Illustration 1

From the following Trading and Profit and Loss Account of Kaveri Ltd., you are required to
ascertain cash from operations.

Trading and Profit & Loss A/c for the year ending 31-3-1999

Particulars Rs. Particulars Rs.

To cost of goods sold 2,40,000 By sales 4,00,000
To gross profit c/d 1,60,000
4,00,000 4,00,000
To stationery 6,000 By gross profit b/d 1,60,000
To depreciation 14,000
To salaries 20,000
To Loss on sale of investments 2,000
To rent & taxes 8,000
To discount on issue of debentures 4,000
To postage 3,000
To provision for tax 20,000
To proposed dividend 10,000
To net profit 73,000
1,60,000 1,60,000
Solution:

Kaveri Ltd.
Statement showing cash from operation for the year ending 31-3-1999
Particulars Rs. Rs.
Net profit as per P & L A/c 73,000
Add: Non cash and non operating expenses and losses
debited to P & L A/c
Depreciation 14,000
Loss on sale of investments 2,000
Discounts on issue of debentures 4,000
Provision for tax 20,000
Proposed dividend 10,000 50,000
Funds from operation 1,23,000
Add: Increase in current liabilities/decrease in current assets -
1,23,000
Less: Decrease in current liabilities/increase in current assets -
Cash from operation 1,23,000
Illustration 2
Ascertain cash from operation for the year 1999 from the following Balance Sheets:
Liabilities 1998 Rs. 1999 Rs. Assets 1998 Rs. 1999 Rs.
Share capital 5,00,000 5,00,000 Buildings at cost 3,00,000 3,00,000
8% debentures 2,00,000 2,00,000 Depreciation thereon (20,000) (50,000)
General Reserves 1,00,000 1,40,000 Machinery at cost 2,00,000 2,40,000
P & L A/c 50,000 1,20,000 Depreciation thereon (30,000) (55,000)
Trade creditors 40,000 70,000 Closing stock 1,40,000 2,60,000
Bills payable 30,000 20,000 Trade debtors 2,00,000 3,00,000
Outstanding exp. 10,000 12,000 Cash at bank 1,40,000 67,000
9,30,000 10,62,000 9,30,000 10,62,000
Solution:
Adjusted profit and Loss A/c for the year 1999
Particulars Rs. Particulars Rs.
To transfer to general reserve By balance b/d 50,000
(1,40,000 – 1,00,000) 40,000 By Funds from operation (bal
To depreciation on fig) 1,65,000
Building(50,000 – 20,000) 30,000
Machinery(55,000 – 30,000) 25,000
To balance c/d 1,20,000
2,15,000 2,15,000
Statement of Cash from operations for 1999
Particulars Rs. Rs.
Funds from operations 1,65,000
Add : Increase in current liabilities
Trade creditors (70,000 – 40,000) 30,000
Outstanding expenses ( 12,000 – 10,000) 2,000
Decrease in current assets: - 32,000
Less: Decrease in Current liabilities: 1,97,000
Bills payable (30,000 – 20,000) 10,000
Increase in current assets:
Closing stock (2,60,000 – 1,40,000) 1,20,000
Trade debtors (3,00,000 – 2,00,000) 1,00,000 2,30,000
Cash outflow on account of operations -33,000
Illustration 3
From the following Balance sheets of Arvind Ltd., you are required to prepare a cash flow statement:
Liabilities 1989 Rs. 1990 Rs. Assets 1989 Rs. 1990 Rs.
Share capital 4,00,000 5,00,000 Cash 60,000 94,000
Trade creditors 1,40,000 90,000 Debtors 2,40,000 2,30,000
Profit & Loss A/c 20,000 46,000 Stocks 1,60,000 1,80,000
Land 1,00,000 1,32,000
5,60,000 6,36,000 5,60,000 6,36,000
Solution:
Aravind Ltd.
Cash flow statement for the year 1990
Particulars Rs. Rs.
Opening balance of cash 60,000
Add: Sources of cash
Issue of shares (5,00,000 – 4,00,000) 1,00,000 1,00,000
Total cash available 1,60,000
Less: Applications of cash:
Cash outflow on accounts of operations (W.N.1) 34,000
Purchase of land (1,32,000 – 1,00,000) 32,000
Total applications 66,000
Closing balance of cash 94,000
W. N. 1 :Statement showing cash from operations
Particulars Rs. Rs.
Funds from operations (46,000 – 20,000) 26,000
(increase in profit)
Add: Decrease in debtors (2,40,000 – 2,30,000) 10,000 10,000
36,000
Less: Decrease in creditors (1,40,000 – 90,000) 50,000
Increase in stock (1,80,000 – 1,60,000) 20,000 70,000
Cash out flow on account of operations -34,000

Illustration 4
From the following Balance Sheets as on 31-12-1993 and 31-12-1992, prepare a Cash flow
statement:
Balance Sheets
Liabilities Rs. Rs. Assets Rs. Rs.
Share capital 1,50,000 1,00,000 Fixed assets 1,50,000 1,00,000
Profit & Loss A/c 80,000 50,000 Goodwill 40,000 50,000
General reserve 40,000 30,000 Stock 80,000 30,000
6% debentures 60,000 50,000 Debtors 80,000 50,000
Creditors 40,000 30,000 Bills receivable 20,000 30,000
Outstanding exp. 15,000 10,000 Bank 15,000 10,000
3,85,000 2,70,000 3,85,000 2,70,000
Solution:
Cash flow statement for the year 1993
Particulars Rs. Rs.
Opening balance at bank 10,000
Add: Sources of cash
Issue of shares (1,50,000 – 1,00,000) 50,000
Issue of debentures (60,000 – 50,000) 10,000
Total sources 60,000
Total cash available 70,000
Less: Application of cash:
Outflow of cash on account of operations (W. N. 2) 5,000
Purchase of fixed assets (1,50,000 – 1,00,000) 50,000
Total application 55,000
Closing balance at bank 15,000
W. N. 1 Adjusted profit and loss account
Particulars Rs. Particulars Rs.
To transfer to general reserve By Balance b/d 50,000
(40,000 – 30,000) 10,000 By funds from operations (bal.
To Goodwill written off (50,000 fig) 50,000
– 40,000) 10,000
To Balance c/d 80,000
1,00,000 1,00,000
W. N. 2: Statement of cash from operations
Particulars Rs. Rs.
Funds from operations ( W.N. 1) 50,000
Add: Increase in current liabilities:
Creditors (40,000 – 30,000) 10,000
Outstanding expenses (15,000 – 10,000) 5,000
Decrease in current assets:
Bills receivable (30,000 – 20,000) 10,000 25,000
75,000
Less: Increase in current assets
Stock (80,000 – 30,000) 50,000
Debtors (80,000 – 50,000) 30,000 80,000
Outflow of cash on account of operations -5,000

Illustration 5
From the following Balance Sheets as on 31-12-2003 and 31-12-2004, prepare a Cash flow
statement:
Balance Sheets
Liabilities Rs. Rs. Assets Rs. Rs.
Share capital 3,00,000 3,50,000 Fixed assets 5,10,000 6,20,000
8% debentures 1,00,000 2,00,000 Preliminary Expenses 10,000 5,000
General reserve 80,000 1,00,000 Debtors 40,000 75,000
Creditors 70,000 50,000 Stock 30,000 1,00,000
Bills payable 50,000 60,000 Bank 10,000 --
Bank overdraft -- 40,000
Total 6,00,000 8,00,000 Total 6,00,000 8,00,000
Additional information
a) Provision for depreciation as on 31.12.2003 was Rs.1,50,000 and on 31.12.2004 was
Rs.1,90,000
b) A machine costing Rs.70,000 (depreciation written off Rs.30,000 ) was sold for Rs.
25,000
c) Dividend paid was Rs.30,000

Adjusted profit and loss account

OUFLOW RS INFLOW RS
To Closing balance c/d 1,00,000 By opening balance b/d 80,000
To preliminary expenses 5,000 By Inflow of FFO 1,40,00
Depreciation 70,000
Dividend paid 30,000
Loss on sale of fixed assets 15,000
2,20,000 2,20,000

Statement of Cash flow Operations

 Particulars Rs Rs
Funds from operations 1,40,000
Add: INCREASE IN CURRENT LIABILITIES:
Bills payable (50,000 – 60,000) 10,000
Bank overdraft (nil to 40,000) 40,000
DECREASE IN CURRENT ASSETS: other than CIH &CAB
Nil 50,000
Less: INCREASE IN CURRENT ASSETS other than CIH &CAB
Stock (30,000 – 1,00,000) 70,000
Debtors (40,000 – 75,000) 35,000
DECREASE IN CURRENT LIABILITIES
Creditors (70,000 – 50,000) 20,000 1,25,000
Inflow of cash from operations 65,000

Cash flow statement

Sources Rs Application Rs
Opening balance bank 10,000 Closing balance bank Nil
Issue of shares 50,000 Purchase of fixed asset 2,20,000
Issue of debentures 1,00,000 Dividend paid 30,000
Sale of fixed asset 25,000
Inflow of CFO 65,000
2,50,000 2,50,000

Fixed asset account

rs Rs
To balance c/d (5,10,000 + 2,20,000) 6,60,000 By depreciation 30,000
To sale of FA 2,20,000 By cash 25,000
By loss on sale of FA 15,000
By balance c/d 8,10,000
(6,20,000+1,90,000)
8,80,000 8,80,000
Following are the summarized balance sheets of arul limited as on 31st December 2003 and
2004
Balance Sheets
Liabilities 2003Rs. 2004Rs. Assets 2003Rs. 2004Rs.
Share capital 1,00,000 1,50,000 Land and building 1,00,000 90,000
General reserve 50,000 60,000 Plant and machinery 1,00,000 1,19,000
Profit and loss account 30,500 30,000 Stock 50,000 24,000
Bank loan 70,000 -- Debtors 75,000 63,200
Sundry Creditors 50,000 37,200 Cash in hand 500 1,000
Provision for taxation 32,000 35,000 Cash at bank 2,000 15,000
Good will 5,000 --
Total 3,32,500 312,200 Total 3,32,500 312,200
Additional information
During the year ended 31st December 2004
a) Dividend paid was Rs.23,000
b) Depreciation written off on building Rs.10,000 and Machinery Rs.14,000
c) Income tax paid during the year Rs.28,000
ADJUSTED PROFIT AND LOSS ACCOUNT
OUFLOW RS INFLOW RS
To Closing balance c/d 30,000 By opening balance b/d 30,500
To general reserve provision 10,000 By Inflow of FFO 92,500
To provision for taxation 31,000
To good will written off 5,000
To dividend 23,000
To depreciation on building 10,000
To depreciation on machinery 14,000
1,23,000 1,23,000
STATEMENT OF CASH FLOW OPERATIONS
Particulars Rs Rs
Funds from operations: Inflow 92,500
Add: INCREASE IN CURRENT LIABILITIES:
Nil
DECREASE IN CURRENT ASSETS: other than CIH &CAB
Stock (50,000 – 24,000) 26,000
Debtors (75,000 – 63,200) 11,800 37,800
Less: INCREASE IN CURRENT ASSETS other than CIH &CAB
Nil
DECREASE IN CURRENT LIABILITIES
Creditors (50,000 –37,200) 12,800 12,800
Inflow of cash from operations 1,17,500
 CASH FLOW STATEMENT
Sources Rs Application Rs
Opening balance: Cash in hand 500 Closing Balance: Cash in hand 1,000
Cash at bank 2,000 Cash at bank 15,000
Issue of shares 50,000 Bank loan repayment 70,000
Inflow of CFO 1,17,500 Purchase of Machinery 33,000
Dividend paid 23,000
Income tax paid 28,000
1,70,000 1,70,000

PREPARATION OF FUND FLOW STATEMENT

Statement of changes in working capital
Particulars 2003 2004 Increase Decrease
Current assets
Stocks 50,000 24,000 26,000
Debtors 75,000 63,200 11,800
Cash in hand 500 1,000 500
Cash at bank 2,000 15,000 13,000
Total 1,27,500 1,03,200
Current liabilities
Sundry creditors 50,000 37,200 12,800
Total 50,000 37,200
Working capital (CA-CL) 77,500 66,000
Decrease in WC 11,500 11,500
Total 77,500 77,500 37,800 37,800

Fund flow statement

Sources Rs Application Rs
Decrease in working capital 11,500 Bank loan repayment 70,000
Inflow of fund flow operation 92,500 Purchase of Machinery 33,000
Issue of share capital 50,000 Dividend paid 23,000
Income tax paid 28,000
1,54,000 1,54,000
 Land and building
Particulars Rs Particulars Rs
To balance b/d 1,00,000 By depreciation 10,000
By balance c/d 90,000
1,00,000 1,00,000
Plant and Machinery
Particulars Rs Particulars Rs
To balance b/d 1,00,000 By depreciation 14,000
33,000 By balance c/d 1,19,000
1,33,000 1,33,000

Provision for Taxation

Particulars Rs Particulars Rs
To balance c/d 35,000 By adjusted p & l a/c 31,000
To cash a/c 28,000 By balance b/d 32,000
63,000 63,000