are excluded from cash equivalents unless they are,
in substance, cash equivalents: for example, preference shares of a company acquired shortly before
their specified redemption date (provided there is only an insignificant risk of failure of the company to
repay the amount at maturity).
3. Cash flows are inflows and outflows of cash and cash equivalents. Flow of cash is said to have taken
place when any transaction makes changes in the amount of cash and cash equivalents available before
happening of the transaction. If the effect of transaction results in the increase of cash and its

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equivalents. it is called an inflow (source) and if it results in the decrease of total cash, it is known as
outflow (use) of cash.
Cash flows exclude movements between items that constitute cash or cash equivalents because these
components are part of the cash management of an enterprise rather than part of its operating,
investing and financing activities. Cash management includes the investment of excess cash in cash
equivalents.

CLASSIFICATION OF CASH FLOWS

According to AS-3 (Revised), the cash flow statement should report cash flows during the period classified
by operating, investing and financing activities. Thus, cash flows are classified into three main categories:
1. Cash flows from operating activities.
2. Cash flows from investing activities.
3. Cash flows from financing activities.
1. Cash Flows from operating Activities: Operating activities are the principal revenue-producing
activities of the enterprise and other activities that are not investing or financing activities.

The amount of cash flows arising from operating activities is a key indicator of the extent to which the
operations of the enterprise have generated sufficient cash flows to maintain the operating capability of
the enterprise, pay dividends, repay loans, and make new investments without recourse to external
sources of financing. Information about the specific components of historical operating cash flows is
useful, in conjunction with other information, in forecasting future operating cash flows.

Cash flows from operating activities arc primarily derived from the principal revenue-producing
activities of the enterprise. Therefore, they generally result from the transactions and other events that
enter into the determination of net profit or loss.

Examples of cash flows from operating activities are:

a) Cash receipts from the sale of goods and the rendering of services;
b) Cash receipts from royalties, fees, commissions, and other revenue:
c) Cash payments to suppliers of goods and services;
d) Cash payments to and on behalf of employees:
e) Cash receipts and cash payments of an insurance enterprise for premiums and claims, annuities and
other policy benefits:
f) Cash payments or refunds of income taxes unless they can he specifically identified with financing
and investing activities and

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g) Cash receipts and payments relating to futures contracts, forward contracts, option contracts, and
swap contracts when the contracts are held for dealing or trading purposes.
Some transactions, such as the sale of an item of plant, may give rise to a gain or loss which is included
in the determination of net profit or loss. However, the cash flows relating to such transactions are cash
flows from investing activities.
2. Cash Flows from Investing Activities: Investing activities are the acquisition and disposal of long-term
assets and other investments not included in cash equivalents. The separate disclosure of cash flows
arising from investing activities is important because the cash flows represent the extent to which
expenditures have been made for resources intended to generate future income and cash flows.

Examples of cash flows arising from investing activities are:

i) Cash payments to acquire fixed assets (including intangibles). These payments include those
relating to capitalised research & development costs and self constructed fixed assets:
ii) Cash receipts from disposal of fixed assets (including intangibles);
iii) Cash payments to acquire shares, warrants, or debt instruments of other enterprises and interests in
joint ventures (other than payments for those instruments considered to be cash equivalents and
those held for dealing or trading purposes);
iv) Cash receipts from disposal of shares, warrants, or debt instruments of other enterprises and
interests in joint venture (other than receipts from those instruments considered to be cash
equivalents and those held for dealing or trading purposes
v) cash advances and loans made to third parties (other than advances and loans made by a financial
enterprise);
vi) Cash receipts from the repayment of advances and loans made to third parties (other than advances
and loans of a financial enterprise);
vii) Cash payments for futures contracts, forward contracts. option contracts, and swap contracts except
when the contracts are held for dealing or trading purposes, or the payments are classified as
financing activities; and
viii) Cash receipts from futures contracts, forward contracts, option contracts, and swap contracts
except when the contracts are held for dealing or trading purposes, or the receipts are classified as
financing activities.

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TREATMENT OF SOME TYPICAL ITEMS

AS - 3 (Revised) has also provided for the treatment of cash flows from some peculiar items as discussed
below:
1. Extraordinary Items: The cash flows associated with extraordinary items should be classified as arising
from operating, investing or financing activities as appropriate and separately disclosed in the cash
flow statement to enable users to understand their nature and effect on the present and future cash
flows of the enterprise.
2. Interest and Dividends: Cash flows from interest and dividends received and paid should be disclosed
separately. Further, the total amount of interest paid during the period should be disclosed in the cash
flow statement whether it has been recognised as an expense in the statement of profit and loss or
capitalised.
The treatment of interest and dividends received and paid depends upon the nature of the enterprise.
For this purpose, the enterprises are classified as (i) financial enterprises, and (ii) other enterprises.
i) Financial Enterprises. In the case of financial enterprises, cash flows arising from interest paid
and interest and dividend received should be classified as cash flows arising from operating
activities.
ii) Other Enterprises. In the case of other enterprises, cash flows arising from interest paid should
be classified as cash flows from financing activities while interest and dividends received should
he classified as cash flows from investing activities.
Dividends should be classified as cash flows from financing activities.
3. Taxes on Income: Cash flows arising on income should be separately disclosed and should he classified
as cash flows from operating activities unless they can be specifically identified with financing and
investing activities.
Taxes on income arise on transactions that give rise to cash flows that are classified as operating,
investing or financing activities in a cash flow statement. While tax expense may he readily identifiable
with investing or financing activities, the related tax cash flows are often impracticable to identify and
may arise in a different period from the cash flows of the underlying transactions. Therefore, taxes paid
are usually classified as cash flows from operating activities. However, when it is practicable to identify
the tax cash flow with an individual transaction that gives rise to cash flows that are classified as
investing or financing activities, the tax cash flow is classified as an investing or financing activity as
appropriate. When tax cash flow are allocated over more than one class of activity, the total amount of
taxes paid is disclosed.
4. Acquisitions and Disposals of Subsidiaries and other Business Units : The aggregate cash flows
arising from acquisitions and from disposals of subsidiaries or other business units should be presented

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separately and classified as investing activities. An enterprise should disclose, in aggregate. in respect
of both acquisition and disposal of subsidiaries or other business units during the period each of the
following
a) The total purchase or disposal consideration and
b) The portion of the purchase or disposal consideration discharged by means of cash and cash
equivalents.
The separate presentation of the cash flow effects of acquisitions and disposals of subsidiaries another
business units as single line items helps to distinguish those cash flows from other cash flows. The cash
flow effects of disposals are not deducted from those of acquisitions.
5. Foreign Currency Cash Flows: Cash flows arising from transactions in a foreign currency should be
recorded in an enterprise’s reporting currency by applying to the foreign currency amount the
exchange rate between the reporting currency and the foreign currency at the date of the cash flow. A
rate that approximates the actual rate may be used if the result is substantially the same as would arise
if the rates at the dates of the cash flows were used. The effect of changes in exchange rates on cash and
cash equivalents held in a foreign currency should be reported as a separate part of the reconciliation of
the changes in cash and cash equivalents during the period.
Unrealised gains and losses arising from changes in foreign exchange rates are not cash flows.
However, the effect of exchange rate changes on cash and cash equivalents held or due in a foreign
currency is reported in the cash flow statement in order to reconcile cash and cash equivalents at the
beginning and the end of the period. This amount is presented separately from cash flows from
operating, investing and financing activities and includes the difference, if any, had those cash flows
been reported at the end of period exchange rates.
6. Non-Cash Transactions: Many investing and financing activities do not have a direct impact on current
cash flows although they do affect the capital and asset structure of an enterprise. Examples of non-cash
transactions are
a) The acquisition of assets by assuming directly related activities;
b) The acquisition of an enterprise by means of issue of shares; and
c) The conversion of debt to equity.
Investing and financing transactions that do not require the use of cash or cash equivalents should be
excluded from a cash flow statement. Such transactions should be disclosed elsewhere in the financial
statements in a way that provides all the relevant information about these investing and financing
activities.

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FORMAT OF CASH FLOW STATEMENT

AS-3 (Revised) has not provided any specific format for preparing a cash flow statement. However, an idea
of the suggested format can be inferred from the illustrations appearing in the appendices to the accounting
standard. The cash flow statement should report cash flows during the period classified by operating.
investing and financing activities. A widely used format of cash flow statement (Direct Method) is given
below:
Cash Flow Statement
(For the year ended ………………………..)
Cash Flows From Operating Activities Either ` `
Cash receipts from customers xxx
Cash paid to suppliers and employees (xxx)
Cash generated from operations xxx
Income-tax paid (xxx)
Cash t1os before extraordinary items xxx
Extraordinary items xxx
Net cash from (used in) Operating activities xxx
Or
Net profit before tax and extraordinary items xxx
Adjustments for non-cash and non-operating items
(List of individual items such as depreciation, foreign exchange loss, loss sale of xxx
fixed assets, interest income, dividend income, interest expense etc.)
Operating profit before working capital changes xxx
Adjustments for changes in current assets and current (List of individual items) xxx
Cash generated from (used in) operations before tax xxx
Income Tax paid xxx
Cash flow before extraordinary items xxx
Extraordinary items (such as refund of tax) xxx
Net cash from (used in)operating activities xxx
Cash Flows From Investing Activities
Individual Items of cash inflows and outflows from financing activities xxx
(such as purchase/sale of fixed assets. purchase or sale of investments, interest
received, dividend received etc.
Net Cash front (used in) investing activities xxx

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Cash Flows from Financing Activities

Individual items of cash inflows and outflows from financing activities xxx
(such as) proceeds from issue of shares, long-term borrowings, repayments of long- xxx
term borrowings, interest paid, dividend paid etc.)
Net cash from (used in) financing activities xxx
Net Increase (Decrease) in cash and cash equivalents xxx
Cash and cash equivalents at the beginning of the period xxx
Cash and cash equivalents at the end of the period xxx

Cash Flow Statement

(For the year ended ………………………..)
XYZ Ltd. `
A. Cash Flow From Operating Activities
Net Profit Loss before tax and extraordinary items
Adjustments for:
Depreciation
Gain/Loss on sale of fixed assets
Foreign exchange
Miscellaneous expenditure written off
Investment income
Interest
Dividend
Operating profit before working capital changes
Adjustments for:
Trade and other receivables
Inventories
Trade Payables
Cash generated from operations
Interest paid
Direct taxes paid
Cash flow before items
Extraordinary items
Net Cash fans operating Activities
B. Cash Flow From Investing Activities

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Purchase of fixed assets

Sales of fixed assets
Purchase of investments
Sale of investments
Interest received
Dividend received
Net Cash from /used in investing activities
C. Cash Flow from Financing Activities
Proceeds from issue of share capital
Proceeds from long-term borrowings/banks
Payment of long-term borrowings
Dividend paid
Net Cash from/ used in financing activities
Net Increase/Decrease in Cash and Cash Equivalents
Cash and Cash Equivalents as at....... (Opening Balance)
Cash and Cash Equivalents as at (Closing Balance)

Difference Between Funds Flow Statement and Cash Flow Statement

Basis of Difference
1. Basis of Concept
2. Basis of Accounting
3. Schedule of changes in
working Capital
4. Method of Preparing
Funds Flaw Statement Cash Flow Statement
It is based on a wider concept of It is based on a narrower
funds, i.e. working capital. concept of funds, i.e. cash.
It is based on accrual basis of It is based on cash basis of
accounting. accounting.
Schedule of changes in working No such schedule of changes in
capital is prepared to show the working capital is prepared.
changes in current assets and
current liabilities.
Fund Flow Statement reveals the It is prepared by classifying all
sources and applications of funds. cash inflows and outflows in
The net difference between terms of operating, investing
sources and applications of funds and financing activities. The net
represents net increase or difference represents the net
decrease in working capital. increase or decrease in cash and

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cash equivalents.
It is useful in planning It is more useful for short-term
5. Basis of Usefulness intermediate and long term analysis and cash planning of
financing. the business.
Improvement in funds (working Improvement in cash position
capital) position of a firm does not results in improvement of funds
6. Basis of Improvement
necessarily lead to improvement (working capital) position of the
in cash position. firm.
The opening and closing balances The balances of cash and cash
of cash are included in the equivalents at the beginning and
7. Cash and Cash Equivalents schedule of changes in working at the end of the period arc
capital. shown in the cash flow
statement.

Problem 1
From the summary Cash Amount of Sunny Ltd. prepare Cash Flow Statement for the year ended 31st
March, 2011 in accordance with AS-3 (Revised) using the direct method. The company does not have any
cash equivalents.
Summary Cash Account
(For the year ended 31.3.2011)
`000 `000
Balance on 1.4.2010 100 Payment of suppliers 4,000
issue of equity shares 600 Purchase of fixed assets 400
Receipts from customers 5,600 Overhead expenses 400
Sale of fixed assets 200 Wage and salaries 200
Taxation 500
Dividend 100
Repayment of bank loan 600
Balance on 31.3.2011 300
6,500 6,500

Problem 2
The following details are available from a company.

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31-12-10 31-12-11 31-12-10 31-12-11

` ` ` `
Share Capital 70,000 74,000 Cash 9,000 7,800
Debentures 12,000 6,000 Debtors 14,900 17,700
Reserve for doubtful debts 700 800 Stock 49,200 42,700
Trade Creditors 10,360 11,840 Land 20,000 30,000
P/LA/c 10,040 10,560 Goodwill 10,000 5,000
1,03,100 1,03,200 1,03,100 1,03,200

In addition, you are given:

1. Dividend paid total `3,500.
2. Land was purchased for `10,000.
3. Amount provided for amortisation of goodwill `5,000.
4. Debentures paid off `6,000.
Prepare Cash Flow Statement.

Problem 3
The Balance Sheets of M/s A and B on 1.1.2007 and 3 1.12.2007 were as follows:
Liabilities 1.1.2007 31.12.2007 Assets 1.1.2007 31.12.2007
Creditors 1,20,000 1,32,000 Cash 30,000 21,000
Mrs. A’s Loan 75,000 - Debtors 90,000 1,50,000
Loan from Bank 1,20,000 1,50,000 Stock 1,05,000 75,000
Capital 3,75,000 4,59,000 Machinery 2,40,000 1,65,000
Land 1,20,000 1,50,000
Building 1,05,000 1,80,000
6,90,000 7,41,000 6,90,000 7,41,000

During the year a machine costing `30,000 (accumulated depreciation `9,000) was sold for `15.000.The
provision for depreciation against machinery as on 1.1.2007 was `75,000 and on 31.12.2007 `1.20,000. Net
profit for the year 2007 amounted to `1,35.000.
Prepare Cash Flow Statement.

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Problem 4
The comparative Balance Sheets for X Ltd. are given below:
31st Dec. 2011 31st Dec. 2010
` `
Assets:
Cash 82,000 22,000
Debtors 1,04,000 24,000
Stock 1,12,000 60,000
Prepaid Expenses 22,000 14,000
Plant and Machinery 3,80,000 3,60,000
Goodwill 36,000 40,000
7,36,000 5,20,000
Liabilities:
Creditors 30,000 14,000
Provision for Depreciation 1,00,000 60,000
Debentures 1,02,000 1,02,000
Premium on Debenture Issue 12,000 18,000
Share Capital 1,90,000 90,000
Share Premium 30,000 -
Reserves and Surpluses 2,72,000 2,36,000
7,36,000 5,20,000

The following additional information is available from the accounting records for 2011
1) Net Profit for the year `66,000.
2) Debenture Premium of `6,000 was amortised during the year.
You are required to prepare a Cash Flow Statement.

Problem 5
Following are the summaries of the Balance Sheets of a limited company as on 31st March:
2009 2010 2009 2010
` ` ` `
Share Capital 2,00,000 2,60,000 Cash at Bank 2,500 2,700
Sundry Creditors 39,500 41,135 Debtors 85,175 72,625
Bills Payable 33,780 11,525 Advances 2,315 735

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Bank Overdraft 59,510 - Stock 1,11,040 97,370

Provision for Tax 40,000 50,000 Land and Building 1,48,500 1,44,250
Reserves 50,000 50,000 Plant and Machinery 1,12,950 1,16,200
Profit & Loss Account 39,690 41,220 Goodwill - 20,000
4,62,480 4,53,880 4,62,480 4,53,880
Following additional information is available from the books:
i) During the year ended 31-3-2010, an additional dividend of `26,000 was paid.
ii) The assets of another company were purchased for `60,000 payable in fully paid shares of the
company. These assets consisted of stock `21,640, machinery `18,360 and goodwill `20,000. In
addition sundry purchases of plant were made totaling`5,650.
iii) Income tax paid during 2009- 10 was `25,000.

Problem 6
From the following summarized financial statements of Exway Ltd. as at 31st March, 2009 and 31st March
2010 respectively prepare Cash Flow Statement by Indirect Method.
Capital & Liabilities as at as at Property & Assets 31-3-2009 31-3-2010
31-3-2009 31-3-2010
` ` ` `
Share Capital: Land at cost 2,00,000 2,00,000
10% Redeemable Building at cost
Preference Share less Dep. 3,00,000 2,75,000
Capital 10,00,000 5,00,000 Plant & Mach.
Equity Share Capital at cost
Of `10 each Less Dep. 27,00,000 30,00,000
fully paid 30,00,000 32,00,000 Investments
Securities Premium 3,00,000 2,70,000 (at cost) 8,00,000 8,50,000
Capital Redemption Stock in Trade 16,00,000 26,00,000
Reserve - 3,00,000 Book Debts 20,00,000 18,75,000
General Reserve 5,00,000 3,00,000 Loans & Advances 3,50,000 1,75,000
Profit & Loss A/c 3,20,000 4,30,000 Cash & Bank
Secured Loan 8,80,000 9,70,000 Balances 50,000 25,000
Proposed Dividend 4,00,000 5,30,000
Sundry Creditors 16,00,000 25,00,000
80,00,000 90,00,000 80,00,000 90,00,000

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a) During the year 5,000 redeemable preference shares of `100 were redeemed at a premium of 10%. The
premium was paid out of securities premium account. For this purpose 20,000 equity shares were
issued fully paid for cash at a premium of 10%. The Capital Redemption Reserve was credited out of
transfer from General Reserve.
b) Depreciation provided during the year was : on Building `25,000 ; on Plant and Machinery`3.00,000.
c) A plant (original cost `95,000. depreciation provided till 31-3-2009 `78,000) was sold for`35,000 and
profit on sale was transferred to Profit and Loss A/c.
d) Dividend proposed for 2009 was fully paid in 2010.

Problem 7
BALANCE SHEET
as at Jan. 1 and Dec. 31, 2010
Liabilities Jan. 1 Dec. 31 Assets Jan. 1 Dec. 31
` ` ` `
Current Liabilities 30,000 32,000 Cash and Bank Balance 40,000 44,400
Bonds Payable 22,000 22,000 Accounts Receivable 10,000 20,700
Bonds Payable Discount (2,000) (1,800) Inventories 15,000 15,000
Capital Stock 35,000 43,500 Land 4,000 4,000
Retained Earnings 15,000 19,500 Business Premises 20,000 16,000
Plant & Equipment 15,000 17,000
Accumulated Dep. (5,000) (2,800)
Patents & Trademarks 1,000 900
1,00,000 1,15,200 1,00,000 1,15,200

Additional Information:
i) A building that costs `4,000 and which had a book value of`1,000 was sold for` 1,400.
ii) The depreciation charge for the period was`800.
iii) There was a`5,000 issue of capital stock.
iv) Cash dividends of`2,000 and a stock dividend of `3,500 were declared.

Problem 8
The comparative Balance Sheets and Income Statement of Krishna Ltd. are given below:
Liabilities 31-3-2010 31-3-2009 Assets 31-3-2010 31-3-2009
` ` ` `
Creditors 32,500 37,000 Cash 46,000 28,900

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Wages payable 4,600 7,500 Debtors 41,000 45,000

Income tax payable 7,000 5,000 Inventories 48,000 51,000
Mortgage note payable Prepaid expenses 4,100 3,700
2010 1,00,000 - Machinery 3,30,000 3,10,000
Equity share capital Accumulated
`20 per value 4,00,000 3,50,000 depreciation:
Securities premium 55,000 45,000 Machinery (1,31,000) (1,85,000)
Profit and Loss Buildings 5,80,000 4,75,000
appropriation account 1,54,100 1,19,100 Accumulated
depreciation:
Buildings (2,25,000) (2,15,000)
Land 60,000 50,000
7,53,100 5,63,600 7,53,100 5,63,600

Additional information:
i) Dividends of `40,000 were declared during the year.
ii) Machinery with an original cost of `80,000 and accumulated depreciation of `74,000was sold during
the year for`6,000 cash. New machinery was also purchased for`1,00,000 cash.
iii) Land and buildings were acquired during the year at a cost of`1,15,000. In addition to the down
payment of? 15,000, a ten year 10% mortgage note for `1,00,000 was issued to the vendor.
INCOME STATEMENT
for the year ended March 31, 2010
`
Sales 8,10,000
Cost of goods sold 4,60,000
Gross profit on sales 3,50,000
Operat.ing expenses:
Depreciation expenses—machinery 20,000
Depreciation expenses—buildings 10,000
Other operating expenses 1,75,500
2,05,500
Income before Income tax 1,44,500
Income tax 69,500
75,000

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Prepare a Cash Flow Statement by Indirect Method as per AS-3 (Revised).

Problem 9
From the following Balance Sheet and information, prepare Cash Flow Statement (by indirect method) of
Ryan Ltd. for the year ended 31st March, 2010:
BALANCE SHEET
Liabilities 31st March 31st March Assets 31st March 31st March
2010 2009 2010 2009
` ` ` `
Equity Share Capital 6,00,000 5,00,000 Land & Building 1,50,000 2,00,000
10% Redeemable Plant & Machinery 7,65,000 5,00,000
Preference Capital --- 2,00,000 Investments 50,000 80,000
Capital Redemption Inventory 95,000 90,000
Reserve 1,00,000 - Bills Receivable 65,000 70,000
Capital Reserve 1,00,000 - Sundry Debtors 1,75,000 1,30,000
General Reserve 1,00,000 2,50,000 Cash and Bank 65,000 90,000
Profit & Loss Account 70,000 50,000 Preliminary 10,000 25,000
9% Debentures 2,00,000 - Expenses
Sundry Creditors 95,000 80,000 Voluntary Separation
Bills Payable 20,000 30,000 Payments 1,25,000 65,000
Liabilities for Expenses 30,000 20,000
Provision for tax 95,000 60,000
Proposed dividend 90,000 60,000
15,00,000 12,50,000 15,00,000 15,50,000

Additional Information:
i) A piece of land has been sold out for `1,50,000 (Cost—`1.20,000) and the balance land was revalued.
Capital Reserve consisted of Profit on sale and profit on revaluation.
ii) On 1st April, 2009 a plant was sold for `90,000 (Original Cost—`70,000 and W.D.V.—`50.000) and
Debentures worth `1 lakh was issued at par as part consideration for Plant of`4.5 lakh acquired.
iii) Part of the investments (Cost—`50,000) was sold for `70,000.
iv) Pre-acquisition dividend received `5,000 was adjusted against cost of Investment.
v) Directors have proposed 15% dividend for the current year.
vi) Voluntary separation cost of `50,000 was adjusted against General Reserve.
vii) Income-tax liability for the current year was estimated at `1,35,000.
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viii) Depreciation @ 15% has been written off from Plant Account but no depreciation has beencharged on
Land and Building. (PE-II)

Problem 10
From the following Balance Sheets of XYZ Co. Ltd. for the years 2010 and 2011, prepare a Cash Flow
Statement:
Assets ` 2010 ` ` 2011 `
Land 1,83,000 1,98,000
Plant and Machinery 6,00,000 7,25,000
Less: Cumulative Depreciation 1,20,000 1,45,000
4,80,000 5,80,000
Shares in Subsidiary Co. 30,000 40,000
Inventory Stock 1,85,000 1,48,000
Sundry Debtors 1,20,000 1,62,000
Bank Balance 67,000 98,000
10,65,000 12,26,000
Liabilities:
Equity Shares of `100 each 4,50,000 6,00,000
Share Premium Nil 15,000
P & L Appropriation A/c 60,000 60,000
Profit for the year Nil 50,000
8% Debentures 2,50,000 2,00,000
Profit on Redemption of Debentures Nil 1,000
Sundry Creditors 2,20,000 1,90,000
Provision for Taxation 40,000 50,000
Proposed Dividend 45,000 60,000
10,65,000 12,26,000

During the year, plant costing `40,000 was sold for `15,000. Accumulated depreciation on plant
was`20.000. Loss on sale of plant was charged to Profit and Less Account. Tax paid during the year was
`55.000.Debentures were partially redeemed on 31st December. 2011. Dividend of `45,000 was paid
during the year.

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Problem 11
A company finds on 1st January, 2008 that it is short of funds with which to implement its programme of
expansion. On 1st January, 2007, it had a bank balance of 1.80.000. From the following information, prepare
a statement for Board of Directors. to show how the overdraft of 68.750 as at 31st
December. 2007. has arisen
Figures as per Balance Sheet as at 31St December of each year are as follows:
2006 2007
` `
Fixed Assets 7,50,000 11,20,000
Stock and Stores 1,90,000 3,30,000
Debtors 3,80,000 3,35,000
Bank Balance 1,80,000 68,750(o/d)
Trade Creditors 2,70,000 3,50,000
Share Capital (in shares of `10 each) 2,50,000 3,00,000
Bills Receivable 87,500 95,000

The profit for the year ended 31st December, 2007 before charging depreciation and taxation
amounted`2,40,000.
The `5,000 shares were issued on 31st January, 2007 at a premium of `5 per share.
`1.37.500 were paid in March, 2007 by way of Income tax. Dividend was paid as follows:
2006 (final) on the capital on 3 1-12-2006 at 10% less tax at 25%.
2007 (interim) 5%.

Problem 12
BALANCE SHEET
(`000)
Liabilities 31-3-2009 31-3-2010 Assets 31-3-2009 31-3-2010
Equity Share Capital 1,250 1,500 Fixed Assets 1,910 2,180
Reserves 1,380 3,330 Less: Depreciation 1,060 1,450
Debentures 1,040 1,110 850 730
Creditors 1,890 150 Long-term Investment 2,500 2,500
Interest Payable 100 230 Inventories 1,950 900
Provision for Tax 1,000 400 Trade Debtors 1,200 1,700
Cash and Bank 160 790

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 Cash Flow Statement

Interest Receivable - 100

6,660 6,720 6,660 6,720

INOCME STATENT
for the year 2009-10
( `000)
Sales 30,650
Less: Cost of Goods Sold 26,000
Gross Profit 4,650
Less: Depreciation 450
Interest 400
Advertisement 950
1,800
2,850
Add: Interest income 300
Dividend 200
500
3,350
Add: Insurance claim for earthquake loss 180
3,530
Less: Income-tax Provision 260
Net Profit 3,270

Additional information:
i) Plant having cost of `80,000 and accumulated depreciation of `60,000 was sold for`20,000.
ii) Debentures of `1,80,000 were redeemed during the year.
iii) Out of the interest expenses of `4,00,000, `2,70,000 were paid during the year.
iv) Dividend (including corporate dividend tax) `13,20,000 was paid during the year. (C.S. Inter)

Problem 13
Given below are the condensed Balance Sheets of Lambakadi Ltd. for two years and the statement of Profit
and Loss for one year:

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 Cash Flow Statement

As at 31st March (Figures in `1akhs)

2010 2009 2010 2009
Share Capital Fixed assets less
In equity shares of depreciation 130 100
`100 each 150 110 Long term investments 40 50
10% redeemable Working capital 80 100
preference
Shares of `100 each 10 40
Capital redemption
reserve 10 -
General reserve 15 10
Profit and loss account
balance 30 20
8% debentures with
convertible option 20 40
Other term loans 15 30
250 250 250 250

Statement of Profit and Lose for the year ended 31st March, 2010
(Figures in r lakhs)
Sales 600
Less cost of sales 400
200
Establishment charges 30
Selling and distribution expenses 60
Interest expenses 5
Loss on sale of equipment (Book value `40 lakhs) 15
110
90
Interest income 4
Dividend income 2
Foreign exchange gain (due to changes in exchange rate son 10
cash and cash equivalents held in a foreign country)
Damages received for loss of reputation 14

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 Cash Flow Statement

30
120
Depreciation 50
70
Taxes 30
40
Dividends (for the year paid off) 15
Net profit carried to Balance Sheet 25

You are informed by the accountant that ledgers relating to debtors, creditors and stock for both the years
were seized by the income-tax authorities and it would take at least two months to obtain copies of the
same. However, he is able to furnish the following data:
(Figures in r lakhs)
2010 2009
Dividend receivable 2 4
Interest receivable 3 2
Cash on hand and with bank 7 10
Investments maturing within two months 3 2
15 18
Interest payable 4 5
Taxes payable 6 3
10 8
Current ratio 1.5 1.4
Acid test ratio 1.1 0.8

It is also gathered that debenture-holders owning 50% of the debentures outstanding as on 31-3-2009
exercised the option for conversion into equity shares during the financial year and the same was put
through.
You are required to prepare a direct method cash flow statement for the financial year, 2010 in accordance
with Accounting Standard (AS) 3 revised. (C.A. Final)

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